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Later is Better…

13 August 2019 by jbchevrel

CDS and CDS indices were mostly wider before a Trump headline hit the wires stating that the US would effectively delay some tariffs on Chinese goods. That new grace period on the 10% applied on the last bucket of Chinese exports to the US will make those on hold until the middle of December, the official reason being that it would hurt the US consumer. Is that a sign of weakness here? The bucket includes mobile phones, toys, video games, and other goods which are difficult to imagine manufactured in the US before next Christmas, the last Christmas before the 2020 Presidential election. Typical Trump said that his administration had a “very productive” call with China (mainly VPM Liu vs Lighthizer/Mnuchin) and that the (phone) talks would resume in 2 weeks. That sent CIS tighter across Europe, the US and EM in NY morning. In the US, CDX IG tightened -4.5bp, broadly in line with the Main, and CDX EM index richened by 45c ie ~10bp. That echoed the move higher in S&P 500 futures, which went from -1% to +1.5% (measured on our London close). In the US, the sector that clearly outperformed following the headline was retail. Indeed, the 5y CDS of high-beta IG retailers tightened by c8bp (KSS, BBY) to c20bp (JWN). Autos were also outperforming with Ford -6.5 GM -4.5. Among EM sovereign CDS, Turkey went from +15 to -10 and South Africa (SOAF) closed -9, due to high beta. Russia closed -9.25 largely due to oil having gained +5% on Brent +4% on WTI. Argentina, however, kept widening, 5y CDS going from 40%ish upfront to 45%ish. ARS lost another 4% vs USD as I write. CDS was slightly outperforming, with the move seen in cash space, with 4 5/8 2023s selling off another 7 points. Other LatAm names were tighter regardless (Brazil -7.5 Chile -4.5 Colom -5.5 Mexico -6 Peru -5.5), as Argentina is increasingly perceived as non-contagious to other sovereigns, and most of them are decent net exporters of trade-sensitive commodities (oil, metals and ags). In Europe, the Main tightened -4.5bp, the Xover tightened -16.5bp, the Senior Fin tightened -6bp and the Sub Fin tightened -12bp. All financial single name CDS are almost all (29/30) tighter on the day, after the ‘delay’-induced reversal, the outlier to this trend being HSBC Holdings PLC. The latter was pushed by bearish flows and reflects the mounting tensions in Hong Kong. This evening, HK still sees demonstrations, in particular in the airport, where the riot police violently clashes with airport protesters called ‘terrorists’ by the Chinese government. President Trump also tweeted that US intelligence told him the Chinese Government was moving troops to the HK Border.