Halister News

(Bloomberg) -- TWD advances to strongest since July 2015 as equity market continues to attract inflows.

• TWD closed up 0.7% up at 31.225 vs USD; earlier hit 31.178, strongest since July 22, 2015; volume rises 72% to $1.1b, highest in 4 weeks
  • Foreign investors buy local stocks for fifth day, net purchasing TWD6.9b ($222m); Taiex Index gains 0.5% to 9200.42, highest since July 8, 2015
  • Overseas inflows into Taiwan equities +$1.3b so far in Aug., taking year’s inflows to $13b, most among nine Asian markets tracked by Bloomberg
• Recent strength of TWD is flow-driven as easy money flocks to local stock market to ride tech sector gains, Barclays EM Asia economist Angela Hsieh says
  • Central bank has been more tolerant of stronger TWD since April; life insurers have raised hedging ratio for overseas allocations
  • USD/TWD may test 31 psychological level near-term; likely to see support and profit-taking around that level
• Foreign investors continue to sell USD, while local importers are buying at 31.200 per dollar, two traders say
  • Some exporters sell USD after USD/TWD breaks below 31.250, one of the traders says
• Yield of 0.75% govt bond due March 2026 declines 2 bps to 0.6830%
• Abundant liquidity is positive for bond market as money has few places to go; global mkt sentiment also improves; 10-yr govt yield to stay below 0.7%, KGI Securities bond trader Star Lai says
• CBC sells TWD30b 2-yr note at 0.405%

(Bloomberg) -- Scope for structural upside for European equities on the back of central bank action is limited, and neither stronger growth, higher inflation nor further FX depreciation seem likely to step in, Deutsche Bank equity strategists including Sebastian Raedler write in note.

• Deutsche Bank remains cautious on outlook for European equities, confirms Stoxx 600 year-end target of 325, or ~5% downside from current levels
• Recommends long dollar plays, long bond proxies, underweight resources, cautious on financials
• Overweight FTSE 100 versus FTSE 250 and Stoxx 600
• With U.S. productivity growth weak, China’s credit stimulus fading and the U.K. likely to go into a post-referendum recession, global growth is likely to remain subdued
• Deutsche Bank FX strategists see only ~1% downside for euro trade-weighted index by year-end, pointing to limited FX support for EPS growth
  • However, U.K. earnings should be helped by further GBP weakness as the BoE eases more
• NOTE
  • Stoxx 600 down 5.7% YTD vs S&P 500 up 6.7%
  • Aug. 9: Earnings Season Shows Profit Drop in U.S. and Europe: JPMorgan
  • Aug. 8: European Earnings ‘Reasonably Strong’, Growth Still ‘Dismal’: MS

(Bloomberg) -- Valuation becoming “relatively expensive” vs peers, which “is likely signalling the end of the rally,” Raiffeisen analyst Gintaras Shlizhyus says in note.

• New cabinet announcement “should be good” for Serbian Eurobonds as it signals push toward EU integration, reforms
• “Current spread levels imply a BBB- rating grade while in reality Serbia is unlikely to see the progress to investment rating in next 12 months”
• Raiffeisen puts Serbian Eurobonds under revision for possible downgrade to hold from buy
• NOTE: Serb Premier Vows to End EU Talks, Win Investment Grade by 2019

(Bloomberg) -- Germany to sell 0% 08/2026 for EU5b at 11:30am CET; analysts optimistic on the sale given RV levels, specialness in repo, lack of supply ahead.

• ING (Martin van Vliet)
  • This is the final auction before two-week dry-up in Eurozone govie issuance
  • In RV, bond offers ~4bps pick-up in z-spread vs adjacent DBR 6.5% 07/2027, illustrates distortions of ECB’s QE program, where older, high-coupons with lower free-float trade expensive on core curves
  • Fairly attractive valuations, coupled with specialness in repo (~40bps yesterday), suggests auction should proceed smoothly

• Mizuho (Antoine Bouvet)
  • First reopening of the bond launched last month; in RV, the 20/2026-08/2026 roll has steepened in yields terms, reflecting decent auction concession
  • On the curve, 9-10Y sector still offers most roll-down and carry in Germany, though 10Y sector is at less attractive levels than it was at launch of the bond

• Commerzbank (David Schnautz)
  • Lack of euro area government bond supply until the first tap of OBL 10/2021 in two weeks’ time should be supportive for auction
  • After disappointing metrics of bond’s launch, today’s auction metrics like bid-to-cover ratio, ‘tail’ and retention rate should compare favorably

(Bloomberg) -- With bund yields negative out to 10y and EUR IG Corp index yield now a rarefied 0.455%, risk/reward considerations may soon begin to grow, Bloomberg strategist Simon Ballard writes.

• Govt bond yields plumbing new lows creates a paradox for risk asset investors; an anemic macro backdrop might favor a defensive investment bias, while the prospect of continued loose monetary policy encourages a persistent hunt for yield
  • In the wake of the BOE’s latest stimulus initiatives, the bid for incremental yield remains the mkt theme
• Asia credit mkts stronger again overnight hint at continued tightening bias in credit spreads at the open this morning
• CDX IG closed +0.4bps at 71.22 in overnight session; iTraxx Asia Ex Japan IG currently +0.3bps at 114.26 and iTraxx Australia quoted -0.2bps at 103.25

NEWS

• Corporate News
• EON Posts Loss of 3 Billion Euros on Power-Plant Writedowns
• G4S Says Continuing Businesses Posted Very Strong 1H Rev. Growth
• Fuji Reports 1st Qtr Group Earnings Result
• Lanxess 2Q In Line, DZ Bank Says, Raises FY Estimates on Outlook
• OMV 2Q Clean CCS Net, Ebit Beat Ests.; Sees ’17 Cost Cuts Sooner
• Adecco Quarterly Profit Beats Estimates as France Improves
• Hapag-Lloyd Sees FY Ebitda, Ebit Down Significantly
• Renault’s Sevenfold Surge Extends India Auto Sales Growth Run

• Financial News
• Dexia Posts 2Q Net Loss of EU145m; CET1 Ratio Rises to 15.0%
• Commonwealth Bank Says 2H Conditions Tougher Than First Half
• Ageas 2Q Profit Meets Ests. as Gains Offset Weak Combined Ratio
• Bawag 2Q Net Income Rises 4% to EU101.2m as Revenue Grows
• Italian Banks Reel But Monti Has No Regrets for Avoiding Bailout

• Credit Rating News
• Fitch Affirms ORIX’s Rating at ’A-’; Outlook Stable
• China Bank Bailout Looming on Bad-Loan Losses, Fitch’s BMI Says
• Singapore Banks to Record Modest Increase in NPL Ratios: Fitch

• Other News
• BOE Can’t Part Investors From Long Bonds as QE Hits Snag
• Pimco Total Return Boosts Treasuries Stake to Most in 25 Months

ANALYST VIEWS

• Ultra-low rates and intensifying scarcity issues among govies have long been among the arguments why investors are crowded out into the credit space and riskier assets: Commerzbank

NEW ISSUES

• Helaba $600m 4Y Covered Bond MS +50
• BP Capital Markets GBP650m 7Y UKT +85
• 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.