Gavan Nolan of Markit wrote this CDS report
European credit and equity markets rallied today as the US earnings season continued its strong start. The Markit iTraxx Europe index tightened by 6bp (6.8%) to 81bp, close to its recent tight level of 79bp reached late in September. The Markit iTraxx Crossover index did even better at 504bp, surging past the 520bp September level and threatening to breach the 500bp mark for the first time since June 2008.
As expected, the impetus for the rally came from across the Atlantic. After the close yesterday Intel posted better than expected third-quarter results. The chip maker reported net income of 33 cents per share, easily beating consensus forecasts of 28 cents a share. Revenue was also higher than predicted. The company was bullish about its prospects, sending a signal to the market that consumer demand was picking up.
The positive sentiment was compounded following JPMorgan‘s third-quarter results released today. The US bank said it made 82 cents a share on revenues of $28.8 billion, far higher than expectations. A strong performance from its equity and bond underwriting divisions, as well as fixed income trading, more than made up for losses in consumer credit. Goldman Sachs and Citigroup report tomorrow, while Bank of America’s figures are due on Friday. Judging by previous quarters, the results will have a crucial impact on near-term spread direction.
Unsurprisingly, there was an overwhelming bias towards tightening names. Building material firms and supermarkets were among the best performers, highlighting the broad-base of the rally.
The picture was much the same in the US, with the Markit CDX IG index breaking through the 100bp barrier to trade around 95.5bp. Tightening credits dominated and cyclical sectors outperformed. Media names were tighter, as were techs, financials and several other sectors. Health insurers were among the few names to widen, continuing the trend from yesterday. The controversial healthcare plan proposed by the Obama administration was passed yesterday by the Senate Finance Committee, the first step in extending healthcare to the wider population.