Halister News

(Bloomberg) -- Deutsche Bank Deputy Supervisory Board Chairman Alfred Herling tells Frankfurter Allgemeine Sonntagszeitung he sees “overeagerness” of board member Georg Thoma, who heads the integrity committee.

• Says Thoma pushes to broaden internal investigations, hires additional lawyers, creating costs that “aren’t proportionate”
  • FAS says Deutsche Bank has paid double-digit million euros for lawyers involved in investigations, without saying how it obtained information, while bank hasn’t commented on costs
• Supervisory board member Henning Kagermann tells FAS “it’s important that Deutsche Bank eventually brings this chapter to a conclusion,” referring to internal probes
• Thoma may seek chairmanship of supervisory board, FAS says, citing unidentified “opponents”
• NOTE: Supervisory board’s Integrity committee monitors, analyzes bank’s legal and reputational risks
• Supervisory Board Chairman Paul Achleitner declines to comment to FAS; Thoma says there is no power struggle between him and Achleitner: FAS
• Deutsche Bank spokeswoman declines to comment to Bloomberg
• Thoma doesn’t immediately respond to e-mail from Bloomberg seeking comment outside normal working hours; Herling didn’t immediately respond to voice message by Bloomberg left on his mobile phone
• Link to story

(Bloomberg) -- As the new marginal buyer of corporate credit risk, the ECB will be a near-term fillip for risk asset prices, but positive momentum could wane in coming months if full execution of CSPP proves challenging, Bloomberg strategist Simon Ballard writes.

• Spreads may maintain steady grind tighter as ECB corporate sector purchase program begins in June, although longer-term impact on spreads may be more modest
  • ECB hasn’t indicated size of planned purchases; If purchase volumes disappoint, spreads likely to pare early tightening, but if ECB manages to source full EU80b per month with strong corporate bond element, risk assets should rally further
  • Scarcity of primary and secondary paper may tighten spreads, be a limiting factor in size of ECB purchases
  • EUR IG cash index currently 65bps OAS mid, -8bps month- to-date; may still offer tightening potential to March 2015 low of 40bps
  • EUR HY cash index ~-10bps since ECB Thursday, ~-67bps mtd; Now 407bps OAS vs 206bps tight in May 2014
  • Any deluge of opportunistic corp new issuance, to capitalize on demand dynamic created by ECB balance sheet bid, could lead to investor indigestion and trigger medium-term profit-taking
  • Lingering questions about the technicalities and implementation of the program could also dent initial enthusiasm
• Still, CSPP details were broader and more inclusive than many investors expected, suggesting continued near-term momentum for corp spread performance as ECB now in direct competition with institutional and retail investors for corp credit assets
  • Crowding out likely to tighten spreads across quality curve in the short-term, beyond direct effect of actual purchases

• 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) -- The deadlock between Spanish political parties makes fresh elections almost inevitable as it’s highly unlikely a government can be formed before the May 2 deadline, analysts say.

• With polls suggesting no one party will secure a majority, a fresh vote risks spurring market volatility and wider spreads, especially as Spain will go to the polls just days after the U.K. referendum on EU membership, they add

WHO’S WHO?

• People’s Party or Partido Popular (PP) came first in the election but its share of seats fell to 123 from 186; the party’s standing has been wracked by a series of scandals but it retains pole position in recent voter surveys with 128 seats (30.2%) in a poll for El Mundo and 27.7% in one for El Pais
• Socialist party (PSOE), which took second place in December with 90 seats, signed a pact with Albert Rivera’s Ciudadanos (Citizens) party, which came fourth in the general election with 40 seats; talks between the two and anti-establishment party Podemos came to nothing
  • PSOE’s polling shows it holding on to second place with 22% and 21% of the vote
• Podemos overcame a mid-year slump to claim 69 seats last time around, challenging the Socialists’ traditional monopoly over progressive voters; the two polls from earlier this month show it ceding third place to Ciudadanos

WHAT’S THE LATEST?

• Spanish courts are advancing more than two dozen criminal probes into PP officials and the party’s financing
• The PP’s acting industry minister quit over his links to an offshore company listed in the Panama leaks
  • El Pais, Spain’s leading daily, said in an editorial the PP needs to “renew itself thoroughly” without Rajoy
• Corruption allegations buffeting Spain’s political class will boost support for Podemos, the group’s polling chief said
  • Podemos balloted members last weekend asking if they support either PSOE-Ciudadanos proposal or progressive govt with PSOE, United Left; they voted against the first option
• Meanwhile, Ciudadanos sees little room for agreement with Podemos
• Spain sets 2016 deficit target for regions at 0.7% of their GDP vs 0.3% previously, after saying the nation’s 2016 deficit target had been increased to 3.6% vs 2.8% agreed with the EU
• That comes as Catalan President Carles Puigdemont says his region is still working toward secession
• Fitch says uncertainty over the composition of Spain’s next government adds to uncertainty over fiscal consolidation

WHAT’S NEXT?

• King Felipe VI to meet with party leaders April 25-26 to decide if he can propose a candidate for prime minister with sufficient parliamentary support
• If no government by May 2, fresh elections will be called; June 26 would be the fixed date for next vote in this event
• The chance parties will reach a last-minute deal to form a government remains slim, Teneo analyst Antonio Barroso says
  • How much the result differs from December will depend on how the parties manage passing the buck on the failure to form a government; Podemos’s ability to cut a deal with other left-wing forces and internal turmoil within main parties, Barroso says

WHAT’S THE LIKELY OUTCOME?

• Though polls suggest Parliament would remain fragmented, would expect prompt government ratification, even in the case of a minority one, amid high pressure on main parties for a quick agreement, Barclays analysts Apolline Menut and Antonio Garcia Pascual write in client note
  • Podemos looks unlikely to be part of the next government, they say
• Eurasia analyst Federico Santi says pressure on party leaders to reach agreement will be higher and costs of entering politically awkward alliances will be lower after a new election
  • Could produce a fragile coalition that may be short- lived and not particularly effective; less likely outcome would be a right-wing majority comprising the Popular Party and Ciudadanos, Santi says
• Not much clarity on what will follow after a fresh vote is called, including what political alliances will be formed, BofAML’s Ruben Segura-Cayuela says in interview
  • Spain’s electoral system isn’t perfectly proportional; a leftist outcome such as that in Portugal can’t be ruled out
  • Podemos could reach agreement with traditional left parties such as Unidad Popular and come second in any new vote
  • Polls have consistently underestimated Podemos support and overestimated backing for Ciudadanos, Segura-Cayuela says
• Teneo’s Barroso suggests there are obstacles to a leftist government as such an agreement could alienate some of their respective supporters

WHAT DOES IT MEAN FOR MARKETS?

• Spanish bonds may not reflect these risks until the result of any elections are known, BofAML’s Segura-Cayuela says, adding that investors have reacted late to these things in the past
• Any drag on growth from political uncertainty likely to be short-lived so long as it isn’t accompanied by stress in sovereign bond market, JPMorgan’s Marco Protopapa writes
  • ECB’s unconventional policy measures, which now include generous support for the banking system, act as a powerful lid on the sovereign cost of funding
  • JPM rates strategists stay long 10Y Spain vs Germany, reflecting ECB support and a robust euro-area growth outlook
• Meanwhile, Deutsche Asset Management cut euro zone and German equities to neutral to reflect tensions including the migration crisis and radicalization of the political landscape, as well as risk of a U.K. exit from the EU
• Barclays analysts say Spanish assets may underperform as downside risks have risen significantly due to factors including political uncertainty; especially true given U.K. exit risk may keep markets on high alert, they add
• UBS analysts say entering new spread tightening positions is unattractive near term, given rising event risks; those risks, though not UBS’s baseline scenario, include a U.K. exit from the EU and formation of a leftist Spanish government
• Commerzbank analysts say a supportive technical backdrop for EGBs in the next two weeks may turn, as six consecutive weeks of positive net supply for a cumulative ~EU85b may follow
• JPM AM’s Iain Stealey remains overweight on Spanish and Italian bonds based on valuation and yield pick up, according to interview
• Meanwhile, Pimco trimmed exposure given less attractive valuations, though it remains “modestly overweight” on European peripheral sovereigns incl. Italy and Spain

(Bloomberg) -- Money managers see the Dow Jones Industrial Average rising 4% by mid-2017, according to Barron’s latest Big Money survey of 110 respondents in the April 25 edition. The broader Standard & Poor’s 500 may rise 9% through June 2017, while the Nasdaq could advance 7%, they said. Other findings:

• 38% of investment professionals polled were bullish or very bullish, down from 55% in last fall’s tally.

• Two-thirds of managers say 10% stock drop is likely in next 12 months, probably in reaction to disappointing corporate earnings.

• 66% of respondents say Hillary Clinton will win the U.S. presidency.

• Apple (AAPL), trading at less than 12 times earnings, was the money managers’ favorite stock this spring.

Other highlights from this week’s Barron’s (subscription required):

• Marriott International (MAR), which is buying the Starwood (HOT) hotel chain, could rise 20%, Barron’s said. Marriott’s fee-based business model makes it “more recession- resistant” than rival companies that own more real estate, Nomura analyst Harry Curtis said.

• Mohawk Industries (MHK) may rise 20% in a year as the No. 1 flooring maker gains from housing industry growth and M&A. The company has low exposure to declining carpet sales and a strong position in ceramic tile, Barron’s said.

• AmTrust Financial Services (AFS) may be overvalued, Barron’s said. Accounting questions and challenges from its Italian hospital business cause concerns for the insurer.

• Tyler Technologies (TYL) may rise 20% in a year, Barron’s said. A decline in the stock to about $140 from $180 at the end of 2015, plus stable sales and growing profit, makes the supplier of software to government agencies attractive.

• Baron Capital CEO Ron Baron sees Hyatt Hotels (H) shares more than doubling in five years on revenue growth and stock buybacks, Barron’s reported. The mutual fund manager sees Tesla Motors (TSLA) quadrupling in five years on surging sales of its electric cars.

• Carmike Cinemas’ (CKEC) activist shareholders want a higher bid than AMC’s $30 a share and could force a sweetened offer to $35, Barron’s said.