ZURICH | UBS analysts | Corporate bond markets in Europe have been quite resilient through these past few sessions in both IG and HY, offering relatively good outperformance. It would appear it is increasingly becoming a case of just buy it (corporate bonds), because that’s what’s best. Don’t worry, one will be looked after – the ‘structure’ after all is in place. There may be no growth, but you are promised low interest rates (zero at the front end), low funding yields (lowest ever, iBoxx corporate bond yields at 1.4%), a low default rate (less than 3%) and your money back at maturity.
SAO PAULO | By Marcus Nunes via Historinhas | The European Central Bank opened the door to a dramatic escalation in its campaign to stimulate the eurozone’s stagnant economy early next year, signaling a new chapter in the bank’s fight against excessively weak inflation in the heart of Europe. ECB President Mario Draghi said after the bank’s monthly meeting that officials discussed purchases of government bonds, known as quantitative easing or QE, but that they needed more time to gauge the effects of policies that they have already implemented while assessing how falling oil prices may affect the bank’s consumer-price outlook.
By Suki Mann and Thibault Colle (UBS) | We effectively have four-weeks of business left in 2014 and the path is clear for corporate bond markets to record some more upside in performance. That isn’t as welcome as it might at first look. Because we do actually need something for next year. We’re already sitting on excellent returns for 2014 of 7.7% in IG and 5.6% in HY; and with that, record low yields in IG (1.42%) and spread levels not seen since before the crisis (iBoxx IG at B+101bp). Supply in HY is at a record level (€72bn YTD) and we now have the second best year for issuance ever in IG non-financials (€201.6bn) after Tuesday’s deals from BskyB and RCI are accounted for.
MADRID | The Corner | According to CMC Markets’ analysts, “none of this week’s data from Europe has done anything to persuade markets that the European Central Bank won’t ultimately be forced into taking further action to help boost economic growth in the euro area at some point in the next few months.” Be that as it may, the Governing Council of the ECB will meet on Thursday to keep on working on the EZ economic recovery. Experts at Link Securities say that there won’t be any new measures for the monetary policy, although they believe Mr Draghi will announce the possibility of taking new actions to boost growth.
LONDON | Barclays analysts | Central banks will remain in the spotlight this week, with banks in Europe, UK, Australia, Malaysia, Thailand, Poland and the Czech Republic all set to deliver policy decisions. Of these only the NBP in Poland is likely to move, cutting policy rates by 25bp, in our view. However, most attention will be on the ECB for any hints of future QE, as economic data remain a challenge.
John Bruton | I recently attended a conference that looked at France’s domestic economic situation, and the impact that has on the country’s global and European role. According to budgets published in October, France and Italy are failing to meet the eurozone’s requirements for reducing government debts and deficits to sustainable levels.
ZURICH | UBS | The impact of an EU slowdown on US growth would be minimal: US exports to the EU are a small proportion of GDP (2.8% in 2013), and the secondary effects—the impacts on major US trading partners’ incomes and import demand—are even smaller. For example, a hypothetical 1 percentage point slowing in EU real GDP growth would likely translate into only a 0.1 pct pt drag on US real GDP growth via weaker exports to the EU and to other US trading partners affected by the EU slowing.
SAO PAULO | By Marcus Nunes via Historinhas | Tim Worstall comes out and calls a “spade a spade” in “Europe Doesn’t Have A Debt Crisis, Europe Has A Monetary Crisis”: The stock markets plunge over concerns about the eurozone; there’s a flight from lower quality sovereign bonds; Greek, Spanish and other periphery bond yields spike. It looks like the eurozone debt crisis is back. But this time around we really should get to grips with the fact that what we’ve got here is really not a debt crisis.
ZURICH | By UBS analysts | Global investors have been big sellers of Europe ex-UK equities in September and also the last 12 weeks (Figure 1). And this doesn’t include the heavy sell-off in the last week. US Treasury data shows that US-based investors were net sellers of $14.3bn in June–the biggest month of selling since the collapse of Lehman’s in 2008. How far through the current correction are we? So far the European market is down 8% from its September peak–in-line with the average of 9.5% in Bull market corrections since 1975.
VIENNA | By Keith Weiner via Truman Factor | The European Central Bank again cut the interest rates it controls. Notably, the deposit rate was moved deeper into negative territory. It is now -0.2% (minus 20 basis points, that is not a typo). The ECB says it’s trying to nudge prices higher, but it’s actually feeding the cancer of falling interest. The linked article above, like most, is focused on the quantity of euros and the presumed direct relationship to price. The following bit of editorializing from that article is uncontroversial in Frankfurt, London, New York, Mumbai, or Shanghai.