MNI Credit Weekly: Disappointment Is The Bridge...

MNI (LONDON) - Executive Summary: Disappointment is the bridge between expectations and reality (Dalai Lama).

• Spreads are wider on the week, led by utilities, though no sector was left completely untouched. Financials reporting has generally been positive (as highlighted by the equity moves), spreads were little moved but the main bulk of reporting starts next week.
• Idiosyncratic risk: Scor (insurance experience), Teleperformance (AI threats), Warner Brothers (breakup reports) and, of course, Thames Water (special administration) all hit the headlines again this week. None of these are related but highlight that, with spreads at such tight levels, disappointment comes at quite a cost.
• Financials led the way in opening earnings season, with generally positive moves, macro outlook upgrades and benign asset quality. PPG (in US industrials), Nokia, Kojamo (property), Burberry and Sartorius were rare cases for disappointment.
• On macro, the ECB left rates unchanged and added little to the debate, failing to commit to much at all. We continue to see a September rate cut as the start of the quarterly cutting cadence; bias appears mildly dovish now. In the US, jobless claims saw a much larger increase than expected.
• Primary saw a low volume week, with just EUR 7bn across eight lines from six issuers. Cover ratios were low and NICs rebounded from last week’s lows with an average and median level of 10-11bps.
• Fund flows: strong inflows into $govvies, $equities, $IG, $HY and €IG. Smaller inflows into €HY and global equities. Flat flows into €govvies. IG spreads were +1-2 across all three regions with slight decompression in HY.

Full piece here: 24.07.19 MNI Credit Weekly.pdf