ASIAN MORNING BUZZ: Regional holidays to weigh on supply as all eyes on Fed

The APAC US$ primary market will struggle to see much activity this week in light of a slew of public holidays in China (Monday & Tuesday), Japan (Monday), South Korea (Monday) and Hong Kong (Wednesday), not to mention the hotly anticipated Fed rate decision on Wednesday.

That after ten regional borrowers raised a collective US$5.6907bn (incl. Japan) in the primary market last week to what it’s fair to say was a rather mixed response from investors. That is illustrated by the typical data points we monitor to gauge primary market conditions for borrowers along with investor sentiment.

Cover ratios ranged widely from 1.61x (Vedanta Resources) to 6.00x (APA Infrastructure) on last week’s deals, or 3.63x on aggregate, while new issue concessions came in from -1bp (negative) at the lowest (Marubeni Corporation) all the way up to an eye-catching 30bp (Nissan Motor Acceptance Company).

The latter distorted the average NIC on last week’s investment grade deals to 10bp, although if you strip out the two fixed rate tranches of Nissan Motor’s US$1bn 3-part exercise then the average NIC falls to 3bp last week. Meanwhile, last week’s deals had also posted a mixed performance in the secondary market as of screen quotes on Friday morning. For a closer look at last week’s APAC US$ issuance trends see the APAC CREDIT REVIEW.

Soft Chinese economic data reiterates calls for stimulus

Turning to broader markets, where the aforementioned public holidays in some jurisdictions should ensure that broader Asian markets are quiet this week.

We could therefore see a delayed reaction to latest disappointing economic data out of China over the weekend that further questioned the country’s ability to achieve its annual growth target, while reiterating the case for some much-needed stimulus measures to shore up the ailing economy.

That as China’s Industrial Production rose 4.5% yr/yr in August The National Bureau of Statistics revealed, versus 5.1% prior and versus expectations of +4.7%. That marks the slowest pace of growth since March 2024 and the fourth consecutive month that growth has slowed, the longest stretch since September 2021, according to Bloomberg.

Aside, Retail Sales rose by 2.1% yr/yr in August, down from 2.7% previously and falling short of forecasts at 2.5%.

UST yields fall while stocks post fresh gains as traders reconsider rate cut expectations (again)

Those regional markets which are open this session though could take some impetus from a constructive session in US markets on Friday, where stocks continued to power ahead while US Treasury yields reversed an upside bias seen in the prior two sessions.

That as traders re-embraced the prospect of a bigger rate cut at the Fed meeting this week, after last week’s hotter than expected core CPI and PPI readings had all but nailed on a smaller 25bp cut.

That change of heart was in part attributed to comments from NY Fed President Dudley who said that ‘there was a strong case for 50’ (bps).

And compounding the downside move for yields was the ominous August federal budget statement released late Thursday, showing an untenable increase in the deficit and debt servicing costs, providing a strong incentive for the Fed to cut rates and possibly dodge a near-term fiscal crisis.

The front end of the US Treasury curve led the move lower as the 2-year yield dipped by 5.68bp to 3.582%, its lowest level in more than two years, while the 10-year declined by 2.27bp at 3.651%. That saw the 2s/10s spread close out the week at its steepest level since 27^th June 2022.

Elsewhere, the three major US stock indices all closed higher on Friday led by a 0.72% gain for the Dow Jones, while the Nasdaq and S&P500 capped off five straight days of gains with rises of 0.65% and 0.54% respectively.

That also saw the bellwethers rally by 5.95% and 4.02% last week in what marked a very impressive recovery after the previous week’s rout. Meanwhile, the Dow Jones chalked up a 2.6% gain overall last week.

For a more comprehensive look at Friday’s price action and a look ahead to Monday’s key event risk across the globe, see IGM’s Asia Breakfast Briefing.

And for a detailed overview of which headline events global markets will have a close eye on throughout this week, including an outlook on the FOMC meeting, see IGM’s The Week Ahead.

Snapshot of APAC USD, EUR, CNH, CNY, HKD, SGD, AUD & NZD issues priced on 13th Sep 2024. Click on the links for the most recent update

US Credit

More impressively, yesterday’s $14.6bln brought overall (SSA-inclusive) issuance for the year to $1.555.523bln, which is already enough to top the highest annual overall estimate of $1.550.000bln, with a little more than three months remaining in the year. Ex-SSA issuance is now running at a 27.6% quicker pace than this time last year, while overall issuance has surpassed last year by 26.8%, with SSA entities contributing $321.165bln to the overall total. For a more comprehensive look at last week's issuance trends in the US primary bond market see IGM's IG WEEKLY WRAP UP.

Europe Credit

Coming into Friday’s session and despite an ECB day blank, the weekly euro haul already sat and EUR40.675bn - beyond both the average estimate of EUR34bn and the previous week’s final EUR36.57bn total. We weren’t quite done yet either where having wrapped up a roadshow on Wednesday and with markets in a buoyant mood Friday in the wake of the ECB’s expected 25bps rate cut, Mediocredito Centrale decided that Friday was as good a day as any to launch its EUR400m (from exp EUR300m) 5yr social senior preferred line. Of the week’s final EUR41.075bn single currency haul, IG corporates dominated in terms of the number of tranches with 16 of the 38 lines to price. However, it was the SSA sector that boosted volumes with EUR22.75bn, mainly thanks to huge trades from the European Union and Italy on Tuesday which raised EUR18bn between them. For more colour see the EUROPEAN DAILY CLOSE.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.