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Sometimes, a Beat Is Not Enough

15 August 2018 by jbchevrel

Macy’s (FD) raised its full-year EPS guidance (mid-point $4.05 from $3.85) and beat the analysts’ consensus on top line ($5.57B vs $5.55B est). However, the stock is trading down 14% and the 5y CDS is wider +13bp (worst performer in the CDX IG index, so far today). The beat was mainly driven by asset sales, credit revenue and taxes. But as far as its core business is concerned, Macy's is still struggling to increase sales as foot traffic dwindles at malls. Retailers must now compete with Amazon's powerful e-commerce platform. And that is in the context of strong consumer spending, helped by the tax reform and the strong employment growth. Elsewhere spreads widened (Main +2.5 CDXIG +1.5) led by the decline in stocks (SX5E -1.5% SPX -1.2%). Tech and commodity sectors were particularly under pressure, following Tencent’s bad results and oil/metals dips respectively. CDX IG (finally) broke above 63, with decent volumes exchanged (>$11B as I write, according to OTCStreaming).

Similar Moves, Different Stories

14 August 2018 by jbchevrel

Argentina and Turkey have been the two sovereign CDS under the limelight, over the past few sessions. Yesterday wider (AR +60 TR +70), today tighter (AR -60 TR -80), Argentina and Turkey have features in common: current account and budget deficits, fast inflation, non-autonomous central banks, vulnerability to $ strength. But on the monetary side of the equation, the BCRA has taken ample measures to stem the crisis, contrary to the CBRT. Yesterday, the BCRA has hiked the 7D Leliq rate from 40% to 45% (adding that it will keep it there, at least until OCT) and sold c$500M in the FX market to keep ARS sub 30 per dollar. To stem ARS volatility, the BCRA also said that it will phase out c$33B ST notes by DEC and will make $ auctions harder to anticipate. Oppositely, in Turkey, Erdogan’s control over the CBRT has become absolute since the June vote. As part of his willingness to islamise the Turkish society, Erdogan said many times he is against hikes (‘evil’) by the CBRT. However, it is difficult to see how Turkey can attract investments with real rates close to zero, potentially leaning towards negative if inflation soars (especially after the recent rapid TRY depreciation).

Another Day Another Record

13 August 2018 by jbchevrel

Turkey was under pressure today again, the 5y CDS was bid above 600bp at some point, slightly after noon in London. There was $756M reported cleared notional according to OTCStreaming. Today’s move takes the YTD to +420bp on the 5y and +84% on $TRY. Over the weekend, the Turkish Finance Minister Albayrak reiterated that he was against capital controls. Erdogan had made it clear earlier that he is against rate hikes. Their strategy is to desperately try to prevent/punish TRY shorts, rather than pushing through tangible measures to bring back investor confidence. Today’s sell-off was different from Friday’s in the sense that it looked more idiosyncratic than systemic. Among CDX EM constituents, we have had two distinct buckets: the ‘high-yielders’ (TURKEY +130 ARGENT +60 LEBAN +33) and the others (-5/+10). Elsewhere, risky assets were down but to a lesser extent than on Friday (Main +1.5 IG +1 SPX -0.1% SX5E -0.5%).


10 August 2018 by jbchevrel

Turkey was under pressure today again, with the 5y CDS wider c70bp and $TRY up c16%. The YTD moves are quite impressive: c270bp on the 5y CDS and c70% on $TRY. Today’s selloff was amplified by low liquidity and occurred in three steps, before reverting partly towards the end of the session. Firstly, overnight, the FT reported that the ECB was concerned over some Eurozone banks exposed to Turkey (namely UniCredit, BBVA and BNP), given the recent plunge in the lira. Secondly, Erdogan gave a hawkish speech, calling people to convert USD/XAU back into TRY. Thirdly, Trump authorized steel & aluminium tariffs to be doubled for Turkey. Beyond Turkey, this sparked a risk-off sentiment throughout the session and across markets. EM was logically hit the hardest (CDXEM +16), but European risky assets also repriced (Main +3.8 XO +10 SX5E -2%), with financials underperforming (SnrFin +6.2 SX7E -3.2%). The US market was surprisingly resilient, before leaning more risk-off (SPX -0.8% CDX IG +2.8) after the European close.