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More Horsepower Under The Hood

11 January 2019 by jbchevrel

General Motors (GM) CDS has gone tighter by 15bp on surprise earnings forecasts. That move makes the CDS tighter c50bp since Jan 3 peak. Cash was also 10-15bp tighter, and stocks jumped up to 9%, which was about half their ’18 loss. That follows the cost cuts announced in November. According to the CFO, those cuts should boost ‘19 earnings by $2.0-2.5B and ’20 earnings by another $3-3.5B. This development came as a surprise in a challenging context for the auto industry. The sector was one of the favourite shorts of late 2018. Despite the volatility on the name, ICE-reported open interest has been relatively stable in late ’18 / early ’19, at around $2B. In parallel, Ford Co (F) spreads improved by c6bp following yesterday’s c15bp rally after the news they would cut their European staff. Elsewhere, US IG credit was globally little moved. Based on London close, US IG single names are ranging -5/+3 while the CDX IG index is flat.