Markit’s Gavan Nolan wrote this CDS report
The US GDP figures were billed as the pivotal event of the week, and so it has proved. The rally of recent months has flagged over the past few days, with many feeling that valuations looked overdone. But the return to growth of the US economy has given markets a boost and put concerns on the backburner. The Markit iTraxx Europe index tightened nearly 5bp to 85.5bp while the Markit iTraxx Crossover index closed at 506bp, 25bp tighter on the day. HiVol went back below 140bp at 139.75bp.
It was no great surprise that the US posted a positive figure for third-quarter GDP. But the 3.5% number came in ahead of the 3.2% consensus expectation and allayed fears of a negative surprise. The growth was driven by personal consumption, residential investment and government spending. The government’s fiscal stimulus has been effective, with the home buyer tax credit, “cash for clunkers” car rebate scheme and other measures contributing more than 2% to real GDP growth. But the figures also raised concerns about how the economy will cope when the stimulus is withdrawn. Consumer confidence is still fragile and disposable personal income is falling.
The picture was mixed among single names, with the balance between tightening widening names fairly equal. Cyclical sectors such as autos and miners rallied following the news on GDP growth, while defensive names in the consumer goods and insurance sectors widened. Norwegian telecoms group Telenor was one of the better performers after it posted strong third-quarter earnings. The company said its EBITDA for the period was NKr8.52 billion, well above consensus forecasts.
The situation was much the same in the US, with stock and credit indices rallying. The Markit CDX IG index was trading around 103bp, about 6bp tighter than yesterday’s close. Tightening names were more dominant than in Europe, though there remained a significant number of widening credits. Financials and retail were among the strongest sectors, along with resource-related credits. Consumer goods and tech credits widened as defensive credits lost out. There was more positive news on the earnings front, with Motorola among several firms that beat expectations.