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Lost For Direction

10 December 2018 by lberuti

Today’s session was weak and driven by macro news. Risky assets were indicated lower at the end of the Asian session following the arrest of a senior executive of Chinese telecom equipment maker Huawei, which is suspected of trying to evade US trade curbs on Iran. That led to a very cautious open. Rumours that the vote on the Brexit deal due in the UK Parliament on Tuesday would be postponed only added to uncertainty. Effectively, faced with the possibility of an embarrassing defeat of her Brexit deal, Mrs May announced in the afternoon to the House of Commons she would defer the vote and return to Brussels to seek “assurances” from European leaders. The words of the embattled UK Prime Minister signalled she does not expect much of the substance will be changed though, and she failed to reassure on the probability of seeing a deal going through as it raises the prospect that she will be back in January with virtually the same deal. So much uncertainty is leaving many credit investors on the side-lines. Increasingly illiquid and jittery, the credit market appears to be in follow rather lead at the moment, and it looks likely that it will go up and down looking at the S&P in the coming days and weeks.

A Trip To Hell

04 December 2018 by lberuti

After a heatwave in the UK led many Britons to holiday at home and was blamed for a slump in sales which saw prices for late bookings tumble, TCGLN ( Thomas Cook Group Plc ) have seen earnings plunge. In the past three months, the company has issued three profit warnings and investors have been dumping the stock aggressively, also encouraged by rumours of a possible capital increase. The stock has been roughly halved over the last fortnight – impressive even if it pales in comparison to November 2011 when the stock lost 75% in a day -, but concerns are not limited to the equity market. Bonds are also feeling the heat. Both the 6.25% 2022 and the 3.875% 2023, which were issued 1 and 2 years ago respectively are roughly trading at 70cts on the dollar, while both were trading above par in the summer. It looks as if investors have lost confidence in the ability of the management to turn the business around and produce a sustainable business plan. The credit market estimates that the future of TCGLN is seriously in doubt. At 24% upfront, 5-year CDS referencing the company’s debt put its default probability at two third by the end of 2023.

Have We Gone Too Far ?

03 December 2018 by lberuti

The expectations for the G-20 summit held over the week-end were muted, with a balance of risk tilted to the downside. After “highly successful” discussions - according to the Americans -, the US agreed to delay for 90 days the implementation of additional tariffs on $200bln of imports from China. In return, China promised to use the time to make progress on relaxing non-tariff barrier, fighting intellectual property theft and reducing bilateral trade surplus. The credit market reacted positively, and indices traded aggressively tighter across the board during the first exchanges. But as the morning wore on, profit takers emerged and in the afternoon most of the business consisted in clients derisking their portfolio. Volumes were light on cash products, which is usually not a very positive sign regarding the strength of the rally. Nevertheless, credit indices managed to close tighter across all geographies and all rating classes. That might be enough to give some investors the nerves to attempt a long risk bet, during a week that will be shortened on some products which will not trade on Wednesday in tribute to the late George Bush.

Black Friday, Yellow Vests, Red Retailers

29 November 2018 by jbchevrel

Auchan Holding (AUCHAN) widened +20bp as “Yellow Vest” protests led to an aggregate -18% fall in consumer goods sales at main French retailers last Saturday (Black Friday weekend) compared to the average of Saturdays since the beginning of September. It had fallen -35% the previous Saturday. Number of shops were shut, some others were open but the access to it was blocked by the demonstrations and some others were short of supply because of disruption at depots. AUCHAN was thus the worst performing name in the iTraxx Main s30, clearly wider than the second worst retailer Carrefour (CAFP) +5bp. This was the biggest move in more than 2 months on CAFP CDS, as this name tends to be quite low beta. Its shares also dropped -2.0%, while the CAC Index was up +0.5%. November will prove very challenging for French consumer spending, compared to October. Indeed, October data out this morning surprised on the upside (0.8% MoM vs 0.6% MoM exp). Yellow Vests could have an impact on the French economy if those last, as December is a key month, given the Christmas shopping period.