trending Market Intelligence /marketintelligence/en/news-insights/trending/1koyav9i6ofsxfpb9kqptg2 content
BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
PRIVACY & COOKIE NOTICE
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *

* Required

In this list

Equity markets, banks welcome Bank of Japan policy revamp

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Equity markets, banks welcome Bank of Japan policy revamp

Bill Witherell isCumberland Advisors' chief global economist. He joined Cumberland after yearsof experience at the OECD in Paris. The views and opinions expressed in thispiece represent only those of the author and are not necessarily those ofS&P Global Market Intelligence.

Investors around the globe had anxiously awaited the resultsof Wednesday's meeting of Japan's central bank, the Bank of Japan. Japan is thethird-largest economy in the world after the U.S. and China. It has beensuffering from weak economic growth for the past two decades, along withstubborn deflation, ever-rising government debt, and an aging and decliningpopulation. The BOJ has pursued quantitative easing, first during 2003-2006 andthen on a much more massive scale since April 2013. This past January the BOJannounced it would supplement its QE program by setting a negative policyinterest rate. These policies have clearly lowered interest rates and pumpedenormous liquidity into the Japanese economy. However, spending by consumersand businesses has remained sluggish, and there has been no progress toward theBOJ's objective of 2% inflation. Indeed, consumer prices may register a smalldecline for the current year, with GDP growth of only about 0.5%.

The BOJ on Wednesday announced a major resetting of itsmonetary policy, based on a "comprehensive assessment of the developmentsin economic activity" under its policy of "quantitative andqualitative monetary easing (QQE)" together with "negative (policy)interest rate" and a "price stability target of 2%." Therevamped policy is called "QQE with Yield Curve Control" and iscombined with an "'inflation-overshooting commitment' in which the Bankcommits itself to expanding the monetary base until the year-on-year rate ofincrease in the observed consumer price index (CPI) exceeds the price stabilitytarget of 2% and stays above the target in a stable manner." These arevery significant changes.

The yield curve control policy means the BOJ is now going tofocus on the yield curve and, more specifically, target the yield on 10-yearJapanese government bonds (JGBs) "so that 10-year JGB yields will remainmore or less at the current level (around zero percent)." The bankabolished its guideline for the average remaining maturity of its JGBpurchases, which had led to buying fixed quantities of JGBs at variousmaturities. It has moved to a more flexible policy of adjusting the volume ofasset purchases in the short run to control bond yields while still keeping thelonger-term target of expanding its JGB portfolio by about ¥80 trillionannually. These changes toward rate targeting and increased flexibility in theBank's quantitative easing should dampen the debate about the possibility ofthe bank running out of assets to buy and should address concerns about theexcessive flattening of the yield curve and the adverse effects of the negativepolicy interest rate on banks and pension funds. The bank kept unchanged (atnegative 0.1%) the negative rate it imposes on bank reserves held at the bank.It can now lower this rate further if warranted while still maintaining thetargeted 10-year yield at the present level.

The change in the inflation policy target to one ofovershooting the 2% rate "in a stable manner" is clearly a dovishmove, signaling to markets the strength of the BOJ's commitment to press aheadwith all means at its disposal to counter deflationary tendencies and achieveits price stability objective. This implies that monetary base expansion willbe continued indefinitely.

There was also an important adjustment to the bank's programof purchasing Japanese equities. While the total amount of equities purchasedremains unchanged, the bank will reduce the purchases of ETFs that track theNikkei 225 stock average and buy more ETFs that track the much broader TOPIXindex. This change responds to concerns that the previous emphasis on theNikkei was distorting prices in that market. The TOPIX bounced 2.7% Wednesday,compared with the Nikkei 225's advance of 1.9%.

We consider this policy revamp by the Bank of Japan to bepositive for the Japanese economy and its asset markets. The bank's targetingof the 10-year bond rate while increasing the flexibility of its quantitativeeasing and maintaining its negative policy interest rate is clearly a move intouncharted waters. BOJ Governor Haruhiko Kuroda stated that controlling theyield curve is "quite doable." It will likely be a challenge. Thereis no immediate increase in monetary policy stimulus from the policy reset. Thechanges should, however, reduce the negative effects of the bank's policy andmake it more sustainable and easier to expand in the future. The new inflationtarget should give a needed boost to inflation expectations. These developmentsmay eventually lead to some easing in the exchange rate for the yen, althoughthe expected steepening of the yield curve and the U.S. Fed's delay in raisingrates could work against yen depreciation.

The BOJ's outlook for the Japanese economy is "amoderate expanding trend." Exports are expected to remain"sluggish," as is production. Monetary policy will remain supportive,and fiscal stimulus is projected to increase. Progress on economic reforms ispromised and is greatly needed.

Japan's equity markets responded favorably to the new BOJ policies,as noted above. The Japan ETFs that are currently in Cumberland's Internationaland Tactical Trend Portfolios are reflecting this movement. The iShares MSCIJapan ETF, EWJ, rose 2.93% Wednesday, and is up 5.28% for the year-to-date. TheiShares MSCI Japan Small-Cap ETF, SCJ, advanced 2.54% and is up 7.34%year-to-date. The currency-hedged WisdomTree Japan Hedged Equity ETF, DXJ, rosea more modest 1.97% as the yen increased by about 1.3% versus the U.S. dollar.The 19% increase in the yen-USD exchange rate this year is reflected in DXJ'syear-to-date decline of 13.41%. If the yen does start to decline as the BOJpolicy changes take hold, this ETF will continue to recover, likelyoutperforming unhedged Japan ETFs.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

Learn more about Market Intelligence
Request Demo

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).


Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

Learn more about Market Intelligence
Request Demo

Q4'18 multichannel video losses propel full-year drop to edge of 4 million

Learn more

Q4'18 multiproduct analysis sheds more light on video's fall from grace

Learn more

Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

Learn more about Market Intelligence
Request Demo

Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

Learn more about Credit Analysis
Click Here

  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

Learn more about Market Intelligence
Request Demo

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

Learn More