Markit’s Otis Casey wrote this CDS report
Market reaction was fairly benign today considering that US economic news was mostly negative. US jobless claims and wholesale prices were higher than economists predicted. The previous jobless claims report was even revised upwards. Sour prospects for employment gains coupled with signs of inflation would normally send the markets reeling but the market seemed to take comfort in a variety of factors.
First the Philadelphia Fed Business Index came in much better than expected and contradicted the broader economic releases. Walmart’s guidance on future earnings was largely interpreted as upbeat for consumer sentiment–consumers are shifting back to more upscale retailers. While Walmart stock was down by 85 cents at the time of writing, intraday CDS levels for the five year point was about a basis point tighter. Lastly, the PIGS were not squealing.
Portugal, Italy and Spain were all tighter on the day by 2, 1 and 4 bps, respectively. Greece was 9 bps wider despite the IMF’s announcement that they were willing to lend technical assistance and expertise to Greece. Officials from both the EU and IMF are expected to go to Athens shortly to do just that. Sources indicate that volumes were light.
In light of all of this, the steel sector re-emerged to take some of the spotlight and helped lead equities. Steels had a bit of a boost earlier in the week on reports of higher scrap prices and increased demand, particularly for carbon steel. Today showed some follow through and was likely helped by Bank of America’s upgrade on Nucor to neutral from underperform. Yesterday, Moody’s revised their US Steel Industry outlook to Stable as well. Nucor Corporation shares were up by 90 cents at the time of this report with the CDS 4 bps tighter at 78. United States Steel five year CDS was 17 bps tighter at 380.