Halister News

(Bloomberg) -- Eurozone 3Q advance GDP q/q est. 0.3% vs prev 0.3%.

• Eurozone 3Q advance GDP y/y est. 1.6% vs prev 1.6%

(Bloomberg) -- Scale into a USD/EUR spread widener in the belly of swap curves to capitalize on divergent policies of major central banks, Commerzbank strategist Markus Koch writes in client note.

• Buy USD 6m5y swaption payers vs premium-neutral sale of EUR 6m5y payers, targeting a ~30bp wider spread on 6-month horizon
• As a hedge against the resulting net DV01 exposure of the zero-cost position, rely on the ECB cap, “free of charge”
• Assuming USD 5y IRS rises by ~25bp to reach 1.65% at expiry, P&L is cushioned against losses, unless EUR 5y IRS were to rise by more than 13bp
• Swaptions would expire worthless under most bullish scenario, preventing a negative P&L result while a vanilla IRS set-up would incur a loss

(Bloomberg) -- Most analysts suggest EGB selloff can continue, bias toward short duration expressed via steepeners.

• JPMorgan turns short, Deutsche Bank gives five reasons EGB weakness can be sustained; Morgan Stanley stays short gilts; Barclays, BofAML expect weakness to fade

• Morgan Stanley (strategists including Anton Heese)
  • Continue to suggest investors remain defensively positioned in govt bonds; express outright duration shorts in the U.K., where reflationary factors have come into play
    • Potential these factors spill over to the euro area, relative to U.S., maintain underweight bunds vs USTs
  • New Austria 70y bond is marginally cheap, in yield and ASW terms as well as a broad comparison vs Belgium long- end
    • Given its additional convexity, 30s50 or 50s70s curve should ultimately be inverting
  • Since 50y BTP syndication, 30s50s curve has flattened, with 10s30s50s flys underperforming in the wake of rising volatility, as a result suggest remaining short 30y BTP on the 10s30s50s fly
    • Portugal still suffers relatively weak macro fundamentals, low nominal growth means the debt trajectory is vulnerable to shocks, recommend expressing this bearish view via short 5y PGB vs 5y BTP or bund

• Barclays (strategists including Cagdas Aksu)
  • Recent cheapening of EURUSD, back up in market based inflation expectations, speculation around ECB QE tapering has helped bund market sell off, among other global factors
  • Believe underlying growth and inflation picture have not turned decisively positive enough to justify sustainably higher bond yields in the EUR market yet
    • Maintain Ireland 10s30s steepeners, short 30y BTP versus Germany and long 7y French ASW recommendations
  • In the U.K., MPC are confronted with firmer rate profile, stronger GDP, weaker currency; medium-term risks to inflation remaining elevated is “too complacent” to price no easing in 2017, risk reward favors receiving near-dated OIS

• Deutsche Bank (strategists including Francis Yared)
  • See five reasons why the recent sell-off is sustainable: improving macro data; breakevens lead, which means base effects having a positive impact on inflation expectations; long-term rate expectations still benign; short-term technical indicators don’t look overstretched; the market is not more hawkish than the central banks
  • Sustainable nature of the sell-off suggests maintaining key risk premium normalization trades in the U.S. and Europe
    • Hold USD 2s5s steepener, USD 5s10s steepener hedged with 17% short in 2s, Germany 10s30s steepener and long 10Y breakevens
  • Given the repricing of the EUR front-end, with the trough in Eonia now in Dec-17, exit the paid position in EUR 1Y1Y

• JPMorgan (strategists including Fabio Bassi)
  • Selloff supported by fundamentals, can continue if parallels with last year prove accurate; 10s30s steepeners are most attractive bearish proxy, as are reds/golds EONIA curve steepeners
  • Given increased volatility, recommend scaling back on peripheral tighteners, keep core wideners; close longs in long 15Y Italy vs Germany, hold longs via Spain and Ireland vs core
  • Turn bullish on the front-end, but await better entry levels
  • In the U.K., retain a short duration bias on short-term momentum, long-term 10Y gilt valuations, potential repricing of term premia; enter 2s5s gilt curve steepeners; in the front-end, enter Feb. 17/Aug. 17 MPC OIS curve flatteners

• Citi (strategists including Harvinder Sian)
  • 10yr bund target remains 0.3%, on steepening, Buxl cheapening, periphery underperformance and USD, JPY rates outperformance; Fed tightening bias aids ECB taper risk on firm USD FX
  • DBRS’ affirmation of Portugal’s rating reinforced PGB spread tightening, see limited further upside from here; don’t fade BTP underperformance vs Bonos, which in part may reflect relative fundamentals given correlations to PMI differentials
    • Receiver swaptions currently offer excellent structural disinflation hedge opportunities: MORE
  • In the U.K., growth, inflation are likely to be revised higher by the BOE, most important will be the MPC’s guidance on easing bias and their tolerance for inflation
    • Duration remains a tough call, take profits on 10s30s flatteners, maintain longs in 30y gilts vs Bunds on ECB risks

• BofAML (strategists including Ralf Preusser)
  • Short duration positioning is at an extreme; in the absence of new information on QE, EUR duration will remain well supported on ECB maturity extensions, global yield grab, cyclical growth headwinds, through political risks the periphery
    • Fade the tapering story, expect 10s30s bunds flatteners to reassert themselves, find value in the 15y part of the French curve
  • After being cautious on periphery, reduced political risks and banking sectors point to a tactical long peripheral view *** With risk events such as the Italian referendum, ECB meeting, completion of Italian bank recapitalizations concentrated in December, see value in carry in November

(Bloomberg) -- U.S. election aside, financial market focus this week likely to be on any further meaningful rise in bond yields. Corporate credit spreads remain anchored for now, but sustained higher rates could trigger weaker bias to credit spreads, Bloomberg strategist Simon Ballard writes.

• Government bond weakness, higher yield structure, may also result in steeper corp bond quality curves as investors able to hit yield bogey while shifting into better rated assets
  • Rising bond yields erode total return profile of risk assets; may damp risk appetite
• New FBI analysis of Hillary Clinton emails reignites presidential election uncertainty, may fuel near-term defensive bias across U.S. credit market

• Bloomberg Barclays Eur-Agg Corporate index closed Friday at 109bps (flat); Bloomberg Barclays Eur HY index closed at 372bps (+4bp)
• CDX IG closed Friday +1.4bps at 77.63; iTraxx Asia Ex Japan IG is currently +1.0bps at 116.53 and iTraxx Australia quoted +0.7bps at 103.75

NEWS

• Corporate News
• WPP 3Q Sales Rise 2.8% on U.S., European Ad Spending
• Sony Cuts Forecast on Impairment for Sale of Battery Unit
• Centamin Sees 2016 Gold Output Toward Upper End of Guidance
• ASML Affirms 2020 Target of Annual Revenue of EU10b
• Panasonic Cuts FY Earnings Forecasts on Stronger Yen
• Honda Raises Full-Year Profit Forecasts After 2Q Beat

• Financial News
• ANZ’s DBS Deal Marks Latest Retreat From Asia Wealth Management
• Goldman Sachs Alumni Said to Start Macro Hedge Fund in Asia
• Chinese Banks’ ‘Scramble’ for Profit Sees Bad-Loan Buffers Slide
• SNB Records Nine-Month Profit on Foreign Currency Holdings, Gold
• Raiffeisen Bank Plans to Open Branch in Iran: Tehran Times
• ANZ Bank Weighs First Aussie Mortgage Bond Sale in Over a Decade

• Rating News
• Macquarie Rating Outlook Lowered as S&P Warns on Aussie Economy
• Moody’s maintains stable outlook on Portugal’s banking system amid modest economic recovery
• S&PGR: Outlooks On 25 Australian Financial Institutions To Neg
• S&PGR Upgrades Liberty Financial To ’BBB/A-2’; Outlook Neg
• ChemChina Assigned BBB Rating With Stable Outlook at S&PGR
• S&P cuts credit rating outlook for raft of smaller (Aussie) banks due to housing market worries
• S&PGR Afms AXA Life Insurance At ’A+’; Outlook Remains Stable

• Other News
• Clinton Allies Go After Comey as Probe Scrambles Campaign
• European Banks Stuck With $1.3 Trillion of Bad Loans, KPMG Says
• Deutsche Bank AT1s Look More Attractive Than Equity: UBS
• Carney’s Future at BOE Overshadows U.K. Interest-Rate Decision
• U.S. Election Guide to Markets: What to Watch as Results Come In

ANALYST VIEWS

• Credit spreads will hold out into year-end, with support from the ECB/BOE QE. As for market yields, the U.S. election, the next Fed meeting and the incoming (November) data is going to determine whether IG returns are in the 4%- handle complex or 6%+, while HY should see out 7-8%: creditmarketdaily.com
• Markets will remain nervous in light of the tail risks waiting in the coming weeks. Fed, US elections, OPEC production cuts, December ECB meeting, Italian referendum, the list of potential stumbling blocks remains impressive. Markets could get spooked easily and this could not only see weaker sentiment increasingly translate to widening credit spreads, but also would most likely weigh on activity in primary: Commzerbank

NEW ISSUES

• Beazley Re $250m 10Y Tier 2 5.875% at Par
• National Express GBP400m 7Y UKT +165
• Together GBP220m 5NC2 Snr PIK Toggle 10.5% at Par
• TVO EU500m Long 6Y MS +260
• Whirlpool Finance EU500m 10Y MS +87
• Vandemoortele EU75m 7Y Subordinated Notes at 3.418%
• Wind Hellas EU250m 5NC2 Snr Sec Notes 10% Coupon
• AMC $595m 10NC5 Sub Notes 6% area, GBP 250m 8NC3 6.5% area
• Fidelity International EU400m 10Y MS +200
• Owens-Illinois EU500m 8NCL Senior Notes 3.125%
• European IG credit pipeline here and HY credit pipeline here
• Issuers exposed to S-T rollover and interest-rate reset risk here

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- U.S. election results on Nov. 8 will set the dollar’s tone versus EM currencies into year-end as large volatility may occur if outcome triggers a reassessment of the currently priced-in December Fed rate hike.

• MAIN RISKS

• CEEMEA
• Political developments in South Africa will be eyed as Finance Minister Pravin Gordhan is due to appear in court on fraud charges related to approval of a former colleague’s early retirement at the Revenue Service
  • Any departure of Gordhan from his role would increase pressure on the rand ahead of S&P’s assessment of the country’s rating on Dec. 2; strategists see a downgrade to non-investment grade if Gordhan departs
• In Turkey, the central bank meets on Nov. 24 after holding the overnight rate unchanged in October for the first time since February; the lira’s depreciation poses questions on how the central bank will react

• LATAM
• U.S. election is crucial for MXN as currency is likely to be impacted if Trump wins; peso could remain volatile ahead of election day
• Brazil’s spending cap bill, a key fiscal reform, is awaiting Senate approval and first round of voting is seen on Nov. 29
  • Bill is expected to pass by a large margin of votes; thus, any surprise may trigger BRL volatility
• Congress also eyed in Colombia where tax reform debate begins; approval is key for country to sustain its investment grade and for govt to project political strength after defeat on peace deal referendum in October

• ASIA
• Broad dollar strength is helping to push USD/CNH toward psychological 7.00 level for first time ever; yet, declining 6- and 12-month CNH forwards suggest some investors may be using outright positioning to lock in dollar gains; chart here
• Rising G-10 yields are putting upward pressure on Singapore rates, which may lead to a higher trading range for SGD 5- year swaps toward year-end; swaps now above convergence of 50- and 100-DMAs, with possible extension toward 200-DMA at 1.89%; chart here

• CALENDAR (based on local dates)
• Nov. 1: China PMI; Korea CPI and exports
• Nov. 2: Singapore PMI; South African Finance Minister Pravin Gordhan is due to appear in court
• Nov. 3: Turkey CPI
• Nov. 4: Malaysia trade balance and foreign reserves; Turkey sovereign debt to be rated by S&P
• Nov. 5: Colombia CPI
• Nov. 5-7: Indonesia 3Q GDP
• Nov. 7: China foreign reserves; Taiwan exports
• Nov. 8: U.S. elections; China trade balance; Taiwan CPI; Chile CPI
• Nov. 9: China CPI, PPI; Thailand central bank meeting; Brazil CPI; Mexico CPI
• Nov. 10: Philippines central bank meeting
• Nov. 11: Malaysia 3Q GDP; Korea central bank meeting; Chile Imacec; Colombia Minutes
• Nov. 14: China IP and Retail Sales; India CPI
• Nov. 16: South Africa retail sales
• Nov. 17: Singapore exports; Philippines 3Q GDP; Mexico rate decision; Chile rate decision
• Nov. 21: Thailand 3Q GDP
• Nov. 23: Singapore CPI; Malaysia central bank meeting; Mexico IGAE
• Nov. 24: Turkey, South Africa central banks meetings
• Nov. 25: Colombia rate decision
• Nov. 30: Korea IP; Brazil rate decision
• NOTE: Davison Santana and Mark Cranfield are FX strategists who write for First Word. The observations they make are their own and not intended as investment advice.