The Definite Picture

Credit outperformed equity today in a cautious session. Protests against government austerity measures took place across Europe, including a general strike in Spain. But in a day light on economic news the markets were far more concerned with the fate of Anglo Irish Bank and a possible downgrade of Spain. Both issues should be resolved tomorrow, and investors and dealers seemed to spend most of today adjusting their positions, according to the daily alert frpm Markit.

“The Irish Times reported that the government will also release a “worst case” scenario that will show the cost rising well above EUR30 billion. We “will get the definite picture tomorrow” according to foreign minister Michael Martin, though it is likely to be after the close.”

Gavan Nolan


Further news on Anglo Irish emerged after the FT published a report stating that the government will announce an additional capital injection of EUR5 billion. This will bring the total cost of bailout to EUR30 billion, short of the EUR35 billion figure that so unnerved the markets.

“But the Irish Times reported that the government will also release a “worst case” scenario that will show the cost rising well above EUR30 billion. Ireland‘s spreads were only slightly wider on the news, and quickly recovered later in the day. We “will get the definite picture tomorrow” according to foreign minister Michael Martin, though it is likely to be after the close,” Gavan Nolan, vice president at Markit Credit Research writes in today’s daily alert.

Tomorrow will also see the expiration of EUR225 billion in ECB 3-, 6- and 12 month loans.

“The central bank allocated just 104 billion in 3-month loans today, well below the EUR150 billion consensus estimate. Tomorrow’s weekly auction will give a better idea of banks’ reliance on the ECB for funding,” Nolan points out.

Equity markets remained lacklustre throughout the day, unlike their sovereign and financial inspired credit counterparts. Even robust leading indicators from Asia couldn’t provide impetus.”

The Markit/HSBC China Manufacturing PMI came in stronger than expected, with the sector posting its highest reading for five months. Japan’s Tankan business sentiment survey also beat expectations, although signs that manufacturers are pessimistic about the months ahead tempered gains. Consumer finance firms Acom and Promise Co widened sharply following Takefuji’s bankruptcy.

S&P placed both firms on negative watch.

BP was one of the day’s strongest performers after it managed to sell $3.5 billion of senior unsecured notes ($2bn 2015, $1.5bn 2020). “The company’s spreads have tightened since it managed to stop the oil leak, though it remains significantly wider than its single A peers. The credit will struggle to shake off the litigation risk premium that has been attached to it since April,” Gavan Nolan adds.

  • Markit iTraxx Europe 112bp (-3), Markit iTraxx Crossover 514bp (-7)
  • Markit iTraxx SovX Western Europe 159bp (-5)
  • Markit iTraxx Senior Financials 144.5bp (-4.5)
  • Sovereigns – Greece 790bp (-17), Spain 230bp (-5), Portugal 440bp (-6), Italy 198bp (-4), Ireland 475bp (-8), Belgium 132bp (-4)
  • Anglo Irish Bank 935bp (-12)
  • BP 165bp (-19)

HERE”S TODAY’s EDITION OF “UNIQUE MARKET ACTIVITY” by Markit BOAT.

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