Halister News

(Bloomberg) -- Most of the impact of sterling’s fall after the referendum is still to make itself felt on U.K. inflation data, HSBC economist Elizabeth Martins writes in client note.

• U.S. CPI inflation is expected to have risen 0.4 ppts in September and Chinese PPI inflation returned to positive territory for the first time in nearly 5 years this week, suggesting a base effect-driven inflation uptick which is visible globally
• The first impact of GBP’s drop will come through petrol prices as global oil prices are on the rise again - as seen in the September number - and this will be exacerbated by the further falls in the pound in October
• Anecdotal evidence, including the much publicized spat between Unilever and Tesco in October, point to cost rises in the pipeline, as do today’s PPI data
• NOTE: It’s entirely possible U.K. inflation will reach 3% in 2017, and even 4% isn’t out of the question, CEBR says

(Bloomberg) -- It’s entirely possible U.K. inflation will reach 3% in 2017, and even 4% is not out of the question should Brexit negotiations take a turn for the worse, CEBR’s managing economist Nina Skero writes in emailed comments.

• The greatest contributing factors behind today’s headline figure were rising prices for clothing, hotels, and motor fuels, while food and air fares declined
• As many consumer goods are imported, the weaker pound is already leading to a rise in prices and will continue to do so
• It’s only a matter of time before companies announce price hikes, especially given that the government now appears more likely to pursue a ‘hard Brexit,’ adding to economic uncertainty

(Bloomberg) -- U.K. Sept. CPI y/y est. 0.9% vs prev 0.6%.

• U.K. Sept. CPI m/m est. 0.1% vs prev 0.3%
• U.K. Sept. CPI core y/y est. 1.4% vs prev 1.3%

(Bloomberg) -- Market reaction to comments from PM May, falling GBP, concerns about reaction function of overseas investors are overdone, UBS strategists including John Wraith write in a note.

• Recommend buying 10y gilts at 1.15% (target 0.80%) or receiving 2y2y GBP rates at 80bps (target 0.40%)
• Weakness in gilts should fade after Carney provided gentle reminder not to interfere with central bank independence following May’s comments on monetary policy
• While CPI is likely to accelerate in coming months, it is entirely due to the weakness of GBP and therefore externally driven; will likely abate rapidly once temporary factors and base effects play out
• Concerns about overseas demand in gilts may be warranted, though if historical evidence is any guide, demand will likely return strongly once the currency stabilizes
• 10-year gilt yield little changed today at 1.115%

(Bloomberg) -- 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 Dec 14

(Bloomberg) -- Credit-market focus today and tomorrow seen turning more toward Thursday’s ECB rate decision and rhetoric at the following press conference. Any hint on the probability of a QE extension next year, rather than tapering early, could be key to the near-term price performance of EUR corporate bonds, Bloomberg strategist Simon Ballard writes.

• GBP remains the whipping boy of currency markets, although cable may have found an implied floor around the $1.20 level; GBP bonds showing some resilience but spreads remain susceptible to further rates market selloff
• Asian credit mkts stronger overnight and dollar weaker on speculation U.S. monetary policy will remain accommodative: suggests firm opening for EUR credit risk today
  • Given uncertain oil price outlook, investor sentiment may be tested later this week by Saudi Arabia’s first international bond offering; deal could be for min $10b 5y, 10y and 30y paper

• Risk Appetite Model is slowly recouping last week’s weakness
• CDX IG closed +0.2bps at 75.85; iTraxx Asia Ex Japan IG is currently +0.4bps at 118.36

NEWS

• Corporate News
• Ryanair Cuts FY17 Guidance by 5%, Cites GBP Drop Post Brexit
• Danone 3Q LFL Sales Growth 2.1% vs Est. 2.4%, Confirms Outlook
• Connect Group FY Pretax Rises, Focus on Organic Growth in 2017
• Hays 1Q Net Fees Increase Y/y for 14th Consecutive Quarter
• Bellway FY Pretax Profit Beats Ests.; Raises Dividend
• Burberry 1H Rev., 2Q Retail Comp Sales In Line With Estimates
• Bureau Veritas 3Q Revenue Slides; 2016 Outlook Reduced
• Com Hem 3Q Underlying Ebitda Tops Est, Cuts Capex Forecast
• Remy Cointreau 2Q Organic Sales Growth Beats Ests.
• Asia Telecom Sector to See Slowing But Healthy Growth: Moody’s

• Financial News
• Credit Suisse Hires HSBC’s Yeung for New Credit Trading Desk
• Commerzbank to Make 88% of Planned Job Cuts in Germany, BZ Says
• Samba Third-Quarter Profit Drops 2.2% on Higher Provisions
• Banco Popular to Buy Back Aliseda for Bad Bank: Cinco Dias

• Rating News
• Moody’s affirms Hitachi’s A3 rating; outlook stable
• S&PGR Affirms Then Withdraws Credit Union Baywide ’BB/B’ Rtgs
• Negative Rates to Have ‘Limited’ Effect on Japan Banks: Moody’s
• S&PGR Affirms Ratings On LGFA; Outlook Stable

• Other News
• Carney to Ignore Inflation Jump as November Rate Cut Forecast
• Australia Bank Regulator to Review Pay Structures in Risk Review
• Pimco Cuts Asia Risk While Being Bullish on India, Indonesia

ANALYST VIEWS

• BNP Paribas Downgraded After Recent Outperformance, UBS Says
• Last week the ECB (CSPP program) accumulated EU1.835b of debt, down from EU2.24b the week before. We read nothing into the decline in purchases in the week and remain impressed that they can take so many bonds down in such illiquid markets: creditmarketdaily.com
• The mild steepening of credit curves seen recently didn’t fully restore risk/reward. We therefore would still opt to increase beta via adding credit risk, not duration, and also in this scenario would prefer moving down the rating ladder and capital structure: Commerzbank

NEW ISSUES

• Aroundtown Property EU500m PNC6.25 Hybrid MS +437.5
• BNG EU500m 20Y MS +7
• BNP Paribas Fortis EU500m 7Y Covered Bond MS -10
• PKO Bank Hipoteczny EU500m 6/2022 Covered MS +18
• SNS Bank EU500m 15Y Covered MS +9
• UniCredit EU1b 10Y MS +173
• 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.