The Federal Open Market Committee (FOMC or “the Fed”) is set to convene its meeting on July 30-31, 2024. Following their decision to hold rates steady in June, market participants will pay close attention to the Fed’s statement on the trajectory of future monetary policy. This article highlights some of the key data and statements that give some insight into the possible direction of US interest rates.

Key Data Points and Fed Statements

Fed Chair Statement:In an interview on July 15th, the Fed Chair said that the central bank will not wait until inflation goes down to 2% before reducing interest rates, noting the lagged effects of monetary policy. In the interview, he stated that “if you wait until inflation gets all the way to down to 2%, you’ve probably waited too long”. He also noted that the Fed is looking for greater confidence that inflation will return to the 2% level, and more good inflation data will increase that confidence. (Source: discussion at the Economic Club of Washington D.C.)

Inflation (CPI and PCE):Inflation appears to be trending in the right direction. The Consumer Price Index (CPI) declined by 0.1% on a seasonally adjusted basis, compared to being unchanged in May. This resulted in a 3.0% increase over the past 12 months, indicating a deceleration in the overall inflation rate (source US Bureau of Labor Statistics). Meanwhile, the headline Personal Consumption Expenditures (PCE) index increased 0.1%, leading to a 2.5% increase over the past 12 months lower than the 2.6% reading in May. However, core PCE, which excludes volatile food and energy prices, rose 0.2% in June, resulting in a 2.6% increase over the past year, unchanged from the prior month but lower than the readings from earlier in the year (source: Bureau of Economic Analysis U.S. Department of Commerce). Expectations for July’s data, which will be announced in August, remain subdued. Any unexpected spikes could influence the Fed’s decision.

Unemployment:The unemployment rate has been slowly increasing over the last few months and ticked up to 4.1% in June. (Source US Bureau of Labor Statistics)

GDP Growth:The Q2 2024 advance estimate of real GDP increased at an annual rate of 2.8%, according to the Bureau of Economic Analysis. This is notable increase over the 1.4% growth rate in the first quarter of 2024.

CME Fed Watch Tool: We highlighted this tool in past articles as it gauges market expectations for future Fed policy moves. The tool currently suggests a high probability (over 90%) of the Fed maintaining its current target range of 5.25%-5.50% at the July meeting. However, the tool also indicates a 100% probability of a rate cut in September and interestingly the probability of more than one rate cut by December has been increasing.

In Conclusion while the Fed is expected to hold rates steady in July, the future path of monetary policy still remains uncertain, but expectations have been shifting to the possibility of one rate cut by September and more than one rate cut by the end of 2024. The upcoming inflation, unemployment, and GDP growth data will be crucial in shaping the Fed’s decision-making process. If the July numbers (released in August) continue the trend that we have seen in the past month, we expect that a cut in September is highly likely, with any future rate cuts dependent on the subsequent data releases.

Let us know your thoughts in the comments.

#FOMC #FedMeeting #MonetaryPolicy #InterestRates #Inflation #GDPGrowth #EconomicOutlook #FinancialNews #MarketUpdate #CariCRIS

RATING ACTION:

On June 28, 2024, CariCRIS upgraded the Issuer/Corporate Credit ratings assigned to Premier Insurance Company Inc. (Premier or the Company) by 1 notch to gyA+ (Foreign Currency Rating) and gyAA- (Local Currency Rating) on the Guyana national scale, and CariA- (Local Currency Rating) on the regional scale. A stable outlook was assigned. 

RATING SENSITIVITY FACTORS:

Factors that could, individually or collectively, lead to an improvement in the ratings and/ or outlook include:

• Sustained growth in profit after tax (PAT) by >15% over the next 2 years without adversely impacting regulatory capital and asset quality
• An increase in the concentration of good quality, liquid fixed-income instruments leading to improved asset risk
• Sustained growth in tangible net worth (TNW) by >15% over the next year
• An improvement in the credit rating of TRINRE Insurance Company Limited (TRINRE or the Parent)

Factors that could, individually or collectively, lead to a lowering of the ratings/or outlook include:

• A 2-notch deterioration of the credit rating of any of Premier’s reinsurers by A.M. Best, Fitch Rating or Standard and Poor’s Ratings Services
• Loss of relationship with any of the Company’s reinsurers without viable replacements
• A deterioration in the Company’s Minimum Capital and Solvency requirements below the quantities stipulated by the Bank of Guyana (BoG) sustained for more than 6 months
• A 10% fall in insurance revenue for 2 consecutive years
• A material deterioration in the Company’s investment asset quality sustained for a period of 6 months
• A lowering of the credit rating of TRINRE

Analysts’ Contact Info:

Keith Hamlet
Mobile: 1-868-487-8356
khamlet@caricris.com

Maxwell Gooding
mgooding@caricris.com

www.caricris.com
info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS upgrades its credit ratings for Premier Insurance Company Inc.

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We began the series by explaining what a rating is as well as the methodologies used to derive a rating.  This article will be one of two parts explaining the terms used in ratings language.  While each credit rating agency (CRA) has definitions that may pertain specifically to its rating scale, there are many definitions that are universal and can be applied to the spectrum of ratings assigned by a CRA.  This piece focuses on definitions used by Caribbean Information and Credit Rating Services Limited (CariCRIS).

Issuer versus Issue Ratings

At CariCRIS, we provide both issuer (or corporate) credit ratings as well as issue ratings:

• Issuer or Corporate Credit Ratings: This rating is an opinion on a company’s ability and willingness to meet all its debt obligations fully and on time. It involves an overall assessment of the corporate entity’s financial health.
• Issue Ratings: These are assigned to particular fixed-income instruments and assesses the relative ability and willingness to meet payments due on this instrument in full and on time. Essentially, it measures the probability of default on debt issued by an entity.

Regional Scale versus National Scale Ratings

CariCRIS assigns both regional and national scale ratings:

• Regional Scale Ratings: These ratings, prefixed with ‘Cari’, provide an opinion on the creditworthiness of an entity relative to other entities in a defined region.
• National Scale Ratings: These ratings provide an opinion on the creditworthiness of an entity relative to other entities within a specific nation, using rating symbols or a prefix applicable to its respective national scale (e.g., ‘bb‘ for Barbados, ‘jm‘ for Jamaica, and ‘tt‘ for Trinidad and Tobago).

CariCRIS’ Rating Scale

CariCRIS ratings range from CariAAA to CariD on the Regional Scale, and from ***AAA to D on the National Scale. (*** indicates a prefix for a country, for eg bb (Barbados), jm (Jamaica), or tt (Trinidad and Tobago)).  Each of the ratings from CariAAA to CariD is accompanied by a descriptor which serves as an immediate translation to a clear and succinct opinion of the corporate or instrument assessed.

The following is a definition of each CariCRIS rating:

• CariAAA: The highest level of creditworthiness relative to others in the Caribbean.
• CariAA: High level of creditworthiness relative to others in the Caribbean.
• CariA: Good level of creditworthiness relative to others in the Caribbean.
• CariBBB: Adequate level of creditworthiness relative to others in the Caribbean.
• CariBB: Below average level of creditworthiness relative to others in the Caribbean.
• CariB: Weak level of creditworthiness relative to others in the Caribbean.
• CariC: Poor level of creditworthiness relative to others in the Caribbean.
• CariD: The obligor is in default.

These definitions also apply to national scale ratings with the difference being that the creditworthiness of the issue/issuer is adjudged in relation to others in a particular jurisdiction.

CariCRIS considers BBB and above as investment grade.

Stay tuned for Part 2 of this article!

#CreditRatings #FinancialLiteracy #CariCRIS #CreditRatingAgency

RATING ACTION:

On June 28, 2024, CariCRIS reaffirmed the ratings for a notional US $25 million debt issue of the Government of the Commonwealth of Dominica (GOCD) of CariBB (Foreign and Local Currency Rating) on the regional scale. A stable outlook was assigned.

RATING SENSITIVITY FACTORS:

 Factors that could lead to an improvement in the ratings and/or Outlook include:

• Growth in real economic activity of 6% or more, sustained for at least 2 years;
• A fiscal surplus of more than 5% of GDP recorded for 2 consecutive fiscal periods.

 Factors that could lead to a lowering in the ratings and/or Outlook include:

• Debt/GDP ratio exceeding 100% for 2 consecutive years;
• Economic and social disruption caused by natural disasters;
• Material reduction in grants and multilateral funding.

Analysts’ Contact Info:

Stefan Fortuné
Mobile: 1-868-799-6751
sfortune@caricris.com

Carla Ash
Mobile : 1-868-713-6794
cash@caricris.com

www.caricris.com
info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS reaffirms its credit ratings for the Government of the Commonwealth of Dominica; Outlook Stable

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The methodologies used by Credit Rating Agencies (CRA) to determine credit ratings are comprehensive and multifaceted. They involve analyzing both quantitative and qualitative factors to assess the borrower’s creditworthiness accurately. Quantitative metrics, such as financial ratios, cash flow analysis, and debt levels, provide objective data points for evaluating risk. Meanwhile, qualitative factors, including industry dynamics, regulatory environment, and management quality, offer insights into the borrower’s operating environment and strategic positioning.

At Caribbean Information & Credit Rating Services (CariCRIS), we use different methodologies for corporates versus sovereigns.  Further, because of the specific inherent characteristics in business models across different sectors, we do not use a one-size-fits-all approach for all corporates but rather apply a tailor-made methodology for each sector (banking, securities companies, credit unions, manufacturing, to name a few).  As a general overview, we would analyze each corporate entity under the headings: industry, market position, operating efficiency, current and future financial position, liquidity, capital and management risk.  The quantitative and qualitative factors analyzed under each heading for each sector vary.  This article gives a general sense of what is examined using quantitative versus qualitative data.

When using quantitative data in a rating process, debt levels, debt-to-income, and debt service coverage ratios are among the most critical pieces of information when assessing creditworthiness.  Excessive debt burden or insufficient cash to meet debt obligations can strain the borrower’s financial resources, increasing the likelihood of default.  CRAs evaluate the borrower’s ability to manage existing debt obligations relative to cash and income generation and assess the potential impact of additional borrowing on financial stability.  Credit utilization, or the proportion of available credit being used can also impact the credit rating.  High levels of credit utilization may indicate financial strain or overreliance on credit, which could raise concerns about repayment capacity while maintaining a lower credit utilization ratio demonstrates prudent financial management and can support a higher credit rating.  Other useful pieces of quantitative information include ratios to assess customer/geographic and revenue concentrations as well as capital adequacy and profitability ratios.

Qualitative factors which include market position, operating efficiency and management are also examined.  Under market position, CariCRIS explores the company’s competitive advantages and brand equity.  Under operating efficiency, factors such as distribution channels and supply chain issues are assessed.  Perhaps the most subjective area in ratings is management risk.  The difficulty in objectively assessing a management team makes this parameter the most subjective and highly debated area in ratings.  Here, we examine factors such as integrity, the ability to manage risks in a turbulent environment, competence, governance, and succession planning.  At CariCRIS, we utilize a management model that, as much as possible, aims to rate a management team using specific criteria.  Industry dynamics and the regulatory environment are also considered when exploring qualitative factors.  Public records, such as bankruptcies, foreclosures, or legal judgments, are also factored into credit rating analysis. These negative events may impair the borrower’s ability to obtain new debt or repay existing debt. CRAs assess the severity and recency of such events to gauge their implications for creditworthiness.

A sovereign rating includes an assessment of a country’s economic structure, monetary and fiscal policies and political environment.  For a corporate or sovereign that has issued bonds in the past, payment history is a fundamental component of a credit rating assessment.  A consistent history of timely payments enhances creditworthiness and strengthens the credit rating. Conversely, missed payments, defaults, or bankruptcies can severely impact credit ratings, signaling heightened risk to lenders.  Further, the length of credit history can provide insight into the borrower’s financial behaviour over time. A longer credit history allows a CRA to assess responsible borrowing and repayment patterns, contributing to a more accurate credit risk assessment.

CRAs also incorporate projections to assess the sovereign or corporate entity’s capacity to repay debt in the short to medium term.  For corporates in particular, projections consider company financials, budgets and in-depth conversations with management to understand future plans, capital expenditure and new debt issuances.  Benchmarks as well as peer comparisons are also used to ensure that ratings are comparable throughout the rating universe.

Credit ratings are essential tools for evaluating credit risk and facilitating informed lending and investment decisions. By assessing various factors such as payment history, debt levels, and financial stability, CRAs provide valuable insights into the creditworthiness of businesses and governments. Understanding credit ratings empowers borrowers to manage their finances responsibly, lenders to mitigate risk and allocate capital efficiently and investors to make informed decisions.

RATING ACTION:

On June 28, 2024, CariCRIS reaffirmed the assigned Issuer/Corporate Credit Ratings of CariBBB- (Foreign and Local Currency Ratings) on the regional rating scale, and jmBBB+ (Foreign and Local Currency Ratings) on the Jamaica national scale to Sygnus Credit Investments Limited (SCI or the Company). A stable outlook was assigned. 

RATING SENSITIVITY FACTORS:

Factors that could, individually or collectively, lead to an improvement in the rating and/or outlook:

• Improving business conditions over the next 12-15 months, thereby leading to an increased client base and sustained earnings growth as evidenced by growth in operating profits by 10% or more for 2 consecutive years.
• Further diversity in asset class through the successful launch of new products
• SCI’s ability to attract and retain lower cost funding

Factors that could, individually or collectively, lead to a lowering of the rating and/or outlook:

• Deterioration of asset quality as measured by the non-performing investment ratio to 8% or more, sustained for 2 consecutive years
• Increase of SCI’s debt to TNW and/or total debt to total assets ratio to over 1.25 times or above 50% respectively for 2 consecutive financial years
• Cost to Income ratio weakens to 50% and over
• A sustained decrease in the net interest spread earned on investments to less than 1% for 2 consecutive financial years

Analysts’ Contact Info:

Keith Hamlet
Mobile : 1-868-487-8356
khamlet@caricris.com

Brandon Singh
bsingh@caricris.com

www.caricris.com
info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS reaffirms “adequate creditworthiness” ratings of Sygnus Credit Investments Limited

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CariCRIS reaffirms ‘good creditworthiness’ ratings of Eastern Caribbean Home Mortgage Bank.

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