Even as stock markets were impacted yesterday by bleak economic data from Asia, credit proved once again resilient as supply continues to fall short of the demand for yield and the fundamentals remain supportive. Indeed, the latest release from Moody’s showed that the global default rate dropped to 2.4% in February from 2.6% a month earlier; for Europe the figures remain higher but the downward trend is more than evident (3.5% in February from 4.3% in January). Against this backdrop, the search for high yielding assets continues to push spreads lower on corporates, hybrids and peripheral sovereigns. The market has become so compelling that Greece is reportedly looking to test the market with a bond issuance; that is if it can resist Troika’s call not to do so. On a similar note, in the US, Monday was reported to have brought the third largest issuance on record, with Petrobras and Verizon accounting for the lion’s share.
Overnight Asian markets were mixed, with the Nikkei index gaining presumably because the conclusion of the Bank of Japan’s meeting reminded investors that local monetary policy remains highly accommodative; there was no change in the amount of asset purchases and this was highly anticipated. There was less reason for optimism on the Chinese market after the February credit data added to the worries regarding an economic slowdown; specifically, total financing raised in February stood at 938.7 billion yuan (analysts were expecting a much larger 1.31 trillion yuan). Another surprise from the People’s Bank of China was the Governor’s announcement regarding a liberalisation of the deposit rates in about two years; in yet another move to reform the local market, the authorities disclosed that they will allow five privately-owned banks. With both credit and exports disappointing investors, the market now has to assess whether the 7.5% growth target remains achievable. Additionally, the approaching reform of the interest rates might remind some about the US’ savings and loans crisis.
During the day we expect data on UK industrial and manufacturing production, UK’s estimated economic growth and some final GDP figures for Q4 2013 (Italy, Austria, Greece, Cyprus and Portugal); the EU finance ministers meeting (Ecofin) might also result in some interesting headlines. Earnings releases include names such as Unciredit and Banco Poulare di Milano, Banca Monte dei Paschi, UBI, BMW and Lufthansa. Of course the Russian-Ukrainian impasse will likely remain on the back of investors’ minds particularly as the date of the proposed referendum approaches. Also, speculations might also rise in anticipation of the meeting between the Ukrainian interim prime-minister and the US President tomorrow (scheduled for tomorrow). Meanwhile, the Ukrainian Defence Minister stated that the country’s troops are testing their combat readiness.