US: Business Cycle Barometer, Corporate Credit Outlook | China: Deflation Risks, Chang on Bloomberg | 5 Liquidity Questions | Private Markets Monthly

Welcome to the latest edition of Essential Economics! This week, we focus on the US and China with a double shot of insights from each country. US Chief Economist Satyam Panday issued an update of his business cycle barometer showing that recession risks have fallen; Head of US Credit Research David Tesher leads a team looking at corporate credit and where we expect further deterioration, particularly at the lower end of the ratings scale. APAC Chief Economist Louis Kuijs weighed in on China’s deflation risks and where he sees strains in the goods markets. Head of China Corporate Credit Charles Chang appeared on Bloomberg Markets to share his views on the implications of the liquidation of property giant Evergrande. Head of Credit Market Research Patrick Drury Byrne and team ask – and answer – five key questions about liquidity in 2024. Finally, Global Head of Private Markets Ruth Yang released the latest Private Markets Monthly newsletter where she interviews the five S&P Global divisional presidents on how we provide transparency, benchmarks, and data to power the future of capital. Enjoy!

US Business Cycle Barometer: Recession Risk Moderates

Satyam reports that the probability of a U.S. recession within the next 12 months has moderated since the middle of last year but remains elevated (relative to baseline) at 25%-30%. We expect below-trend growth in the coming quarters, given a mixed bag of leading indicators.

Key risks include conflicts in the Middle East and a potential resurgence in inflation that would threaten the Federal Reserve's expected monetary easing.

To read the full document, click here.

US Corporate Credit: Bumpy Ride To A Soft Landing

David and team write that U.S. corporate earnings will likely improve modestly and we expect further credit deterioration, particularly at the lower end of the ratings scale. Borrowing costs look set to remain elevated and weigh on corporates' ability to service debt and refinance.

The U.S. will likely avoid a near-term recession and settle into a "soft landing", but recession risks remain while labor cost pressure and supply chain constraints could linger.

To read the full document, click here.

China Deflation Risks

Louis writes that despite the real estate downturn, China met its 5% growth target in 2023. But economic momentum at the end of the year was less strong than the headline numbers suggest. We believe falling prices at industry and retail levels point to overcapacity in some major goods markets.

With relatively strong manufacturing investment and soft consumption, the strain on prices and profit margins in goods markets may persist.?

To read the full report, click here. ?

Charles Chang Discusses Evergrande’s Liquidation on Bloomberg

Charles appeared on Bloomberg Markets this week to discuss the implications of property giant Evergrande’s liquidation on the bond market, both within speculative grade and across the real estate sector more generally. He argued that the full effects will take time to play out.

Charles added that the recently announced stimulus plan by the government remains incremental.

To watch the full interview, click here.

Liquidity Outlook 2024: Five Questions, Five Answers

Patrick and team note that the Fed will likely take a more gradual approach to rate cuts than markets have priced in, while the People's Bank of China (PBOC) monetary policy will probably remain accommodative Money market funds (MMFs) on both sides of the Atlantic are playing an increasingly important role in liquidity provision, with U.S.- and EU-domiciled MMF assets almost doubling since 2013. ?

Liquidity is already a key factor in rating performance, influencing 31% of potential downgrades in 2023.

To read the full report, click here.

Private Markets Monthly

In this issue, Ruth interviews S&P Global’s five divisional presidents on how the company provides market participants with transparency across asset classes, benchmarks to measure risks and opportunities, and best-in-class data and insights needed to understand and power the future of capital.

To access the Private Markets Monthly LinkedIn page, click here.