Cor­po­rate out­look at record low amid debt fears

The Sunday Telegraph - Money & Business - - Front page - By Tom Rees

FEARS are grow­ing for the health of the world’s top com­pa­nies af­ter the big­gest col­lapse in cor­po­rate earn­ings fore­casts on record and grow­ing signs that busi­nesses are drown­ing in debt.

Warn­ings of stut­ter­ing growth trig­gered the largest slide in the global earn­ings re­vi­sion ra­tio last month since it be­gan in 1988. The gauge tracks an­a­lyst ex­pec­ta­tions for fu­ture com­pany prof­its. The mar­kets rout has also paral­ysed the mar­ket for risky debt. Amid ris­ing con­cerns over debt-soaked com­pa­nies, the high-yield bond mar­ket was shut off in De­cem­ber. Not a sin­gle high­yield bond was is­sued by US com­pa­nies in the $1.2 tril­lion (£943bn) mar­ket for the first time since the depths of the cri­sis, Dealogic data has re­vealed.

An­other shock like the one suf­fered by mar­kets in De­cem­ber could end the credit cy­cle, Bank of Amer­ica Mer­rill Lynch warned this week. “We think this can no longer be dis­missed as noise on the grounds of illiq­uid­ity or ma­chine trad­ing alone,” an­a­lyst Oleg Me­len­tyev said. “Ev­i­dence is ac­cu­mu­lat­ing that this could be the end of a credit cy­cle.”

Fund man­agers have the most pes­simistic out­look for com­pany earn­ings since 2008, sur­veys in­di­cate. A com­bi­na­tion of “higher in­put costs, the trade tar­iffs, the roll-off from Don­ald Trump’s 2017 tax cut and weak­en­ing global growth” had dented con­fi­dence, said Ste­wart Cook, an­a­lyst at Beren­berg.

Fed­eral Re­serve chair­man Jerome Pow­ell at­tempted to calm nerves on Fri­day, sig­nalling flex­i­bil­ity on in­ter­est rates.

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