What a week we had! The rally encompassing both equities and fixed income markets had traders scratching their heads and bears getting doubling the “overpriced” rhetoric, especially since markets continued to be unresponsive to neither any negative news on the US-China or HK front, nor to the US nationwide unrest, something that in the past has easily sent markets into a risk off. Dow and S&P up more than 4% this week and Nasdaq reached all-time highs at 9741.972. The inevitable small correction after such a performance has finally come yesterday, with some profit taking pushing the markets lower after the worse than expected print of the weekly US jobless claims data with almost 1.88mn people claiming unemployment benefits for the first time (higher than 1.8mn expected, but down from the last week’s figure of 2.1mn) while continuing claims were even up week on week instead of an expected decline. The investors are bracing for the US NFP report for the month of May later today. S&P 500 closed in the negative territory on the day, down -0.6% while Nasdaq sold almost 0.7% after reaching the all-time highs.
The correction seems not to have been sustained for long as we are opening this morning again in the green and erasing the losses of yesterday. “Hurray” for this goes to announcements of planned additional stimulus measures by Germany (Merkel finally pushing through post-coronavirus stimulus, setting out a bold package of extra spending, tax cuts and help for business, worth €130bn.), ECB (Lagarde intensifying its bazooka by expanding it’s PEPP programme to €1.35trn., upping it by 600bn vs 500bn expected, as well as extending the timing of the programme to at least June 2021) and Trump (announcing plans of as much as a $1trn. next stimulus bill). European investors have welcomed the above moves with a definite delight yesterday, sending Italy yields down 18bps instantaneously, something that cheered the holders of new BTPS 30 bond issued a day prior, as they have seen their holdings appreciating to above 101.3 levels from the reoffer price of 99.52 post-ECB announcement. Greece also seen some 10bps tightening in yields, Spain 10Y down 5bp to 0.55%, while German DBRs yields moved the other way, with 10Y rising 7bps to -0.29% levels. Speaking of credit, we would like to note the performance of Greek banks sub bonds that have been amazingly well bid lately. TPEIR 30 is up 15pts this week and is today at mid-75 levels while ALPHA 30 is up 14pts to 86.5 lvl bids this morning.
From MENA investors, all eyes were on the oil and the OPEC+ talks about the prolongation of supply cuts amid the non-compliance issues with some members. Saudi Arabia and Russia were said to have finally reached a tentative deal with Iraq yesterday, who acknowledged its non-compliance with cuts previously and told OPEC+ that they would commit now and even compensate for previous failure. The issues with Nigeria, Angola and Kazakhstan were told to also have been sold earlier. The group could meet as soon as this weekend to finalise the cuts extension. Higher beta names are rebounding from yesterday losses: EGYPT 50s is up 50c this morning to high 100 area after selling off a point yesterday, OMAN 47s up 40c to high 81 area.
In LATAM, BRAZIL has successfully issued $3.5bn across a 5Y and 10Y tranches, putting some selling pressure on the curve. BRAZIL 50 traded down approx. 40c to mid-96 levels, new BRAAZIL 30 ended the day 40c below reoffer price, while new BRAZIl 25 held up well, trading around reoffer. Outperformers in credit were ELEBRA 30s, managing to gain 2.5 pts to mid-93 levels despite a weaker tone yesterday. Recent COLOM 51 issue lost 1.5-2 pts, ending the day at mid-100 levels after seen trading as high as 102.75 a day before ARGENT curve was 50c-1pt down, and similar moves in ECUA, despite the news of IMF preparing a new $250m loan for Ecuador. In new issue rumours PANAMA could be the next Latam sovereign to tap the market, as the finance minister announced that they would be seeking more than $2.5bn in additional financing, after tax collections has fallen 30%.
Interestingly, lower beta oil exporters are not following oil move, reacting more to the UST curve steepening (2s/10s spread up to more than 62bps), pushing the bonds down. KSA 60s are down a further 70c today to mid-110 levels, ADGB 50s down 40c to low 113 mids and RUSSIA 47s down 90c to mid-high 135 area. In other CIS, Kazaks curve is stable, the lack of liquidity keeping the levels marginally unchanged. UKRAIN continues to outperform on the expectations of IMF support, UKRAIN 30 EUR up to mid-87 levels today, +5pts this week.
In SSA, ANGOL continues to be bid, following the headlines of China and Angola renewing the negotiations on Angola’s request of its debt relief from the former, something that could bode well for Angola’s chances at getting IMF help. ANGOL 25 is up to 74 levels today, +5pts on the week. NGERIA also being driven up with buyers seen across the curve, although some profit takers in the long end starting to come out, easily absorbed however by the buyers.