EU Close

iTraxx closed +2/+9.7bps wider, tracing CDX moves this afternoon on risk-off sentiment that seems to have been triggered by NYCB's {NYCB US Equity} results - the surprise included loan-loss provisions of $552m (c$45m) and Q4 charge-offs of $185m (c$13m). One of the two issues linked to the charge-offs was a office loan & that seems to have spiked worries of systemic commercial real estate problems. CDS spiked & the rates rally found support on the NYCB headlines & poor cash open (-45%).

KBW Regional Bank Index fell just shy of -5% on the open paring some losses since {KRX Index}. Our analyst saw little read-through to local banks - in line with that major fin issuers were more muted - sector ended +0.2% in €IG equity basket & +0.9% in €HY.

Weak sentiment still carried over to cash - $IG index prints are pointing to a step wider & €IG (spreads against bunds) looks skewed wider (swap spreads +2bps). Bunds ended -11bps lower in the belly, relatively flat move along the rates curve - that's despite the size of the rally & vs. steepening in US (2s10s +3). Divergence echoed in the short-end - Dec pricing down -14bps for Fed vs. -8bps for ECB.

Movers in €IG equity basket today were H&M {HMB SS Equity} on Q4 earnings miss & soft commentary on 1Q trading conditions - its 29/31's (NR,BBB) +7/+10bps. Medical equipment manufacturer Stryker {SYK US Equity} was the biggest gainer on strong 4Q beat & above consensus FY24 guidance - its Baa1/BBB+ € lines were unch (screens relatively tight already).

In €HY Atos was the laggard and gainers included materials/chemicals name Ashland {ASH US Equity} on earnings & above consensus guidance - its € Jan 28's (Ba1, BB+) were little changed at ~4.15%/+160.

Fed ahead in 40min, March is now pricing a 60% chance for a cut. From our Economist "the main thing to watch will be the degree to which the Statement and Powell leave the door open to a rate cut as soon as March. There is good chance forward guidance will be amended to remove the tightening bias in favour of a more neutral stance, but the FOMC will be wary of signalling a March cut and will re-emphasize a patient data dependent approach. Any decisions on slowing QT this month would be a dovish surprise."