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Mind The (Growing) Gap

21 June 2017 by lberuti

General market sentiment softened yesterday as oil prices took a leg lower, taking them into bear market territory : WTI is down more than 20% from its January high. Oversupply fears continue to linger. They stem from US shale, but also from rising production in Nigeria and Libya, two OPEC countries that are exempt from the production cut agreement. That weighted on the energy heavy US indices, which, after an indifferent start to the session, started to move wider as soon as oil proved unable to stabilise. CDX IG closed 1bp wider at 62bps. At the same time, European indices benefitted from the news that ISPIM ( Intesa Sanpaolo SpA ) came forward with an offer to take on the assets of the two troubled banks in Italy’s Veneto region on condition that it does not have to pay more than a token price and that the deal does not harm its own capital and dividends. The news gave a boost to the financial sector which outperformed the rest of the market and allowed iTraxx Main (ITXEB) to tighten on the day by 1bp to 55bps. The differential between ITXEB and CDXIG now stands at 7bps, the widest it has been since the last energy crisis at the beginning of 2016.