20th October 2015

God bless Hooky Street

MARKET CLOSE:
FTSE 100
6,352, -26
DAX
10,164, +60
S&P 500
2,034, +1
iTraxx Main
78.5bp, -1bp
iTraxx X-Over Index
326bp, -6bp
10 Yr Bund
0.56%
iBoxx Corp IG
B+160bp, -0.4bp 
iBoxx Corp HY Index
B+502bp, -4bp
10 Yr US T-Bond
2.03%

No income tax, no VAT, no money back, no guarantee… No supply, no liquidity, no volumes and a day as dull as dishwater. China might have surprised to the upside – just – on GDP overnight (6.9% in Q3 versus expectations of 6.8%), but it was not seen as a watershed print. Far from it. It threw up as many questions as it may have answered. Services made up for the fall in manufacturing and investment, and the jury stays out as to whether a 6.6%-7.0% like growth complex can be sustained over the medium term. Morgan Stanley’s quarterly earnings were dire, but US home builder sentiment was at pre-crisis levels. In Europe, German retailer Metro AG was surprisingly upbeat on earnings into year-end. So overall, a mixed session on the news flow/data front and it left stocks mixed, credit treading water and the rest of us already looking to today’s (Tuesday’s) session for some primary activity. As for Monday, well, we had the usual covered bond prints and a senior FIG issue from Wells Fargo.

Slightly better and little real conviction… Equities ended slightly better and there really does seem little conviction. The feed-through into credit was positive, but our illiquid market is always late to the party anyway. Still, we were tighter in the session and focus for the next two days will be on earnings reports before we see what Draghi et al have to say on ECB day. We’re not sure why the market might be a little apprehensive about it, because they won’t upset the apple cart, so to say. They will highlight the risks, caveat with some positives and might feed the flock with some QE rhetoric should things not turn out as hoped at some point in the not too distant future. Just to keep us all hoping. They’re going to do it: it might not be officially announced for a few months, but it is coming.

In the meantime… The corporate bond market took down the covereds – that is easy, as the ECB is always ‘compliant’. The senior deal from Wells was tucked away too. The rest saw spread markets inch better with CoCos up to 0.375 points better, hybrids up a smidgeon and most other high and low-beta names better bid for choice. It was a lacklustre session generally. The iBoxx IG corporate index closed at 160bp, or around 0.5bp better. The HY index was similarly slightly better at B+502bp (-4bp). For the synthetics, we had Main better offered (lower) at 78.5bp and X-Over at 326bp (-6bp). The senior and subordinated financials indices continued to touch new current contract lows, for the record.

As we close out this note, IBM has effectively issued a profit warning for full-year earnings. Big Blue? Nah, Big Red. Have a good day.

Suki Mann

A 25-year veteran of the European corporate bond markets and in his role as Credit Strategist, Dr Mann has been ranked number one in the Euromoney Investor Survey eight times in ten years. Previously with Societe Generale and UBS, he now shares views of events in the corporate bond market exclusively here on Credit Market Daily.