Halister News

(Bloomberg) -- Unlikely the Socialist (PSOE) party leader will win the March 2 confidence vote even after the pact with pro-market Ciudadanos party as would need an absolute majority, Federico Santi, analyst at Eurasia, says in interview.

• There’s a higher chance of success at this week’s second vote, as the parties need only a simple majority of the MPs who vote; even so, still looks unlikely
• Left-wing Podemos’s response has been quite negative and everything points to them not giving in at this stage
• Spain’s political parties will continue to discuss possible tie-ups after the votes and expect PSOE to be pushing left- wing Podemos to back them as their support would be enough for them to get to power
  • PSOE’s program is still quite left-leaning and seems designed to put pressure on Podemos to back them
  • Significant differences remain between PSOE and Podemos: on economic policy but especially on the issue of Catalonia
  • Supporting PSOE may drive a wedge between it and its regional supporters
• In the meantime, acting PM’s PP party will be trying to win back the initiative and bring Ciudadanos and PSOE on board; the latter has little incentive though while it’s still trying to win over Podemos
• Pressure may build on the parties to come up with a solution as the deadline to form a government or face new elections, at the start of May, nears
• Don’t expect PSOE leader Pedro Sanchez or acting PM and PP leader Mariano Rajoy to step down
  • Sanchez’s strategy seems to have worked well for him and can’t see anyone trying to displace him now while he has a chance to become PM
  • Don’t see someone stepping up to challenge Rajoy either so any decision to step aside would be his decision
• NOTE: PSOE leader Sanchez said he’ll ask other progressive parties to back his proposal to oust Rajoy Monday; 176 seats are needed for a majority compared with 130 PSOE/Ciudadanos hold

(Bloomberg) -- Euro zone’s weak CPI data adds to the already strong case for ECB to significantly step up stimulus, ABN Amro economist Nick Kounis writes in e-mailed comments.

• Expects headline CPI to probably remain stuck in negative territory in near term
• Weakening EUR is the only way to get core inflation up significantly over coming months
• Says this is not going to be easy as Fed is likely to be on hold and some ECB easing already priced-in
• Base case is for a 20bps deposit rate cut in March followed by another 20bps in June; tiered deposit rate system and even longer duration refi loans likely
• Also, expect a EU10b increase in monthly asset purchases and an extension of the program to June 2017; deposit rate floor will probably be removed for asset purchases
• NOTE: Euro-Area prices decline most in year as ECB mulls easing

(Bloomberg) -- Going into a data-packed week -- euro-area, U.K., China manufacturing PMIs, U.S. NFP, U.S. primaries Super Tuesday -- and after a G-20 meeting that underwhelmed many, credit markets are trading with a weaker bias this morning. Much now also seems to rest on the hope that ECB will inject further stimulus into the financial repression equation at its March 10 meeting, Bloomberg strategist Simon Ballard writes.

• Paradoxically, it’s possible that haven flows driving German yield curve negative out to 9yrs could actually enhance (selective) incremental yield appeal of corporate paper

STATE OF PLAY (Monday 10.30am GMT)

• Synthetic indexes straddling unchanged as equities trade lower and capital flows into haven assets; iTraxx Europe 104.26 mid (-1.1bps), iTraxx X-over 428.11 mid (+2.4bps)
  • Financials bucking the trend somewhat as spreads continue to grind tighter; capital structure curve flatter again with iTraxx Senior and Sub indexes -1.8bps and -7.3bps respectively
• Cash indexes outperforming synthetics, reflecting buy-and- hold nature of the asset class and demand for yield in negative rate environment; EUR IG currently 97.30 (-0.6bps), EUR HY cash quoted 562.68bps (-3.4bp)
  • GBP IG credit, now 209.50 (+0.4bps), remains under pressure from Brexit risk, although GBP HY just off early Monday wides (588.96), currently seen at 588.90 (+2.4bps), according to Bloomberg data
• Bloomberg Commodity Index little changed vs. Friday close ($75.49, +0.02%); WTI current $32.68, (-0.3%), copper March 2016 future (212.70) +0.1%, silver March 2016 future +0.9% and gold +1.2%
• European equities back in the red as G-20 meeting fails to assuage global macro concerns; major bourses down by 0.6%-1.6% on average
  • Similar moves being seen in U.S. equity futures, suggesting a likely weaker bias to U.S. CDX credit mkt indexes at the open
• Weaker tone to risk assets fueling haven flows into EUR government bonds, taking yields negative out to 9yrs now
  • 5Y bund -0.40% (-3bps), 9Y -0.01% (-4bps), 10Y 0.11% (-4bps), 30Y 0.81% (-4bps)

• 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.

• NOTE: The CREDIT SNAPSHOT will not be published tomorrow; it will resume Wednesday