This CDS report was written by Markit’s Gavan Nolan
European credit markets struggled for the second consecutive session, paying little heed to rallying stick markets. The Markit iTraxx Europe index was trading around 94.7bp, about 0.5bp tighter than yesterday’s close. The Markit iTraxx Crossover index was the worst performer, widening 7bp to 656bp, while the Markit iTraxx HiVol index again dislocated from its underlying constituents and tightened by 4bp.
The pattern was similar to yesterday, with defensive credits in the consumer staple, chemical and industrial sectors outperforming cyclical names. Pharmaceuticals firm Bayer, an established defensive name, rallied after its earnings beat estimates. The company said its second-quarter adjusted EBITDA came in at EUR1.77 billion, a drop of 7% compared to last year but still above consensus expectations. Bayer’s healthcaer and crop sciences divisions, which contribute more than 90% to EBITDA, continued to show strength. The material science division, through which Bayer is exposed to the business cycle, produce better than expected figures due to lower raw materials costs. Akzo Nobel, a pure-play chemicals company, also posted better than expected profits.
European banks widened despite Banco Santander reporting better than expected results. The Spanish bank said net income fell by 4% from a year earlier, beating consensus estimates. However, investors have been focusing on asset quality deterioration, and Santander became the latest to increase its provisions for bad loans. The firm’s spreads widened after their results, as did most of the other names in he sector.
In the US, the Markit CDX IG index was more or less flat at 116bp. Stocks were lower after durable goods orders for June showed a 2.5% decline. It was the first decline in nearly three months and triggered nerves ahead of the Fed’s Beige Book, due to be released later today. However, the earnings picture was positive, and tightening credits outnumbered those that widened.
Time Warner was among the best performers after its results beat expectations. The media company’s adjusted net income came in at 45 cents a share, ahead of the 37 cents a share consensus estimate. The results were driven by a strong performance by its film division, with the surprise success of “The Hangover” boosting earnings. Its cable-TV networks HBO and TVS continued to post solid figures.
Time Warner Cable, spun off from its former parent in March, also posted better than expected profits. The company’s earnings of 91 cents a share came in well above estimates. The outperformance was driven by increased subscribers as well as cost-cutting. The difference between its spreads and Time Warner’s is now at its smallest since the separation was announced last year.