HALISTER1: Italy Bonds Underpricing Referendum Risks, Morgan Stanley Says

Italy Bonds Underpricing Referendum Risks, Morgan Stanley Says

(Bloomberg) -- Italian bonds, European equities underprice the risk of Italy’s upcoming constitutional referendum, Morgan Stanley analysts and economists including Daniele Antonucci write in a research note.
  • Morgan Stanley assigns a 35% chance to the ‘Yes’ camp winning the referendum
    • Sees markets too complacent about the vote outcome and its impact; govt losing the referendum would further delay urgently needed economic and banking reforms that have proved difficult even under Prime Minister Renzi’s pro-business agenda
  • SPGBs, EU credit and EUR are pricing the risk more fairly compared to govt bonds and equities
  • Economists expect a period of uncertainty, which would negatively affect sentiment and activity, but not a period of instability deep enough to lead the protest parties to take power within the next 3-6 months
  • Reform to progress slowly, including any repair to the banking system
  • Morgan Stanley advices selling BTPs vs USTs, selling EU stocks vs U.S. counterparts and buying 3m vs 12m volatility in EuroStoxx as too little political uncertainty is priced in
  • NOTE: Italy referendum won’t stop euro from rising: MS
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2103Z IM (Republic of Italy)

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Daniele Antonucci (Morgan Stanley)

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HALISTER1: EU CREDIT DAILY: ECB Decision Eyed; Wendel Loss, Westpac Refund

EU CREDIT DAILY: ECB Decision Eyed; Wendel Loss, Westpac Refund

(Bloomberg) -- Credit market activity seen modest this morning ahead of the ECB announcement later; Draghi generally expected to maintain, if not expand, policy accommodation, which should help underpin risk-asset valuations, Bloomberg strategist Simon Ballard writes.
  • Market speculating over possible increase in breadth of stimulus; ECB could add financials to CSPP, drop capital key allocation system, buy bonds below deposit rate/inside 2-yr maturity threshold
    • At very least, expected to extend QE beyond March 2017
  • Macro backdrop still positive for risk assets; Asian credit mkts firm overnight even as equities retreat on yen strength
  • Risk Appetite Model clearly highlights credit-market strength and extent of central bank spread manipulation
  • Bloomberg Barclays Eur-Agg Corporate index closed unchanged yday at 108bps; Bloomberg Barclays Eur HY index closed at 355bps (-8bps)
  • CDX IG closed +0.6bps at 75.58 in overnight session; iTraxx Asia Ex Japan IG currently -1.5bps at 106.59 and iTraxx Australia quoted flat at 95.73
NEWS
  • Corporate News
  • Wendel 1H Revenue EU4.09b, Posts 1H Net Loss
  • National Grid Files Rate Proposal for New York, Long Island Gas
  • Bourbon 1H Adj. Revenue Falls 21%, Net Loss Widens
  • Zoopla Sees FY Ebitda at Top End of Current Mkt Forecasts
  • Dixons Carphone 1Q U.K. & Ireland LFL Sales Beat Estimates
  • SAS 3Q Sales, Pretax Slightly Higher Y/y; Maintains FY Outlook
  • Financial News
  • Westpac refunds $20m to customers over foreign transaction fees
  • Yes Bank CEO Sees Capital Adequacy Exceeding 19% Post QIP
  • Dubai’s Arqaam Hires Ex-Mashreq Banker Hussain for Asset Mgmt
  • Sanlam 1H Normalized Headline EPS 2.08 Rand vs 2.24 Rand
  • FirstRand FY Profit Misses Estimates; Sees Risk of Downgrade
  • Credit Rating News
  • S&PGR Affirms ‘BB-’ Grupo Cementos de Chihuahua
  • BOC Aviation’s MTN Prog Rating Unaffected by Updates: Fitch
  • S&PGR Rates BOC Aviation Senior Unsecured Notes ‘BBB+’
  • Other News
  • China Auto Sales Rise 24.5% on Rush to Beat Expiring Tax Cut
  • S&PGR Says China’s Property Sector Revival Could Lose Steam
ANALYST VIEWS
  • Uncharted waters? You bet. Money still keeps flowing into corporate bond funds. It’s the fixed-income asset with the “most-est”, given those juicy returns this year (6.3% YTD in IG). It’s for another day that we fret about the exit: creditmarketdaily.com
NEW ISSUES
  • Belfius Bank EU500m 10Y Covered MS
  • Burgan Bank $500m 5-Yr Bond at MS+215bps
  • Bank of Nova Scotia GBP500m 5Y Covered UKT +63
  • EIB EU4b 7Y EARN MS -22
  • Ferrovial Emisiones EU500m 6Y MS +52
  • KfW GBP250m 1.375% 2/2021 Tap UKT +20
  • Natixis Pfandbriefbank EU250m 10Y Cov MS -6
  • Thermo Fisher EU1b 8Y MS +80, EU600m 12Y MS +100
  • WPP GBP400m 30Y UKT +160
  • 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.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2539Z GR (European Central Bank)

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Mario Draghi (European Central Bank)

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HALISTER1: JGBs Drop as BOJ Nakaso’s Remarks Dim Easing Prospects: BofAML

JGBs Drop as BOJ Nakaso’s Remarks Dim Easing Prospects: BofAML

(Bloomberg) -- JGBs fall in afternoon session as remarks by BOJ’s Nakaso damp speculation of further monetary easing by central bank, says Shuichi Ohsaki, chief Japan rates strategist at Bank of America Merrill Lynch.
  • JGBs had been bought in morning session on expectations for a cut in negative rates: Tokyo-based Ohsaki; says yield curve also shifted downward, led by super-long end yields that fell on back of strong outcome of this week’s 30-year note sale
  • While yield curve is likely to see pressure to steepen toward BOJ’s meeting later in Sept., yields are unlikely to rise sharply due to continued bond purchases by BOJ and redemptions this month
  • NOTE: Nakaso says BOJ to decide if necessary to adjust current framework
  • Today’s sale of 5-year JGB notes was solid: Ohsaki
  • NOTE: Japan’s 5-year bond auction draws lowest bid/cover in 11 months
  • Ten-year yield up 2 bps at -0.040%, 20-year yield up 3 bps at 0.385% and 30-year yield up 3.5 bps at 0.445%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Shuichi Ohsaki (Merrill Lynch Japan Securities Co Ltd)

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HALISTER1: USD/KRW May Test 2015 Low If BOK Ignores Won Strength: Analysis

USD/KRW May Test 2015 Low If BOK Ignores Won Strength: Analysis

(Bloomberg) -- USD/KRW may extend recent decline to test support at 16-month low of 1,064.97 in medium term if BOK doesn’t indicate willingness to slow pace of won’s rise at its meeting tomorrow, Bloomberg strategist David Finnerty writes.
  • Won has been appreciating since U.S. payroll data on Sept. 2, which lowered market probability of Fed hike in Sept. and spurred foreign investors to purchase Korean bonds and equities as risk-on sentiment grew
  • Any more disappointing U.S. data could bolster investor expectations that Fed won’t hike this year, encouraging overseas funds to invest more in Korea
  • Won strength isn’t positive for the country’s exports
  • Slow stochastics remain bearish with %D reading of 30 and falling
  • BOK is expected to leave 7-day repo rate at 1.25% according to 31 of 32 economists in Bloomberg survey; one predicts 25- bp cut
    • Household debt continues to rise, discouraging central bank from cutting rates; improving Sept. business survey data for manufacturing and non-manufacturing further suggest BOK will remain on hold
  • USD/KRW up 0.2% at 1,093.95; low of 1,064.97 hit April 29, 2015
  • 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.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: Indian State-Run Banks Selling Into 10-Year Bond Rally

Indian State-Run Banks Selling Into 10-Year Bond Rally

(Bloomberg) -- State-run banks have been net sellers on most days in which bond market has gained, Bloomberg calculations since the last monetary policy decision on Aug. 9 show.
  • Benchmark 7.59% 2026 bond yield has dropped on 10 days; state-run banks have been net sellers of govt bonds on 8 of those days
  • State banks were biggest net sellers ever when RBI met on Aug. 9; yield fell 5 bps on that day after RBI said it will front load liquidity needs of banking system to meet non- resident deposit outflows
  • “The government bond market is getting structurally stronger. State-run banks are the most savvy investors who buy low and sell high. They will support the market at lower price levels,” says Sandeep Bagla, associate director at Trust Capital Services
  • Yield on 7.59% 2026 bond down 1 bp to 7.05%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Sandeep Bagla (Trust Capital Services Pvt Ltd)

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HALISTER1: INSIDE G-10: Euro Firms Ahead of ECB; Yen Strengthens; USD Slips

INSIDE G-10: Euro Firms Ahead of ECB; Yen Strengthens; USD Slips

(Bloomberg) -- EUR/USD creeping higher ahead of today’s ECB meeting and press conference; click here for preview.
  • Euro’s bull run unlikely to be interrupted by ECB, Morgan Stanley says
  • Draghi decision on ECB QE program coming, if not now then soon
  • USD/JPY downtrend this week reinforced as July current- account surplus exceeds 12-month moving average; click here for chart
  • AUD/USD gets modest boost from China trade data showing surge in imports
  • Aussie corporate demand keeps pair above 21-DMA at 0.7622
  • BBDXY down 0.15% to 1,169.66
  • WTI crude oil rising for fourth day, up 1.8% to $46.30/bbl
  • GBP/USD ticks higher after Aug. RICS house price index jumps more than forecast
  • 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.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2539Z GR (European Central Bank)

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HALISTER: China Aug. Retail Auto Sales Rise 24.5% on Year: PCA

China Aug. Retail Auto Sales Rise 24.5% on Year: PCA

(Bloomberg) -- China’s retail auto sales in August rose to 1.8m units, Passenger Car Association says on website.
  • Jan.-Aug. retail auto sales rose 12.7% to 14.2m units
Alert: HALISTER
Source: BFW (Bloomberg First Word)

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F US (Ford Motor Co)
600006 CH (DongFeng Automobile Co Ltd)
489 HK (Dongfeng Motor Group Co Ltd)
GM US (General Motors Co)
UG FP (Peugeot SA)

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(2) *CHINA AUG. RETAIL AUTO SALES RISE 24.5% ON YEAR: PCA

*CHINA AUG. RETAIL AUTO SALES RISE 24.5% ON YEAR: PCA

Alerts: HALISTER, HALISTER1
Source: BN (Bloomberg News)

Tickers
F US (Ford Motor Co)
600006 CH (DongFeng Automobile Co Ltd)
489 HK (Dongfeng Motor Group Co Ltd)
GM US (General Motors Co)
UG FP (Peugeot SA)

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