ABX weekly 10/04/2019

Market Update  

 

The US Fed has their meeting this week, with a near hundred percent consensus they will keep rates unchanged the market is more interested to see the path it will take for the rest of the year. With all the geopolitical risk going on we believe it would be fool-hearty to increase rates any time soon. 

U.S.-China deal inches closer, it’s a big week for the oil market. Talks on a deal to end the U.S. trade war with China will continue this week with “a lot of teleconferencing” according to Larry Kudlow, President Donald Trump’s economic adviser. Chinese media are reporting that President Xi Jinping has called for an early conclusion to the negotiations, while citing progress made during Vice Premier Liu, He’s visit to Washington last week. For markets, the question hinges on when a deal will be signed, rather than if an agreement will be forged. Oil prices rose in early trading on Friday on risks in Libya and positive trade news from the U.S.-China negotiations. The geopolitics around Libya and Venezuela, alongside the possible reflation of risk appetite on positive U.S.-China trade talks may well pull the market out of its morning doldrums. 

More good news for the economy from the markets: the year-to-date declines in both spreads and yields provide an opportune window to push back the maturity wall for corporates. 

Recent spread tightening provides leeway for issuers to be aggressive in refinancing maturities at more attractive rates, with over $1 trillion of global high-grade debt coming due through year-end and more issuance expected from pending acquisition closes. 

 

European Desk 

 

The focus in Europe in the past week was on inflation data with the Eurozone CPI coming in at 1.5% and Core CPI gained 1.0%, as both readings matched their estimates. This is still well below the ECB target of around 2% and should add to the argument for further easing of monetary and maybe more importantly fiscal stimulus throughout Europe. The German 10 year “Bunds” where briefly showing positive yields after bottoming at minus 0.09% in the past week. 

 

A further potential positive development was the recent visit by Chinese President Xi who came with lots of potential economic deals and investments for the European zone. This visit is followed this week by Chinese Premier Li Keqiang to the 21st China-EU Leaders’ meeting in Belgium where he hopes to further cement ties with the European trading room. In a recent newspaper article in the Handelsblatt, a leading German newspaper, Premier Li stated that China wants to work with the European Union on issues from climate change to trade. So far, 22 Europea countries have signed memorandums of understanding with China to promote the Belt and Road Initiative, with Italy and Luxembourg the most recent example.