Halister News

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(Bloomberg) -- Central bank decisions in CEEMA and Asia are in focus for signs of an easing bias following Brexit vote, while Brazil is schedule to announce its 2017 fiscal goal.

• MAIN RISKS
• CEEMEA
  • Focus will be on the central banks’ decisions as investors expect a more accommodative stance in post- Brexit era while Fed is likely out of the game this year with the hiking cycle
  • Fitch due to review Poland’s ratings later this month and the outlook may be lowered to negative from stable, according to Morgan Stanley; Poland affirmed by S&P Global Ratings with negative outlook on July 1

• LATAM
  • Brazil Central Bank resumed offering of reverse FX swaps July 1st after staying out of mkt since mid-May; BCB president Ilan Goldfajn said that he sees conditions to reduce bank’s swap holdings, which make the auctions a significant intraday driver
  • Brazil FinMin Meirelles said 2017 fiscal goal to be announced this week; traders may want to see significantly lower than BRL170.5b target deficit to refrain from punishing BZ assets
  • Investors’ patience with fiscal woes may vanish completely after Rousseff’s final impeachment vote in Senate; session seen happening by the end of Aug., but any indication of change in calendar may start to impact as soon as July
  • Banxico’s controversial rate move last week may continue to spur debate and any official communication will be closely eyed to gauge chances of another rate hike next month to curb MXN decline

• ASIA
  • USD/JPY vulnerable to extending decline amid risk-off sentiment following Brexit result. FX pair was unable to sustain a rally despite APAC risk-on sentiment last week; any market expectations for additional QQE easing at BOJ’s meeting later this month may support USD/JPY, particularly as the stronger yen adds headwinds as the central bank struggles to reach 2% inflation target
  • AUD/USD may grind higher if risk-on sentiment is maintained ahead of 2Q CPI trimmed mean data on July 27. A reading below 1Q level of 1.7% y/y could increase probability of a rate cut by RBA at its August meeting. RBA is forecast to remain on hold in July while they monitor affects of Brexit and await the national elections results which shows risks of a hung parliament.

• CALENDAR (based on local dates)
• July 4: Turkey CPI; Chile minutes
• July 5: Malaysia foreign reserves; Colombia CPI; Chile IMACEC
• July 6: Poland central bank decision
• July 7: China foreign reserves; Hungarian industrial production; Mexico CPI
• July 7-14: Singapore 2Q GDP
• July 8: Taiwan exports; Moody’s to review Hungary rating; Colombia minutes; Chile CPI; Brazil CPI
• July 10: China CPI, PPI
• July 12: India IP; Malaysia IP
• July 13: China trade balance; Malaysia central bank meeting; Hungarian central bank minutes
• July 14: Korea central bank meeting; Chile rate decision; Mexico minutes
• July 15: China IP and 2Q GDP; Fitch to review Poland rating
• July 18: Singapore non-oil exports
• July 19: Turkey central bank decision
• July 20: Malaysia CPI; Brazil rate decision
• July 21: Indonesia central bank meeting; South Africa central bank decision
• July 22: Malaysia foreign reserves; S&P to review Czech Republic rating
• July 25: Singapore CPI
• July 26: Korea 2Q GDP; Hungarian central bank decision
• July 29: Korea IP; Taiwan 2Q GDP; Russian central bank decision; Colombia rate decision

• NOTE: David Finnerty, Davison Santana are FX strategists who writes for First Word. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- Analysts discuss recent mixed reports of ECB weighing loosening QE rules.

• Following Carney’s speech last week, strategists maintain a long bias in the front end of U.K. curve, targeting further cuts; RBS and Citi recommend trades to benefit from future QE

• Deutsche Bank (strategists including Francis Yared)
  • Irrespective of the outcome of Brexit process, U.K. economy will be adversely affected and BOE will likely frontload policy easing
  • Rotate long GBP 10Y breakeven into USD 5Y breakeven, maintain long Sept. MPC, BTP 10s30s flattener, and short March-17 sonia; stop out of short EUR 5Y
  • Enter GBP Libor Dec. 17-Dec. 18 steepener; trade has limited downside as long as any policy easing is frontloaded; negative rates are unlikely to be pursued
  • Given idiosyncratic risk related to Italian banks, likely response from the ECB, recommend being long 5Y PGBs vs. 10Y BTPs
  • Recent ECB sources reports suggest looking at deviating from the capital key; removal of yield floor, or increasing issue limit from 33% are far less politically contentious

• RBS (strategists including Andrew Roberts)
  • Summer of easing to come in U.K., resumption of QE asset purchases perfectly feasible after rates reach 0%, dovish signals from BOE see market discount higher probability of QE
  • As a set-up, recommend long UKT 5s15s30s fly given lack of natural buyers in 20Y sector; smaller free-float in 7-15Y point suggests this offers best risk-reward
  • Spanish election outcome should allow a market-friendly center-right government, recommend long 10Y SPGBs vs BTPs, given less political risk, strong fundamentals; also like 10s30s SPGB flatteners
  • Previously forecast that ECB would cut its deposit rate by 10bps, upscale QE by EU20b-25b at Sept. meeting; some risk of further easing at July meeting, though not yet base case

• Morgan Stanley (strategists including Jesper Rooth)
  • Recent rally in duration supported by BOE’s Carney, indicating more policy easing likely over summer
  • Market pricing for the ECB looks too aggressive, recommend being long 2y Gilts vs Schatz
  • Continue to recommend long-duration positions across G4 rates, surprisingly resilient risk-asset performance gives reason for caution
  • Potential changes to QE capital key should benefit periphery, particularly Italy; should alleviate some pressure on bunds
    • In addition, supportive cash flow dynamics in Italy, more positive bond market indicators, suggest owning periphery vs semi-core; recommend long 10Y BTP futures vs bunds

• Barclays (strategists including Cagdas Aksu)
  • Higher economic, political risks for euro area, more potential QE easing/technicality changes from ECB, will result in notable volatility in duration, curve, EGB spreads over Q3
  • Continue to think 10y bunds will underperform vs USTs, maintain this recommendation
  • Remain neutral on EUR 10s30s swap curve, below 30bps, provides a good level to put on steepeners
  • ECB support through QE still significant for peripheral markets, technical changes being discussed give more fuel to this channel in short term; peripheral cash flows are notably positive in July, August

• Citi (strategists including Harvinder Sian)
  • Carney’s speech signaling further easing over summer leaves door open to rate cuts and QE; with rate cuts priced, more value in QE trades, such as long 30yr gilt swap spreads, target further 20bps of richening
  • Remain neutral on EGB spreads; peripherals still “relatively resilient”, PSPP to be frontloaded ahead of August; ongoing uncertainties, political risks will keep spreads in check
  • Don’t expect removal of depo rate ECB QE floor as the Bundesbank would then have deeper losses on its buying, recommend paying 1y1y EUR OIS, targeting -0.42%: MORE

• TD Securities (strategists including Renuka Fernandez)
  • Maintain long Sept. 2016 short sterling, look for BOE to cut by 50bps by year-end; initiate FRA/OIS wideners as a partial hedge to the position
  • Continue to like being long Gilts, market is pricing in some amount of QE, becomes difficult to go outright long; instead recommend buying Gilts on spread vs USTs at ~70bps

(Bloomberg) -- European credit mkts likely to be muted today in terms of volume, due to July 4 holiday across Atlantic, even as n-t tone remains firm. Expectations of potential additional BOE policy accommodation and ongoing ECB CSPP bid should both underpin European credit spreads, Bloomberg strategist Simon Ballard writes.

• Asian equities and EUR equity futures trading higher this morning, also indicating firm tone to EUR risk assets at the open
• Brexit and global macro weakness still overhang global risk asset outlook
  • May continue to create pockets of weakness in sentiment and corp bond price/spread volatility
  • Investors may favor barbell combination of haven assets (compressing yields) and risk/incremental yield; a self- fulfilling cycle
• Risk Appetite model tracking 2010 in terms of vol and spread dispersion
• iTraxx Asia Ex Japan IG currently -2.3bps at 138.06

NEWS

• Corporate News
• Tata Motors Rises After Report JLR U.S. Sales Climb in June
• Hitachi Zosen Eyes M&A to Beef Up Energy-From-Waste Business
• Volkswagen Could Cut Labor Costs by Semi-Retirement: SZ

• Financial News
• Abu Dhabi’s NBAD and FGB to Merge Forming $175 Billion Bank
• Brexit Has Euro Outsiders Fearing Banking Fallout, Denmark Says
• Sumitomo Mitsui Beefs Up Loan Distribution as Yen Yields Vanish

• Credit Rating News
• Aussie Drops as AAA Rating Seen Threatened by Unclear Election
• S&PGR Affirms Fiji ’B+/B’ Ratings; Outlook Remains Stable

• Other News
• RBA Seen in Wait-and-Watch Mode as Vote, Brexit Unrest Play Out
• Brexit Stock Drop Not Over for Norway Manager With $10 Billion
• Norway’s Junk Bond Market Faces Second Wave of Restructuring

ANALYST VIEWS

• The ECB has lifted just shy of €5bn in two weeks, which has surely helped support the IG corporate bond market and reduced material weakness and much volatility. It will continue to do so: creditmarketdaily.com

NEW ISSUES

• Santander UK GBP500m 3Y Covered FRN 3mL +48
• 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) -- Most Asian currencies gain as the hunt for yield continues post-Brexit. Japan’s yen and South Korea’s won are the exceptions, declining in poor liquidity amid U.S. holidays. Aussie dollar is little change, awaiting election results.

• USD/Asians are heavy today with inflows into Asia because of relatively better yields while poor spot liquidity amplify moves, Christopher Wong, senior FX analyst at Maybank says in an interview
  • Cautions against false breaks lower in USD/Asia given holidays this week in Indonesia, Malaysia, India, Singapore and U.S.
• Dollar index steady, following 0.5% losses on July 1
  • MSCI Asia Pacific Index is set to rise for 4th day; Brent oil prices is little changed following 1.4% rally on last Friday
• Australian dollar recoups early losses to hold steady as early vote count shows no clear winner at national elections; see Election Wrap: Fiscal ‘Paralysis’ No Matter Who Wins
  • Fitch says close Australia vote could mean different fiscal outlook
  • Moody’s says short-lived political uncertainty would have limited credit implications for Australia
  • May building approvals fell 5.2% m/m; est 3.5% drop; ANZ June job advertisements rise 0.5% m/m; June Melbourne Inst. inflation gauge rises 0.6% m/m
• New Zealand dollar steady after 0.6% gain on last Friday
  • NZ Treasury says Brexit likely to have limited economic impact
  • Kiwi-Aussie dollar parity a realistic possibility, according to ANZ
• South Korea’s won falls, set to snap fourth day of gains
  • South Korea 2Q foreign direct investment inflows rise 18.1% y/y
• Onshore yuan lower, reaching weakest since Dec. 2010 even as PBOC sets yuan fixing stronger at 6.6472 vs 6.6496 prev.
  • Offshore yuan little changed at 6.6759 after strengthening as much as 0.18% to 6.6661 earlier
  • USD/CNH bought by Asia-based leverage accounts ahead of CNY fixing, according to FX traders in Asia
  • Yuan increasingly being micro-managed by PBOC on growth risks: Natixis
  • Cross-border yuan flow in recent months could have masked the true level of outflow pressure in China, according to Goldman Sachs
  • UBS revises yuan end-2017 forecast to 7-7.2 per USD vs 7 earlier amid renewed depreciation pressure in aftermath of U.K. referendum
• Malaysia’s ringgit is set to rise for fifth day
  • Malaysia’s 2-month foreign selloff in stocks approaching end, according to MIDF
• Japanese yen falls following 0.7% gain on July 1
  • BOJ may cut CPI outlook for this fiscal year, Yomiuri reported on July 2
  • Prime Minister Abe’s Cabinet approval rating falls to 45.8%, Sankei/FNN poll shows
• Philippine peso is set to rise for second day
  • Philippines seeks to widen 2016 deficit to 3% of GDP, Finance Secretary Dominguez says

(Bloomberg) -- Edmond de Rothschild Asset Management favors EM hard and local currency debt on expectations of no Fed rate hike in coming months, CIO Philippe Uzan says in emailed comments.

• Uzan also favors European corporate bonds and high yield debt
• “The Brexit impact is supposed to have a negative impact on European growth, by 0.5% next year, suggesting that instead of a slight acceleration, European growth will decelerate somewhat, which is more a bad news for equities than for corporates,” he says
  • “The ECB is clearly providing to the market a corporate bond floor with its QE. Even if the central bank buys only IG bonds, the better rated part of the HY market benefits from it.”

(Bloomberg) -- Here’s a roundup of Indian co. debt-rating changes.

• To get this story sent to your inbox real-time, run NI INRATINGS , click on Display & Edit, then Set Alert Delivery

DOWNGRADE

• GMR Warora Energy
  • Bank facilities cut to D from BB+ at ICRA; NCDs also cut to D from BB+
  • Cites delays in debt servicing

UPGRADES

• Manappuram Finance
  • Long-term loan facilities raised to AA- from A+ at Crisil; NCDs also revised to AA- from A+
  • Cites improvement in business risk profile due to change in business model

• Sterling Gated
  • NCDs raised to B+ from D at Care
  • Cites amendment in debenture trust agreement with the investors on extending the coupon payment dates