CREDIT OPEN: Dip buyers sitting pretty
Dip buyers are looking fully vindicated as the end of the week draws nearer with the latest leg of the recovery in risk assets having come Thursday where strong US retail sales data boosted soft landing hopes while lower than expected jobless claims provided reassurance that the US labour market is not falling off a cliff. Walmart offered additional comfort over the health of the US consumer too with its shares rising 6.6% to a record high after well-received results and a hike in guidance.
That positivity unsurprisingly continued into Asian trade today with Nikkei gaining over 3.5% while US index futures currently suggest a potential seventh straight gain for S&P500 and Nasdaq could be on the cards with Thursday’s rally having left the former just 2.2% beneath its record high set on 16th July. A return to that level today is probably a big ask but never say never.
On the flipside, US yields surged Thursday (2yr +14bps) while markets have also scaled back easing bets where Fed Fund futures (BBG data) indicate that 33bps of easing is priced in for the Fed’s Sep meeting, down from the over 60bps which had been priced in during the pinnacle of market mayhem last Monday.
Given today’s relatively thin schedule of events and data, the catalyst to upset the apple cart will need to come in the form of an unexpected banana skin although one imagines there could be a temptation to book profits given the magnitude of the multi-session winning streak seen across various markets.
Already out, UK retail sales were largely in line with expectations in June while later comes US Jul housing starts & Aug prelim UoM data.
Fed’s Goolsbee is today's sole speaker and comes after the St. Louis Fed’s Musalem became the latest Fed official to hint at a September cut on Thursday, opining that "risks to both sides of the mandate seem more balanced".
It will be worth watching synthetic credit indices after the falling cost of default protection pulled the iTraxx crossover over 13 points lower on Thursday to close at 302, way down from its recent peak above 361 hit just last Monday.
For more on latest developments see the European Breakfast Briefing.
Friday’s supply prospects
We are expected to see our second consecutive euro issuance blank on Friday as European players bridge yesterday’s Assumption Day holiday into the weekend. If that is the case then that would leave the weekly single currency haul at just EUR1bn via two deals, and the lowest total of any week so far this year.
Five high grade borrowers tapped the US primary market Thursday, after two straight sessions that saw only two borrowers dip their toes in the water. They brought ex-SSA issuance for the week to USD29bn, within a hair of the average weekly estimated of USD30bn, making this only the ninth week this year that issuance has not lived up to expectations. For more colour see THE ENDGAME.
What to watch today
** Key Data: EC Jun Trade Balance (10:00), US Jul Housing Starts (13:30), US Jul Building Permits (13:30) and US Aug P Uni of Michigan Sentiment (15:00)
** Key Events: Fed’s Goolsbee speaks (18:25)
** Auctions: No major term auctions scheduled for Friday 16th Aug
** Earnings: 2 Stoxx600 companies report
All times BST
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