This CDS report was written by Markit’s Gavan Nolan
Credit and equity markets took stock today after yesterday’s robust rally. The Markit iTraxx Europe index was slightly tighter, reflecting a mixed performance in European stock markets.
The financial sector – the main focus of investor attention – lagged the broader market. Bank spreads were wider, notably in Italian and French names. An element of profit taking could be expected after the recent outperformance. But insurers continued to tighten amid optimism that the US government plans signal a step forward in clearing up financial balance sheets. German reinsurers Munich Re and Hannover Re were among the best performers.
The broader US credit markets were more or less flat, again reflecting a lacklustre stock market. Tightening credits marginally outnumbered names that widened in a mixed session. Cruise ship operator Carnival Corp stood out after its first-quarter profits beat estimates easily. The company said it made profits of 33 cents a share, up 10% from last year. But revenues were down, and the firm’s strong performance was driven by cost cutting. Carnival cut its forecasts for the second-quarter and the full-year, and warned that it would reduce capacity further if demand does not pick up. Nonetheless, the firm’s CDS spreads tightened, helped by the assurance that the firm would not need new financing this year.
Carnival’s results, along with an unexpected rise in house prices, helped to boost consumer-related credits. Oil rig operator Transocean, one of the best performers in recent weeks, continued to tighten despite a fall back in the price of oil. At $53 a barrel, though, it is still $20 higher than the low reached last month.