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October 2018

The Brexit saga is quickly coming to a head, but it is increasingly unclear which direction it is headed.

Replay this webinar as Mark Zandi and Barbara Teixeira Araujo assess the global macroeconomic implications of the range of possible scenarios from No Brexit to No Deal. We use the Moody’s Analytics Global Macroeconomic Model to explore the economic fallout from Brexit.

Click here to view the presentation slides

Related Insights
Article

Weekly Market Outlook: Medium-Grade's Worry Differs from High-Yield's Complacency

The investment-grade bond market appears more anxious about the future than the high-yield bond market. A now well above-trend Baa industrial company bond yield spread warns of a wider high-yield bond spread. To the contrary, a trend-like high-yield spread favors a thinner Baa spread. In all likelihood, if the still positive outlook for profits holds, the high-yield bond spread will prove to be more prescient than the now swollen Baa spread.

December 2018 Pdf John Lonski, Yukyung Choi, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Kristopher Cramer, Ryan Sweet, Michael Ferlez
Article

Slower Growth amid High Leverage Lessens Upside for Interest Rates

Both the sell-off of equities and the very limited and slight inversion of the Treasury yield curve at the three- and five-year maturities hint of a possible pause for the latest series of Fed rate hikes. Since September 26's last hiking of fed funds to 2.125%, the 10-year Treasury yield has dropped from 3.05% to a recent 2.87%, and the five-year Treasury yield has sunk from 2.95% to 2.74%.

December 2018 Pdf John Lonski, Ryan Sweet, Katrina Ell, Yukyung Choi, Barbara Teixeira Araujo, Michael Ferlez
Article

Gauging CECL Cyclicality

In this paper, we provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard.

December 2018 Pdf Mark Zandi, Dr. Cristian deRitis

Weekly Market Outlook: Core Profit's Positive Outlook Lessens Downside

Profitability will have the final say regarding the future direction of the corporate credit cycle. Each of the five deep and extended contractions by profits since 1982 helped to lift the high-yield default rate well above 5%. Moreover, three of the five pronounced downturns by profits overlapped each of the recessions since 1982. For now, the outlook for corporate earnings benefits from the surprising containment of employee compensation notwithstanding the lowest unemployment rate in 49 years.

November 29, 2018 Pdf Barbara Teixeira Araujo, Yukyung Choi, Katrina Ell, Michael Ferlez, John Lonski, Ryan Sweet
Article

Weekly Market Outlook: Unprecedented Amount of Baa-Grade Bonds Menaces the Credit Outlook

Greater uncertainty surrounding the sustainability of corporate earnings growth has adversely affected the performance of medium- and lower-grade corporate bonds. If fears over the adequacy of future corporate earnings persist, the upside for benchmark U.S. interest rates is probably well under consensus expectations.

November 2018 Pdf John Lonski, Yukyung Choi, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Gridlock Stills Fiscal Policy and Elevates Fed Policy

Gridlock is here. Because of the constraints placed on fiscal policy by a Democratic House and a Republican Senate, the Federal Reserve's role at assuring an adequate rate of economic growth has been magnified. Though currently not a pressing issue, a widely anticipated deceleration of corporate revenues and profits may eventually influence Fed policy. Such slowdowns increase the risk of widespread cutbacks in business outlays on capital goods and staff. A severe enough retrenchment in business spending would quickly end the current episode of monetary firming. Both equities and corporate bonds can transcend the slower growth of corporate earnings. However, if an unbending climb by benchmark interest rates amid continually slower profits growth triggers expectations of a prolonged shrinkage of earnings, share prices will sink and corporate credit spreads will swell.

November 2018 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Net Stock Buybacks and Net Borrowing Have Yet to Alarm

Recent outsized advances by equity prices probably owe something to either actual or anticipated buybacks of common stock. Both the relative steadiness of corporate credit quality and ample amounts of corporate cash now improve the outlook for equity buybacks. In the Financial Accounts of the United States, the Federal Reserve supplies an estimate of net equity buybacks, where the estimate applies to net buybacks of both common and preferred equity. Because of an often heavy use of preferred stock by financial companies, net buybacks of nonfinancial-corporate equity are the preferred measure when analyzing the behavior of net equity buybacks over time. For example, the $55 billion of total net equity buybacks for the year-ended June 2018 consisted of $485 billion of net stock buybacks by U.S. nonfinancial companies and $281 billion of net equity issuance by U.S. financial institutions.

November 2018 Pdf John Lonski, Yukyung Choi, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Financial Liquidity Withstands Equity Volatility for Now

Higher interest rates and trade related frictions, including the effective tax hikes brought on by the imposition of tariffs, have lowered the market value of U.S. common stock by 8.1% from its current zenith of September 20, 2018. Thus far, systemic financial liquidity has yet to suffer materially from the latest bout of equity market volatility. However, liquidity will be adversely affected if a further weakening of the equity market substantially increases the cost of both equity and debt capital. A persistently volatile equity market risks swelling the uncertainty surrounding the valuation of business assets. In turn, capital spending and business outlays on staff may be less than otherwise.

October 2018 Pdf John Lonski, Yukyung Choi, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Pride and Protectionism: U.S. Trade Policy and Its Impact on Asia

Crafting economically sound trade policy is easier said than done.

October 2018 Pdf Mark Zandi, Steven CochraneRyan Sweet
Article

Weekly Market Outlook: Stepped Up Use of Loan Debt May Yet Swell Defaults

Credit quality benefits to the degree a borrower has locked in continued access to debt capital and has capped the interest expense of outstanding debt. Basically, long-term debt having a fixed interest rate is preferred to short-term debt having a variable interest rate. Through the first nine months of 2018, U.S. corporate bond issuance incurred year-over-year setbacks of 21% for investment-grade (to $698.9 billion) and 25% for high-yield (to $151.5 billion).

October 2018 Pdf John Lonski, Yukyung Choi, Franklin Kim, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
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