PMIs and Fed push spreads wider
Disappointing Markit PMIs and relatively hawkish minutes from the Federal Reserve instilled negative sentiment on Thursday, though the damage was limited.
The HSBC/Markit Flash China PMI came in at 50.4 in November, marking a two-month low and missing expectations of 50.8. The survey still indicated that the Chinese economy is expanding but it also raised fears that growth may be tailing off in the fourth quarter.
In Europe, the Markit Flash Eurozone PMI fell from 51.9 to 51.5, the lowest reading for three months. The French index was particularly concerning - the PMI was at its lowest level since June. Germany continued to improve but the rest of the eurozone is languishing.
Does the depressing economic picture affect the capital raising ability of sovereigns? Not at the moment. France and Spain both sold debt today with no problems. The ECB is standing ready to support eurozone members, and this trumps everything else, at least for now.
Credit markets were already on the back foot after Fed minutes published yesterday were interpreted as hawkish. Many had written off the chance that Ben Bernanke and his fellow Fed governors would begin QE tapering this year, but another strong jobs report in December will no doubt create nervy conditions.
Despite the negative news on the macro front, the reaction in the market was subdued. The Markit iTraxx Europe was 1bp wider at 82.5bps, while the Markit CDX.NA.IG tightened 0.25bps to 72bps. This is typical market behaviour in recent months - spreads have been trading in a tight range.
In single names there was little to remark upon, though there were a handful of companies that reported results. US retailer Target Corp posted sales and earnings well below expectations, making it the latest discount chain to suffer a difficult quarter. Target, however, is a strong credit and its CDS spreads widened just 1bp to 31bps. It has underperformed main rival Wal-Mart (20bps) this year.