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Daily Archives: 13th January 2019

13th January 2019

Now comes the hard part | Bank Capital Insights

Will forthcoming bank earnings help or hinder risk sentiment?

Last week was a good one for risk assets especially in bank capital (and within that AT1) driven by dovish Fed speak, trade war resolution optimism and no new “unknowns” to rattle investors.  Add to that the lack of supply in high yielding paper in bank capital land and the result was a sharp rally.

But seasoned investors would have also noticed that none of the underlying issues impacting European banks have gone away (slow growth, margin pressure, liquidity pressure, high cost base) and hence caution is probably the next best strategy here.

So what now?  Is this the beginning of a new risk on phase or just another false dawn…
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13th January 2019

It’s been all too easy

MARKET CLOSE:
iTraxx Main

80.6bp, -1.9bp

iTraxx X-Over

334.0bp, -3.3bp

🇩🇪 10 Yr Bund

0.18%, -2bp

iBoxx Corp IG

B+178.5bp, -1.3bp

iBoxx Corp HY

B+514bp, -3.5bp

🇺🇸 10 Yr US T-Bond

2.70%, -3bp

🇬🇧 FTSE 100

5963.57, (-0.61%)
🇩🇪 DAX

13033.20, (-0.67%)
🇺🇸 S&P 500

3508.01, (-0.04%)

Water set to get a little murkier…

The markets have broadly looked on the bright side in this opening week of the year, against most investors’ (and our) original expectations. Macro weakness has largely been ignored as we choose instead to focus on rate policy and get caught up on whether the Fed is done for the year, our any further hikes will be limited and/or delayed. Otherwise, little has changed to justify the upbeat tone in the market except that inflows into most asset classes need investing, so forcing one’s hand.

Equities might have just failed to rise in every session last week but had a good run nevertheless, rates were choppy in small ranges but look well-anchored having displayed a more defensive posture as we ended the week. IG credit curiously only widened while primary surprised to the upside. That’s a mixed bag suggestive of each market playing to its own tune as the classic and well-established correlations between them start to diverge.

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