Global Sovereign Borrowing To Increase By 3% To $7.1 Trillion in 2014
We forecast that global sovereign borrowing will increase by 3% to $7.1 trillion in 2014. Our global report summarizes a series of simultaneously released regional sovereign borrowing and debt reports, which are available on this page.
The Federal Reserve released on Feb. 21 transcripts of the 2008 meetings and conference calls of the Federal Open Market Committee (FOMC), along with supporting material such as staff presentations and draft monetary policy statements. Those interested can now read virtually word for word the discussions and deliberations of the FOMC as it reacted to the financial crisis that erupted in September 2008. For Fed watchers, there is a treasure trove of material, made all the more interesting and valuable because many of the protagonists in the 2008 meetings are still very much front and center of monetary policymaking, and because, five years on, the Fed is still in the easing stage it ratcheted up in that period. The transcripts don't just reveal history; they inform current debates. Having read all the transcripts for the meetings from September 2008 on, Paul Sheard will offer a few observations and thoughts.
Defense Contractors See Few Surprises In The Fiscal 2015 U.S. Defense Budget And 2014 Quadrennial Review
The fiscal 2015 U.S. defense budget request and 2014 Quadrennial Defense Review (QDR), which the U.S. Department of Defense (DoD) released on March 4, were generally in line with our expectations for flat spending and few program cancellations, and they don't indicate a significant change in U.S. defense spending or strategy. Secretary of Defense Chuck Hagel previewed the budget request in late February, and the total amount was set in the Congressional budget deal in December 2013. The budget contains significant detail on spending for individual weapons programs, and it attempts to protect spending on weapons procurement and research and development by reducing the size of the military, particularly the Army, and related compensation and health care costs. The DoD conducts the QDR every four years to analyze potential threats to the U.S. and propose military strategies and capabilities to address them.
The Bank of England's ultra-loose monetary policy has mostly benefited households via mortgages, but has failed to lift lending to businesses in the U.K. Subdued growth in business credit is at odds with the impressive revival in mortgage credit and the spike in business spending in the last quarter of 2013. Strong housing demand has led to a revival in the U.K. market. Bank mortgage approvals for house purchases in the U.K. rose to their highest point since late 2007, to 76,947 in January. This is more than double what we saw in the thick of the crisis, though still 30,000 below the average during boom years. And gross lending is up 37% year on year in January.
The funding profiles of some small and midsize Russian banks are likely to weaken this year, possibly resulting in some negative rating actions. We see an increasing risk that these banks could suffer outflows of funds, not least because customers have become more nervous after the Central Bank of Russia (CBR) recently revoked the licenses of several banks, including some midsize names. Furthermore, financial markets are seemingly affected by the ongoing turmoil in Ukraine. Added to this, some banks are increasingly relying on borrowing from the CBR as a funding source to expand their asset bases, making them vulnerable to changes in the CBR lending policy.
U.S. Auto Sales SAAR Remained Below Full-Year Estimate In February; Sales Growth Will Likely Moderate In 2014
Light-vehicle sales in the U.S. were roughly flat year over year in February 2014. The seasonally adjusted annual rate (SAAR) of 15.3 million units (according to Ward's AutoInfoBank) remained well below our estimate of 16.1 million units in 2014. Still, we expect a 4% improvement for the remainder of 2014, despite the soft start to the year. Adverse weather conditions may have kept potential buyers out of showrooms, and some automakers reported double-digit growth in retail sales in Western states, which did not suffer the weather problems that hit the rest of the country. As the cold weather subsides, sales in March and April will likely be a more definitive leading indicator of the normalized demand for the year ahead, and we would likely adjust our base-case assumption downwards if the SAAR remains below 16 million in these months.
Decision Pending Over Hypo Alpe Adria’s Future Has No Immediate Rating Impact On Austrian Banks Or GREs
The Austrian government is currently considering various options for the future of Austria-based, unrated Hypo Group Alpe Adria, which was nationalized in 2009. The pending political decision has no immediate impact on ratings on debt obligations of the bank that are guaranteed by the Republic of Austria. It also has no immediate impact on the ratings on Austrian banks that we view as highly systemically important, or on banks and corporations we view as government-related entities (GREs). There is also no immediate impact on the ratings on the debt obligations of institutions that are grandfathered by Austrian states that we rate under our GRE methodology.