Halister News

(Bloomberg) -- Improved sentiment towards financials is giving a lift to risk asset markets, helping spreads reverse some of the widening from earlier this week while primary market activity picks up. Follow-through from OPEC oil ministers agreeing surprise output cap in Algiers yesterday could also now be instrumental in underpinning risk asset pricing through the end of the week, Bloomberg strategist Simon Ballard writes.

• Asian equity/credit stronger overnight, Yen weaker as oil price buoyed by OPEC deal; positive lead for European risk this morning
  • Macroeconomic backdrop remains an anchor for corporate bonds; notwithstanding recent volatility in govt bonds, dovish central bank rhetoric continues to fuel hunt for yield trade
• Financials still in spotlight despite Deutsche Bank stability; focus now on Wells Fargo as calls mount for CEO Stumpf to resign
• Risk Appetite Model finds degree of stability as Deutsche Bank fears fade
• Bloomberg Barclays Eur-Agg Corporate index closed yday at 114bps (unchanged); Bloomberg Barclays Eur HY index closed at 416bps (-2bps)
• CDX IG closed -1.7bps at 75.37 in overnight session; iTraxx Asia Ex Japan IG currently -2.1bps at 116.25 and iTraxx Australia quoted -1.8bps at 102.50

NEWS

• Corporate News
• Green Dragon Gas 1H Shows Net Loss; Cash From Operations Ahead
• Merlin YTD Revenue Growth 10.6%; Still Positive on M-T Outlook
• Vernalis FY Revenue Declines, Oper Loss Widens on Higher Costs
• Glaxo to Sell Rest of Stake in South African Drugmaker Aspen
• Opel CEO Says 1H Break-Even Shows Profit Strategy Works
• LG Household Falls; NH Sees Slower 3Q Earnings on Stricter Rule
• Solvay Targets $505 Million Boost From Extended Efficiency Drive
• BMW to Build on Electric Line-Up, Sales Chief Robertson Says
• Abertis Weighs Buying CDC’s 15% Stake in Sanef: Expansion
• BlackBerry, Inventor of ‘CrackBerry,’ Stops Making Phones
• Novo Nordisk to Cut 1,000 Jobs to Battle Diabetes Competition

• Financial News
• Deutsche Bank Said to Face Hurdle Moving China Sale Proceeds
• ING Restructuring May Affect 4,000 Jobs in Belgium: La Capitale
• Li Ka-Shing Confident in Postal Savings Bank of China
• Bendigo Bank acquires Keystart loan portfolio, kicks off SPP

• Credit Rating News
• S&PGR Downgrades Freeport-McMoRan To ’BB-’; Outlook Stable
• S&PGR Affirms Yankee Stadium LLC Debt, Rtg On CWPos

• Other News
• ‘Hard Brexit’ Looms as 28 Red Lines Turn Deeper Shade of Scarlet
• Fed’s George Says Fed Needs to Raise Rates ‘Slowly but Surely’
• Stumpf’s Pay Cut Eclipsed by Fury as Yellen, State Join In

ANALYST VIEWS

• OPEC surprise agreement to cut production...reaction could be stronger in the $-space... (but also) suggest that €- investors take advantage of near-term support to further lighten up on fundamentally weaker Oil & Gas names, and keep overall marketweight: Commerzbank
• After the storm, likened to a hurricane as far as Deutsche Bank is concerned, comes the calm; the rally in the underlying over the past few sessions (is) helping total return investors feel good about the performance this month/quarter/year to date: creditmarketdaily.com

NEW ISSUES

• BASF GBP250m 7Y UKT +67
• CK Hutchison Finance EU1b 8Y MS +90
• EIB EU500m 11/2037 Climate Awareness Bond MS -10
• EnBW EU725m 60.5NC5.5 Hybrid 3.5%
• FMS Wertmanagement $425m 5/2018 FRN Tap 3mL +2
• France EU4b 7/2047 I/L OATei +16
• SocGen EU500m 5Y Green Bond MS +30
• Veolia Environnement EU600m 7Y, EU500m Long 12Y
• Romania EU1b 2.875% 5/2028 Tap 2.15%
• Union National Bank $600m 5Y MS +170
• 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.

--ARIJIT GHOSH

(Bloomberg) -- China’s 7-day repo rate may remain above 2.5% even as it declines after the week-long National Day holidays, Guangfa Bank trader Yan Yan says.

• Liquidity is tighter due to seasonal and holiday factors
  • Settlement of 7-day repo contracts will be after the holidays, which also boosts 7-day repo rate
• Carry has been narrow as 7-day repo rate is very close to 10-yr govt bond yield; further trading strategy relies on economic data
  • Sept. PMI would be a early indicator for upcoming 3Q data
• NOTE: Sept. Caixin China Manufacturing PMI due 9:45 am Friday, Bloomberg survey median est. 50.1 vs 50 in Aug.
  • 7-day repo rate jumps 12 bps to 2.7453% today, highest since July 2015; yield of 10-yr govt bond rises 2 bps to 2.75%

(Bloomberg) -- Italy to sell new 5Y 0.35% 11/2021 for EU3.5b-EU4b, 10Y 1.25% 12/2026 for EU2b-EU2.5b and CCTeu 07/2023 for EU1b-2.5b at 11am CET.

• Analysts optimistic on sale, despite mixed views on new 5Y in RV; bias toward owning BTPs vs SPGBs after recent widening

• Commerzbank (David Schnautz)
  • Yesterday’s BTP outperformance vs Spain despite the supply is a good omen
  • Focus should swiftly shift toward Spain, in terms of both supply and ratings, with news on both fronts due tomorrow

• BBVA (Jaime Costero)
  • New 5Y trades cheap, yield pickup of the roll is 7.7bps; prefer owning new 5Y as part of 2s5s flattener boxed vs Spain as SPGB 2s5s is at flattest level since QE was implemented
  • 10Y bond has corrected previous richness on repo, also slightly cheapened on the curve
  • Cross-market basis continues to favor switches in 10Y BTP area vs SPGBs, either outright or as part of 5s10s flatteners

• ING (Benjamin Schroeder)
  • New 5Y benchmark ~0.32% in gray market does not suggest much bond-specific concession vs BTP curve
  • BTPs have suffered vs bunds, SPGBs in recent weeks with general risk-off patterns triggering latest widening leg
  • BTPs outperformed SPGBs yesterday; expect this trend to continue as BTP spreads vs Spain have reached stretched levels at more than 20bps in 5Y and 30bps in 10Y

(Bloomberg) -- “We need to see more currency stability and transparency in the FX regime before a larger commitment of our clients’ money to the market,” says Desmond Soon, head of investment management Asia ex-Japan at Western Asset Management, a subsidiary of Legg Mason Global Asset Management.

• Consensus is for yuan to depreciate modestly over next 2 years, but depends on broad USD trend, Soon says in interview
  • Yuan depreciation vs trade basket “is largely done”
  • NOTE: Yuan has depreciated 4.8% vs dollar in past year; down 7.3% in REER terms in 12 months through Aug.
• SDR inclusion on Oct. 1 indicates yuan bonds will become mainstream
• Onshore Chinese bonds offer good diversification for pan- Asia portfolios; prefer bonds issued by govt, policy banks and top SOEs
• Major index providers will likely increase China’s weighting gradually; don’t expect sudden inflows in couple of months
• Will probably increase allocation if major developed market indexes substantially raise China’s weighting
• SDR Preview: Fund managers prepare for greater access to onshore bonds

(Bloomberg) -- USD/JPY rises to 8-day high, reflecting risk-on tone as crude oil consolidates gains spurred by possible OPEC agreement.

• WTI crude +0.2% to $47.15/bbl after rising 5.3% yesterday
• Saudis choose higher prices over free oil markets
• Mester warns Fed may get behind curve if it delays too long on rates
• Fed’s George says rates need to be raised “slowly but surely”
• USD/JPY +0.7% to 101.40 vs 100.66-101.42 range
• Net JPY purchases by corporates this week have been below expectations, with short-covering of spot by leveraged funds seen after Tokyo fix, trader says
• Early session GBP/JPY buying by leveraged accounts helps trigger buy stop-losses through 131.50 area, trader says
• AUD/USD gains for fourth day, up 0.1% to 0.7699
• Pair rises on equity and momentum flows, real money accounts have revised their expectations on AUD dips: trader
• USD/CAD falling for third day, down 0.2% to 1.3058, testing 55-DMA at 1.3050
• BBDXY little changed at 1,180.78
• 10-year Treasury yield up 1 bp to 1.586%
• NOTE: Mark Cranfield is an FX strategist who writes for First Word. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- Deputy Prime Minister and MAS Chairman Tharman Shanmugaratnam’s comments on growth outlook appear to be a downgrade, Citi economist Wei Zheng Kit writes in note received today.

• Compares Shanmugaratnam’s remarks with comment from MAS Managing Director Menon in July that economy’s 2H performance “will not be too different” from 1H and MAS’ Recent Economic Developments report in Sept. that “modest growth trajectory” is expected
• Key risk to Citi’s call for no MAS policy change would be a significant downgrade of growth outlook beyond expectations in September’s Recent Economic Developments report; this risk may be closer to materializing
• If 2016 growth was seen to fall below 1%, Citi would tilt toward re-centering as its base case
• USD/SGD up 0.2% to 1.3612
• NOTE: Economic growth for 2016 will be at lower end of govt’s forecast of 1% to to 2% and a “tough” period will last for a while, Shanmugaratnam said, according to Business Times newspaper; also said normal growth is 2% to 3%

(Bloomberg) -- USD/JPY could grind lower near term even if Japanese CPI weakens, as recent behavior suggests BOJ may ignore calls to ease so soon after introducing new policy, Bloomberg strategist David Finnerty writes.

• Lower Fed dot plot has also reduced support for USD
• USD/JPY has fallen 2% in Sept.
• FX pair remains in bear channel
• MACD is still bearishly below zero and signal line
• Japan’s Aug. CPI is forecast at -0.5% y/y vs -0.4% in July, according to median est. in Bloomberg survey
  • CPI ex-food is expected to be -0.4% y/y vs -0.5% in July
  • Data due 8:30am local time tomorrow
• Any change in monetary policy since Kuroda became BOJ governor has been followed by no action over several months as the central bank gauges its effectiveness; BOJ tweaked policy on Sept. 21
  • Therefore unlikely to be any further easing this year to aid yen weakness
• NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.