Weekly Market Summary

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• Disruptions at the surrounding the Suez and Panama canals have led to a surge in global shipping costs. Several carmakers in Europe have also announced temporary stoppages, citing supply-chain issues and rising transport costs. This turmoil will likely put upward price pressure on consumer goods, but a return to COVID-relatedinflation remains unlikely due to excess capacity and weaker goods demand. Estimates for the first half of this year are currently anticipating only a 0.7% increase in global core goods CPI if recent cost increases persist.
• The conflict in the Middle East, combined with a drought in Central America, have led to material disruptions in global maritime trade, adding significant delays to shipping routes along the Suez and Panama canals. Re-routing the Suez container-ship traffic is increasing transport times by about a week (30% longer), which is causing an increase in fuel costs, staffing, and insurance. As a result, global shipping costs—which had seen a near reversal from pandemic-driven surges in 2021-22—have started to rise sharply again. 
• Expectations coming into 2024 was for high-yield bond and leveraged-loan default rates to remain near their long-term averages over the next two years due to rising corporate fundamental headwinds, restrictive rates, elevated distressed-exchange activity, and a few idiosyncratic issues. Notably, the last time the default rates hovered around the long-term averages for three consecutive years was the stretch ending in 2002. 
• Forecasts for 2024 are for slower growth year-over-year, elevated rates, and weaker corporate fundamentals potentially leading to an extension of the current default cycle. But a manageable near-term maturity schedule, improving capital markets, a smaller distressed universe, and the lack of a potential bond market contraction could mitigate the extent to which default rates rise.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 2.10% and 2.08%, respectively, up and unchanged from 2.01% and 2.08%in November. The 25-year historical default rate for loans and high-yield bonds is 3% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 1/22/24.

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