This CDS report was written by Markit’s Gavan Nolan
Credit and equity markets enjoyed another strong session today, easily offsetting yesterday’s profit taking. The Markit iTraxx Europe index tightened well below 100bp, trading around 96bp. The Markit iTraxx HiVol index consolidated its position below 200bp at 186bp, while the Markit iTraxx Crossover breached the 650bp level. Both the FTSE and Dow have returned to 2008 year-end levels, and rising Treasury yields provided further evidence of rising risk appetite.
The strong performance was again driven by earnings, both in Europe and in North America. Credit Suisse has emerged as one of the stronger banks in Europe, and its second-quarter results supported the bullish consensus on the name. The Swiss bank posted its second consecutive quarterly profit and easily beat expectations. Its spreads have tightened considerably in recent months and were little changed after the results.
Home improvement retailer Kingfisher defied the odds and posted solid sales figures. The company, owner of the B&Q chain in the UK, said that sales in the 10 weeks to July 11 were down 1.9% on a like-for-like basis. This was better than expectations and an impressive performance given the state of the European housing market. Kingfisher’s spreads tightened after the results and are now at their tightest levels since December 2007.
Tate & Lyle rallied after it issued a bullish trading statement. The refined sugar producer said fiscal first-quarter profit was ahead of expectations, with cost-cutting measures and resilient demand supporting profitability. British catering group Compass issued a less upbeat statement. The firm said that sales growth had slowed and it expects this trend to continue through the year. Nonetheless, spreads in the credit, one of the most defensive in Europe, tightened today.
The picture was much the same in the US, with the Markit CDX IG some 6bp tighter at 118.5bp. A plethora of companies released strong results, both in cyclical and non-cyclical sectors. Pharmaceuticals enjoyed another strong session, with Bristol Myers Squibb and Wyeth posting better than expected figures. The latter firm is due to be acquired by Pfizer, which posted robust earnings yesterday.
Newspaper publishers, hardly the darling of investors over the last few years, rallied strongly today after New York Times Co became the latest firm in the sector to beat expectations. Its profit of eight cents a share, excluding one-off items, confounded expectations of a four cents a share loss. Advertising revenue continues to fall, but stringent cost-cutting measures have maintained profitability. Credit investors have appreciated the firm’s debt reduction efforts, leading to considerable spread tightening in recent months. Gannett Co, which beat earnings expectations last week, tightened in tandem today.
Several other blue-chip firms posted results today, including McDonald’s, Altria, UPS and Ford. Overall the figures were positive, and widening credits were scarce.