16 December 2020 by jbchevrel
Today European financial CDS outperformed their corporate counterparts, especially in subordinated space. This morning a slew of stronger-than-expected flash PMIs strengthened the markets’ view on the European economy. In particular, the two closely watched [French services PMI and Germany manufacturing PMI] came notably higher than the consensus had expected. This is probably one of the reasons behind the tightening seen in subordinated CDS today [especially Uni Credit -14 Allianz -11 Medio Generali -10 French Spanish German banks -7/-9]. Secondly, the fact that we have entered the 2nd half of December surely favours the highest-carry names. Thirdly, the ECB’s move to lift the bank dividend ban has failed to cheer equity investors [SX7E -1.3% vs SXXP +0.8%] and boosted CDS, because the ECB has put strict limits on pay-outs to shareholders, underscoring the challenges for banks as Europe is in a new wave of lockdowns. In this move, UK hold co sub CDS tightened but by less [ Barclays -3.5 RBS -3.5 Lloyds -1.5 ], firstly because they aren’t covered by this ECB news. Secondly, UK under performance today is possibly due to late reports that the House of Commons [HoC] will not be seating next week [contrary to yesterday’s report]. That may be interpreted as no imminent deal in sight, but it is rather probable that the HoC can be recalled in case of a done deal before January 1st.