Weekly Credit Market Review - Apr 22
A thread from macro to micro
Welcome back to all after the Ester holidays break of last week! Now let’s go again on what happened and what’s drive the market.
MACRO/NARRATIVE:
All the week newsflow, again, was related to inflation and central banks.
Fed’s Powell outlined his most aggressive approach to taming inflation to date, potentially endorsing 2 or 3 half percentage-point interest-rate increases, frontloading all the action to cool demand.
Hawkishness arrived also at ECB this week, with several ECB GC members suggesting the July meeting would be a “live-meeting” when it comes to a first rate hike despite Lagarde continued to focus on data dependence of that decision.
From a macro point of view uncertainties remain high with downside risks to growth (despite focus of market and central banks remain on inflation):
Europe potential ban on russian energy will weight on growth;
China lockdowns weight on aggregate demand;
and while this morning European PMI data were stronger than expected:
EURO-AREA APRIL MANUFACTURING PMI 55.3; FORECAST 54.9
EURO-AREA APRIL SERVICES PMI RISES TO 57.7; FORECAST 55
especially services thanks to reopening of most economies in the USA the low order to inventories ratio show a potential ISM near or below 50.
Last point on political risk. This weekend we’ll have 2th round of presidential election in France and Macron lead polls 57% to 43%.
MARKETS:
Rates around the world continued their march higher and in US terminal rates price above neutral rates.
Stocks and sovereign bonds fell together as most aggressive path of FED tightening created uncertaintly. Correlation, usually negative during these last 20 years of “deflation” turned positive with high inflation print leaving no place to hide.
Regarding risky assets (and stocks) a lot of space was dedicated by the low print in AAII US Investor Sentiment indicating a low sentiment so a high potentially of a rebound. I don’t disagree on it, but looking at breadth, an other techincal indicator (below the cycl vs defensive) and at macro (liquidity + macro momentum) I am not so positive from a directional point of view.
The same thing could be applied also at credit market. Below the IG to Govt ratio for Europe. Clearly credit is impacted by lower central bank support and lower financial conditions. HY will clearly follow the same path.
Regarding credit markets more spread widening impacted the IG sector and this also appear on the BB underperforming B/CCC ratings despite above considerations on growth. For the moment the HY technicals are positive thanks to supply since february-march.
On FX the decoupling between BOJ (that continue to apply YCC) and FED weighted on JPY that broke-up the 125 barrier and arrived to 128-128 vs USD.
MICRO:
On single name I want to focus not only on winners and losers but on some stories:
Adler is in the winner league this week. The repayment of the 2022 helped sentiment but today KPMG report finded no evidence of systemic fraud or looting which underpinned Viceroy claims
Verallia strong after a solid set of numbers. Q1 Revenue increased +24% to €750m whilst adj. EBITDA came in at €183m. Margins decreased slightly to 24.4% and net leverage decreased to 1.7x.
Loxam upgraded by S&P one notch higher.
It’s all for this week. Have a good weekend!
Bye.