Halister News

(Bloomberg) -- (Corrects date in last bullet in story than originally ran Oct. 18)

• U.K. Sept. CPI y/y is expected to rise to the highest level since 2014 as oil and food price base effects ebb and as the pound’s drop since the U.K. voted to leave the EU feeds into the data.
• U.K. Sept CPI est. 0.9% y/y vs prior 0.6% (the majority of forecasts are in the range of 0.7% to 1.3%); core CPI est. 1.4% y/y vs prior 1.3%
• The BOE said in its August Inflation Report it expected inflation to rise to close to 1% in September
• The decline in the pound in recent weeks is likely to inject more inflationary pressure and cause the average rate of inflation to exceed the Bank of England’s target in 2017, BI economist Dan Hanson writes
• Commerzbank analyst Esther Reichelt says attention today will be on how quickly GBP’s losses will be reflected in inflation data but says a surprisingly high reading won’t have notable effects on monetary policy and therefore on sterling
• The impact of the CPI release on GBP will depend on whether evidence of accelerating inflation is seen as a sign of growing stagflation threat that could exacerbate a potential BOP crisis, Credit Agricole analysts including Valentin Marinov say
  • If jobs data and retails data this week don’t show a significant deterioration, investors may focus on the diminishing prospects for BOE easing in November rather than the threat of stagflation - which could help GBP stabilize some more above recent lows
• NOTE: The BOE is willing to tolerate a bit of overshoot in inflation over the course of the next few years, BOE Governor Carney said Oct. 14

(Bloomberg) -- U.K. to sell 1.5% 07/2026 for GBP2.5b at 11:30am CET.

• Dip buying demand for gilts may be tested after recent sell- off; analysts highlight recent cheapening of 10y sector vs wings, though mixed views on whether to fade; however, 10y gilts unanimously seen as cheap vs swaps

• Santander (Adam Dent)
  • U.K. economic data has worsened a little recently, which should reaffirm the dovish MPC
  • See recent rates sell-off as very overstretched given now back to immediate post-referendum levels
  • 10y gilts have underperformed vs wings, suggest trading against this swing, buy 10y on 5s10s30s, enter -9.5bps, target -15bps
  • 10y also looks appealing on the ASW curve, hold a steepening bias on 5s10s swaps

• RBC (Peter Schaffrik)
  • During recent sell-off, 10y sector has underperformed on the curve, with 5s10s30s curve ~13bps cheaper, mainly as a result of steeper 5s10s curve
  • Cross-market spreads have widened significantly, with the spread vs U.S., Germany at highs since early-July
  • Auction bond also looks cheap on ASW curve, with 5s10s ASW box spread at the widest level since April this year
  • There has been limited concession vs immediate neighbors, both on yield and ASW basis
  • Expect the auction to be well received given relative cheapness, continued support from BOE buybacks in 7-15y sector later today

• SocGen (Marc-Henri Thoumin)
  • Auction has DV01 of GBP2.3m and therefore should not be that challenging for the market, particularly given BOE 7-15y buyback later in the session
  • There has been no pre-supply concession; on the curve, the issue trades ~3.5bps rich to fair value on a plot of z-spreads against duration, partly justified by low coupon vs neighboring bonds
  • Issue is most attractive on ASW as 2026s have cheapened by ~10bps since early September compared with less than half that amount in the 5y sector
    • Overall, auction should go well; recommend “cash- for-cash” extension out of the 5y sector into the 1.5% 07/2026 (effectively receiving 5y5y in gilts) vs paying 5y5y in swaps

• Citi (Peter Goves)
  • 10y sector has cheapened on the curve over past two months; expect the 2s10s30s fly to cheapen further as 10s30s curve flatten more, almost regardless of market direction
  • Over past two months, both 10y and 30y gilts have underperformed swaps, though more so in 10y; 10s30s swap spread box now trades close to lowest level for 8 months, see potential for box to correct from here as 10s outperform
  • Strong demand may indicate that dip buyers are emerging, whilst a weak auction could signal a further leg to the sell-off

(Bloomberg) -- Germany to sell 2.5% 08/2046 for EU1b at 11:30am CET; analysts optimistic on the sale given limited supply outlook, steepening of 10s30s and specialness in repo.

• Mizuho (Antoine Bouvet)
  • Final 30y auction of 2016; suggests sector will be supported by lack of supply until the new year; expect a new 30y benchmark in early 2017, raising risk of no further reopenings of this issue
  • Auction should be supported by recent steepening of 10s30s, and cheapening of the bond on the 07/2044-08/2046 roll in z-spread terms
  • However in yield terms, there is only limited concession on the roll

• ING (Ben Schroeder)
  • Repo specialness suggests underlying demand for this final German 30y supply of 2016
  • Yield of 0.68% is at the upper end of post-Brexit vote range although in the broader context that valuation “still looks stretched” as ECB looks set to tweak the modalities of the PSPP program
  • Recent move in 30y bund ASW, steepening of 10s30s after recent taper talk may give confidence to some investors
    • However, 30y swap spreads could tighten at least another 5bps if ECB relaxes depo rate restrictions on QE

• Commerzbank (David Schnautz)
  • Final chance to catch any 30y bunds in primary market; track record of 30y nominal auctions has been encouraging with the last five auctions all technically- covered
  • Given benign supply outlook for at least 2 1/2 months, expect a very smooth auction
  • Look for limited pre-auction positioning needs; expect the probably surprisingly strong auction results to support bunds also in outright terms

(Bloomberg) -- While ECB isn’t widely expected to adjust policy this week, there’s growing expectation that an extension of its QE beyond March 2017 could be announced as early as the December meeting. With the Fed seemingly on the verge of a rate rise and GBP still under Brexit pressure, a “low for longer” ECB outlook could continue to favor EUR credit versus USD and GBP counterparts, Bloomberg strategist Simon Ballard writes.

• 3Q earnings period building momentum; in the U.S., financial results helping to buoy overall “surprise” growth numbers, led by Goldman Sachs
• China GDP data overnight in line with optimistic global macro picture, even as industrial production missed consensus; should be net positive for risk-market sentiment
  • Generic risk appetite remains susceptible to headline event risk though; Brexit and U.S. election among key drivers of near-term credit-market direction

• Risk Appetite Model remains well anchored ahead of ECB
• Bloomberg Barclays Eur-Agg Corporate index closed yesterday at 112bps (unch); Bloomberg Barclays Eur HY index closed at 386bps (-5bp)
• CDX IG closed -0.7bps at 75.17; iTraxx Asia Ex Japan IG is currently -0.4bps at 117.24 and iTraxx Australia quoted -0.8bps at 104.25

NEWS

• Corporate News
• Carrefour Third-Quarter Sales Growth Beats Estimates on France
• Nissan CEO Ghosn Said to Become Chairman of Mitsubishi Motors
• Sabic Third-Quarter Profit Drops 6.8% on Lower Prices, Sales
• Foxtons 3Q Rev. Falls on Reduced Activity in London Real Estate
• Reckitt 3Q LFL Sales Miss Ests., Sees 2016 LFL Sales Up 4%
• Travis Perkins Sees FY Adjusted Ebitda Slightly Below Consensus
• Hotel Chocolat FY Revenue +12%, Digital Revenue Up 20%
• Rentokil 3Q Revenue Rises, Maintained Full Year Guidance
• Eurotunnel 3Q Revenues Increase 4%; Confirms Positive Outlook
• Elisa 3Q Ebitda Tops Estimates; Keeps 2016 Forecasts
• Telenor’s Digi 3Q Ebitda Rises; Sees ’16 Ebitda Margin Below 45%
• Metro Sales Meet Estimates as Web, Delivery Businesses Grow
• Kvaerner 3Q Revenue, Ebitda Beat Estimates
• ASML 3Q Sales Beat, Profit Misses; 4Q Margin Seen Above Ests.

• Financial News
• Handelsbanken Profit Gains After Sale of Industrivaerden Stake
• Woori Bank 3Q Net 355.6b Won; Est. 345.1b Won
• China Construction Bank Sets Up Property Insurance Unit
• Qatar’s CBQ Posts First Quarterly Loss in At Least 10 Years
• Citic Group Provides Final Guidance for Samurai Bond Sale

• Rating News
• Moody’s changes outlooks of 22 Chinese GRIs and rated subsidiaries to stable from negative
• S&PGR Affirms State of Queensland/QTC At ’AA+/A-1+’; Otlk Stable
• S&PGR Affirms ’BBB’ Ratings On Grupo de Inversiones Suramerica

• Other News
• China Growing at 6.7% Opens Window to Deliver Debt-Curb Vow
• Time for ECB to Taper QE Won’t Be Ripe Until Late 2017: Chart

ANALYST VIEWS

• We are still bullish corporate risk. Valuations have displayed some sturdiness amid volatility elsewhere while market participants have not panicked at all. That has been most evident in the sterling corporate bond market: creditmarketdaily.com

NEW ISSUES

• JRP Group GBP250m 10Y Tier 2 Notes to Yield 9%
• KfW EU1b 1.5% 6/2024 Tap MS -29
• Poland EU750m 12Y MS +48, EU500m 30Y MS +120
• Segro European Logistics EU500m 7Y MS +120
• Snam EU500m 4Y MS +20
• State of Thuringia EU500m 10Y MS -19
• World Bank EU1b 1/2033 MS -13
• 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) -- If Taiwan’s export orders fail to post growth in September, USD/TWD 1-month NDF could rebound from Fibonacci support at 31.351, Bloomberg strategist Andrew Robinson writes.

• Level represents 61.8% retracement of the rally from Sept. 22 to Oct. 17
• Export orders probably rose 2.0% y/y following 8.3% expansion in Aug., median est. in Bloomberg survey shows; ests. range from -5.0% to +9.2%; data due Thursday at 4pm local time
• 1-month NDF down 0.1% at 31.487 after touching 31.333, lowest in two weeks
• NOTE: Andrew Robinson is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice