European investment grade credit markets were positive Friday morning, but only just, as falling oil prices, profit warnings and sluggish stock markets bought a dose of reality back to the strong performance of the past couple of days.
The main iTraxx Europe investment-grade index was 2 basis points tighter at 149.9bp, according to Markit Group, meaning it costs less than €150,000 annually to insure €10m of debt in the index, down from its all-time peak close of €172,000 a week ago.
However, within the index more than half the companies sae an increase in the cost of their protection. Glencore, the commodities trading and investment house, was worst hit moving more than 100bp wider to be back above 1200bp as worries about liquidity and counterparty risk continue affect the name.
Swiss Re was next, 21bp wider at 410bp, in spite of a strong improvement in its stock due in part to Merril Lynch upgrading it to a ‘buy’.
British Telecom was 19.65bp wider at 197.5bp after issuing a profit warning, which saw pressure on a number of European telecoms companies in the market including Helenic Telecoms, Telecom Italia, Telefonica, Deutsche Telekom and Telenor. Telecoms stocks were under pressure as well.
PPR, the French retailer and controller of brands such as Gucci and Puma, remained under pressure, moving 16bp wider to 572.5bp. Puma reported strong sales, Friday, but refused to give any profits guidance, disappointing stock markets.
At the other end of the list ThyssenKrupp was the best performer, tightening by 20.25bp to 297.5bp, suggesting the credit markets do not beleive the German steelmaker will bid for its US rival AK Steel as was rumoured at the start of the week.
German carmakers VW, Daimler and BMW were all big improvers as were a number of the banks, led by RBS and SocGen. Another strong improver was Centrica, 2.76bp tighter at 122.5bp, after the UK utility launched a rights issue to help pay for its British Energy deal.