Halister News

(Bloomberg) -- Possible scenarios apply in case Deutsche Bank AG needed capital injection to cover litigation costs and include the option of German government taking a stake, Die Zeit weekly reports without saying how it got the information.

• Contingency plan envisages possible sales of Deutsche Bank units, with the option of state guarantees to back the transactions if needed: Die Zeit
• Scenario of govt taking 25% stake would apply only in extreme emergency: Die Zeit
• All options are contingency planning and German govt hopes Deutsche Bank won’t need any state aid: Die Zeit
• NOTE: Merkel’s spokesman said Monday that German govt sees “no grounds” for speculation over state aid to Deutsche Bank

(Bloomberg) -- Shift toward fiscal stimulus, whether initiated in the U.S. or abroad, should push global yield curves higher, RBC analysts write in client note.

• Economic re-acceleration after a change in policy emphasis would benefit loan performance and narrow credit spreads; corporate debt indexes would get a boost from any increase in materials prices
• Currency impact less clear-cut; expect dollar to weaken on global stimulus as capital likely to flow to countries with lowest starting rates when yields turn positive again
• Commodities should rise on demand pickup, particularly if stimulus is more focused on infrastructure
• In U.S. equities, combination of steeper curves and higher commodity prices would benefit bank, energy and materials most
  • An additional 20bps in GDP would lead to 100bps increase in corporations’ bottom line
  • International stock indexes have a substantially higher weight in financials, materials and industrials, which should benefit most from fiscal spending
• Any stimulus should have measurable impact on the economy and corporate profits in intermediate term and spur a market tone resembling an early-stage recovery or a mid-cycle re- acceleration
  • Suggest patience when investing; there will be opportunity to profit once more specific policy proposals are presented
• NOTE: Global growth to stay weak as calls for fiscal stimulus ignored, HSBC says
• NOTE: Draghi due to address a closed-door session of German lawmakers today, weeks after saying countries that have fiscal space should use it

(Bloomberg) -- Scale into USD 1y forward 5s30s bear steepener expressed by buying 1y30y payer spreads (ATM/3.05%) financed by selling 1y5y payer ATM, Societe Generale strategists including Bruno Braizinha writes in client note.

• Sell 250mm 1y5y payer ATM
• Buy 50mm 1y30y payer ATM
• Sell 50mm1y30y payer 3.05% (~130bp out of the money)
  • Carry is positive by ~2.5bp/6m
  • Position profits on a bear-steepening scenario for the 5s30s curve beyond the 50bp entry level, where both the short 5y payer leg and the long 30y payer leg expire in the money
• Continue to hold a flattening bias, with a 3-9-month horizon; however, steepening risks on:
  • Fading appetite for USTs and some indication of a structural shift in demand for duration in dollars
  • U.S. election cycle and the Trump factor
  • Extension of ECB asset purchases beyond March 2017 but with a tapering of purchases over a 9-month period to end-2017

--FERGAL O'BRIEN

(Bloomberg) -- China’s bond market will continue to correct because of continued liquidity tightness and a stabilizing economy, according to Citic Securities head of fixed income research Ming Ming.

• Catalysts for yields to rise could include tighter regulation on leverage, PBOC taking a more cautious monetary stance and rising default for corporate debt, he says
• Short-term liquidity has tightened lately because of net withdrawals by PBOC through open market operations this week
  • Central bank stops selling 7-day reverse repos; share of 28-day funds rises in injections, boosting funding cost on the short-end
• PBOC intends to keep overall liquidity stable; 28-day fund injection would prevent too many reverse repo contracts maturing together shortly after the week-long National Day holiday next week
• PBOC is also concerned about leverage-driven systematic risk as yield at the long-end of the curve has declined again to lower than the shorter-end, indicating a pick up in speculation
• Aug. industrial profits and PPI show economic fundamentals are stabilizing
• NOTE: China 7-day repo rate jumps 12 bps to 2.6152%, highest since July 2015
  • Overnight repo rate rises 9 bps to 2.3018%, highest since April 2015, vs yield for 1-year govt bonds trading at 2.18%

(Bloomberg) -- Phoenix Group to buy Abbey Life from Deutsche Bank for GBP935m in cash payable on completion, subject to adjustments.

• Consideration and estimated expenses to be financed through a fully underwritten rights issue to raise a total of GBP735m and a GBP250m new bank facility
• Acquisition to add GBP10b of assets under management and ~735,000 policyholders
• Acquisition expected to generate approximately GBP0.5b of aggregate cashflows between 2016 and 2020 and ~GBP1.1b in aggregate from 2021 onwards
• Statement:Link

(Bloomberg) -- Credit markets look set to open with a renewed bid again today, albeit modest with investor sentiment still fragile. The tone to risk assets has markedly weakened this week amid uncertainty surrounding Deutsche Bank’s capital position and three primary deals being pulled, but there has been no investor capitulation in secondary cash bonds, Bloomberg strategist Simon Ballard writes.

• Speculation ahead of OPEC meeting in Algiers feeding weakness in the oil price; put pressure on Asian equities overnight
• Defensive tone characterizes corp credit as investors balance on-going hunt for yield with security of capital preservation
  • New issue pricing now finely nuanced; need for lower- grade issuers to be realistic in funding targets
• Risk Appetite Model reflects recent weakening of tone to risk assets
• Bloomberg Barclays Eur-Agg Corporate index closed yday at 114bps (+2bps); Bloomberg Barclays Eur HY index closed at 418bps (+7bps)
• CDX IG closed +0.6bps at 77.44 in overnight session; iTraxx Asia Ex Japan IG currently -4.9bps at 115.31 and iTraxx Australia quoted -0.1bps at 104.79

NEWS

• Corporate News
• Moss Bros 1H Pretax Profit Up; Sees Further Good Progress in 2H
• Toshiba More Than Doubles Profit Outlook as Yen Drives Sales
• AA 1H Revenue Up 2.2%, Is Trading in Line With Expectations
• Sainsbury 2Q LFL Retail Sales Ex-Fuel Below Expected
• Smiths Group Sees Broad Continuation of 2016 Trends in Outlook
• Deutsche Post Agrees to Buy U.K. Mail for for GBP242.7m

• Financial News
• European Banks Hit as Deutsche Bank Troubles Spook Investors
• Deutsche’s Challenges Not New, Should Settle DOJ Fast: Goldman
• RBS Reaches $1.1 Billion Settlement With U.S. Credit Unions Over Mortgage-Backed Securities
• Deutsche Bank’s Cryan rules out capital increase: Bild

• Credit Rating News
• S&PGR Assigns Prelim ’BBB-’ Rtgs To UPL Corp, Notes; Otlk Stbl

• Other News
• Saudi Oil Minister Signals He’s Open to Compromise With Iran
• Wells Fargo’s CEO Forfeits $41 Million in Fight to Keep His Job
• Not Enough Money and Too Many Funds Mean ETFs Sputter in Europe

ANALYST VIEWS

• There is rarely any smoke without fire, but we don’t believe the demise of Deutsche Bank is imminent. They might need more capital - lots of it, but they’re big enough and tough enough to handle it: creditmarketdaily.com

NEW ISSUES

• Babcock International GBP250m 10Y UKT +130
• Blackstone Holdings Finance EU600m 10Y MS +83
• Dexia Credit Local GBP500m 5Y UKT +75
• NWB Bank EU500m 25Y MS +10
• Stadshypotek EU500m 10Y Covered MS Flat
• Unedic EU500m 11/2020 FRTR +13
• Vodafone EU750m 1/2024 MS +60
• 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) -- Expect Norges Bank Governor Olsen to reiterate that interest rates will probably remain around current levels for the next few years, Credit Agricole strategists including Manuel Oliveri write in a client note.

• Olsen likely to highlight that external factors such as oil- price developments to drive NOK
• Olsen and Deputy Governor Matsen speak at conference in Bergen at 7:30am BST

(Bloomberg) -- Wal-Mart Stores Inc. would take a minority stake in Flipkart, said a person with knowledge of the matter.

• Final terms of the deal havn’t been worked out and negotiations are still underway, the person said
• Amazon and Flipkart are battling for top position in India’s e-commerce market
• Flipkart’s most recent valuation was $16 billion, according to CB Insights
• Amazon is spending a total of $5 billion to expand in India