Credit Market Daily

22-Aug-2022

Good morning! So where are we? Itraxx Crossover is back above 500 having completed a 10 day round trip from 519 to 466 back to 540 bps. In terms of point moves its roughly 2 points up and down again. So credit markets appear to have given themselves a shake and decided risk markets were getting ahead of themselves.

Equities overnight in Asia are a touch softer at -0.54% and Futures point to a soft opening in the US down c. 1ppt. FTSE at the time of writing is down 0.54% and the Dax down 1.7%.

The last couple of weeks markets have not been a dear caught in the headlights but more like Dr Doolittle’s pushmi-pullyu with both ends of this anatomically impossible animal tugging in opposite directions. Is “Bad News Good News” or “Bad News Bad News”? Put another way – “Are central banks going to Pivot?” is the lens through which investors are viewing the markets. We are still some ways of a loosening in Monetary policy IMHO.

We have Jackson Hole this week and expectations are for continued messaging from the Fed that it will bring inflation down by hook or by crook. In the UK, last week’s CPI print of 10.1% leaves little room for manoeuvre for the BoE.

I listened to this podcast “on the Importance of Inflation Expectations and How Policymakers Should Respond” with from Macro Musings with Carol Binder which I can recommend.

Economic data last week definitely showed signs of softness – Consumer confidence in the UK and Germany continues to be at the lows, UK housing had its first negative MoM decline of the year, and New York manufacturing had its biggest decline, down a whopping 42 points, its second largest decline since 2020. That said US capacity utilisation was up at over 80% and looked relatively healthy and left some scratching their heads.

This week in terms of Macro data: We will be watching have a slew of PMIs on Tuesday – Eurozone, UK and US, Richmond Fed manufacturing and also New homes Sales in the US. Wednesday we have Durable Goods Orders in the US, Thursday we have German IFO business confidence and GDP. Friday is French, German, Italian and US consumer sentiment.

This week is significant a in terms of High Yield earnings, we have: Douglas, CABB, McLaren, Modulaire, Tui, CBR, Verisure, Matterhorn, Lowell, PureGym, Lima, Stada, Coty, Puma Energy, KCA Deutag, Voyage Care, Asda, Rekeep, Balta, Inmarsat.

In terms of headlines – this morning Arquiva announced it is calling its 2023s, SKY reports that John Hargreaves is looking to inject cash into Matalan to retain control and last week we had Endo pharmaceutical file Chapter 11, and Cineworld announced that it was considering filing for Chapter 11. So perhaps the Canaries in the coal mine are starting to sing?

Known Knowns, Known Un-Knowns and Un-Known Un-Knowns

Below is a very brief “brain dump” of what we are facing in the Credit Markets today – it is not complete but should give a high level idea of what is on EHYO’s radar when it comes to risks:

Credit

Rates

Equity