Credit Market Daily #4

25-Aug-2022

Hello – Credit has opened a touch better with Xover around 7 bsps tighter at time of writing to 536. Cash indices were essentially flat yesterday.

Equities are outperforming credit with Europe up on average c.65 bps, with the DAX leading the way up 83bps. It would be great to get back to a market driven by fundamentals rather than groups of economists at Central Banks. One more day to Jackson Hole..

Why are equities green you ask – well Germany posted better than expected GDP growing 0.1% on the quarter and their IFO Business sentiment also came in better than expected at 88.5 vs, 86.8.

You can see from the charts below that neither of these are “heroic” numbers in the scheme of things but Germany is the bellweather (totem? – there probably is a better / more representative bellweather – leave a comment below if you have a strong opinion)

German GDP QoQ
German Business IFO

China – Build Back Better?

The other reason we are in the green is that China has announced a 1 Triillion Yuan ($146bn) economic strimulus focussing on infrastructure, This is in on to of 300bn Yuan already announced. This article from Bloomberg has all the details. Economists seem to be luke warm on the package – too little too late.

“We’re getting easing, but it’s not quickly enough to keep up with the pace of deterioration in the broader economy,” 

Andrew Tilton Chief Economist, Goldman Sachs, via Bloomberg TV

Markets however like the headline – any additonal liquidity has to be good – right? China’s GDP growth is on a downward trajectory and its property sector is not out of the woods yet:

Source: Bloomberg

OPEC+ Supply to Lift Oil Prices

Oil has come off the boil – with the global growth slowdown cited as the main reason. and Saudi Arabia and Opec+ have said that supply cuts are likely warranted. This should be supportive for oil prices in the medium term and the price action was positive on the announcement. Prices at the pump been improving of late so consumers are unlikely to welcome the decision.

Rating Actions - What is Going On?

It should come as no surprise given the softening economic backdrop that rating downgrades are greater than upgrades and with company CEOs now coming out in force to call for action with the cost of living and as the cycle turns we are likely to see more negative rating action.

Currently - using Fitch by way of example there has actually been an improvement in the ratio of upgrades to downgrades but it is still way below 1x:

Source: Bloomberg

Rating outlooks - the heads up of a rating change - are predominently negative:

Reporting

Asda
Coty
Dell
Demire
International Design Group
KCA Deutag
Lima Corp
Lowell
Matterhorn
Norwegian Air
Puma Energy
PureGym
Rekeep
Stada

Credit

Equity

Rates

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