This CDS report was written by Markit’s Gavan Nolan
The equity and credit markets were more in tune today as both responded negatively to gloomy economic and corporate news. However, the latter market again underperformed its equity sibling, a reversal of the trend seen in recent months. The Markit credit indices were all wider today, with the iTraxx Crossover briefly exceeding 900bp for the first time. The deterioration was broad-based, but the chemicals sector stood out as the worst performer.
German company BASF, the world’s largest chemicals group, sent a shockwave through the markets with an overtly pessimistic trading statement. The firm announced scything production cuts, including the temporary shutdown of 80 plants affecting 20,000 workers. BASF warned that a “massive” decline in demand, notably in the auto, construction and textile industries, would mean that profits won’t reach the same levels as last year. Auto customers, in particular, have cancelled orders on short notice, a situation that has worsened in recent weeks. Other firms in the sector, such as Akzo Nobel and Koninklijke DSM, widened on the news.
