20170921-穆迪服务-Low_Inflation_May_Suppress_Bond_Returns_25页_723kb

Moody's Weekly Market Outlook Summary

Core Content Overview

This report from Moody's Analytics provides an in-depth analysis of credit markets and macroeconomic trends across the US, Europe, and Asia-Pacific. The central theme is the potential impact of low inflation on bond returns and the broader implications for financial markets.

Main Points

1. Low Inflation and Bond Returns

• Low inflation is expected to suppress bond returns due to subdued price growth and a subdued outlook for core consumer price inflation.
• The Federal Reserve (FOMC) is projected to maintain a gradual tightening of monetary policy, with one additional rate hike in 2018 and three in 2019.
• Vanguard Group forecasts 2% to 3% bond returns over the next decade, which is lower than the FOMC's long-term rate projections and the 10-year Treasury yield forecasts.
• Core PCE inflation is expected to remain below 2% through 2018, and possibly through 2027, if wage growth does not accelerate beyond 4% annually.
• Demographic changes, globalization, and technological progress are cited as key factors suppressing inflation and limiting bond returns.

2. Credit Market Outlook

• Investment-grade (IG) bond issuance is expected to rise in 2017, reaching $1.531 trillion, a new record.
• High-yield (HY) bond issuance is projected to increase by 24.9% to $426 billion, though it still lags behind the 2014 peak.
• Credit spreads are anticipated to widen: IG spreads may exceed 115 bp by year-end 2017, and HY spreads could approach 440 bp.
• Default rates for US HY bonds are forecast to average 2.8% in the second quarter of 2018, down from 3.4% in August 2017.

3. Inflation Dynamics

• Core PCE inflation in July 2017 was 1.4%, with consumer durables deflation at -2.0%.
• Consumer services are the main driver of inflation, with a 2.5% annual rate, contrasting with core goods deflation at -0.9%.
• Shelter costs have skewed consumer service inflation higher, but when excluded, core CPI inflation drops to 0.5%, the lowest in years.
• Personal savings rates have fallen to 3.9% in the 12-months-ended July 2017, down from 11.6% in the 1971–1981 period, indicating weaker consumer purchasing power.

4. Market Outlook for the Week Ahead

The US

• The FOMC will announce the start of balance sheet normalization, with initial caps set at $6 billion for Treasuries and $4 billion for agency MBS.
• The Fed is expected to maintain its inflation outlook and keep interest rate risks balanced.
• Jobless claims are forecast to rise to 309,000 in the week ending September 16, influenced by Hurricane Irma.
• The core PCE deflator is expected to slow further, with GDP growth and unemployment rate projections likely to be revised downward.

Europe

• The Bank of England (BoE) is expected to shift toward a more hawkish stance, potentially signaling a rate hike in November.
• UK GDP is expected to grow at 0.5% q/q in Q2, with net exports and consumer spending contributing positively.
• France's GDP is expected to grow at 0.5% q/q, with net exports and government spending driving the headline, while inventories acted as a drag.
• Spain's trade deficit is expected to widen to €1.7 billion in July, due to strong exports and rising oil prices.

Asia-Pacific

• Japan's economy is expected to show slower momentum, with core inflation likely to decelerate to 0.4% y/y in August.
• The Bank of Japan (BoJ) will maintain monetary stimulus, with bond purchases continuing at ¥80 trillion annually.
• Taiwan's industrial production is expected to grow at 2.7% y/y in August, supported by tech cycle demand.
• New Zealand's GDP growth is projected to rise to 0.7% q/q in Q2, driven by strong exports and net migration.
• Singapore's industrial production is expected to decelerate to 15% y/y in August, down from 21% in July.
• Hong Kong's trade deficit is forecast to narrow to HK$28 billion in August.
• Indonesia is expected to keep policy rates unchanged, with the current rate at 4.5%, due to concerns over external stability.

Key Information

• Demographic trends and technological progress are major contributors to low inflation and slow wage growth.
• Globalization has weakened wage growth and inflationary pressures in the US.
• Consumer spending is constrained by low savings rates and income inequality.
• Moody's forecasts a moderate tightening in monetary policy across regions, with limited immediate impact on rates.
• Hurricanes are expected to influence economic data and market sentiment, particularly in the US and Europe.

Summary Table