Today’s Corporate Calendar

August 4th, 2015 10:18 am

Via Bloomberg:

IG CREDIT: List of New Issues Expected to Price in U.S. Today
2015-08-04 14:01:00.0 GMT

By Polina Noskova
(Bloomberg) — 5 new issues expected to price today:

* 3M $Benchmark Aa3/AA-
* 3Y, 5Y, 10Y
* IPT 3Y +45-50, 5Y +65A, 10Y +95A
* Books: BofAML, GS, JPM
* Philip Morris $1b A2/A
* 2Y, 10Y
* IPT 2Y +80A, 10Y +140-145
* Books: Barclays, BNP, SG
* Northern States Power $600m (will not grow) Aa3/A
* $300m 5Y, $300m 30Y FMBs
* IPT 5Y +80-85, 30Y +135A
* Colgate-Palmolive $500m Aa3/AA-
* 30Y
* IPT +125-130
* Books: BofAML, C, MS
* HSBC USA $benchmark A2/A
* 3Y fixed and/or FRN, 5Y
* IPT 3Y fixed +110-115, 3Y FRN 3mL equivalent, 5Y
* Books: HSBC

Disrespecting the 2 Year Note

August 4th, 2015 7:12 am

Vi Bloomberg;
JPMorgan Says Get Out of U.S. Two-Year Notes Before Fed Moves
by Wes Goodman
August 3, 2015 — 9:24 PM EDT
Treasury short-term yields may almost double and prices will fall as the Federal Reserve prepares to raise interest rates, according to JPMorgan Chase & Co.

Two-year yields will climb to 1.25 percent by year-end, from 0.67 percent Tuesday, analysts at the company wrote in a note to clients. Capital Asset Management Co. in Tokyo says long-term Treasuries are the place to be.

“We remain bearish on front-end Treasuries,” JPMorgan analysts including Jay Barry, Bruce Sun and Phoebe White in New York wrote in the report dated July 31. “Fed tightening will pressure short-term rates higher during 2015.”

Treasuries were little changed Tuesday, with the two-year note trading at 99 29/32 as of 6:43 a.m. in London, based on Bloomberg Bond Trader data. Ten-year notes yielded 2.16 percent.

Fed policy makers have kept their benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since 2008 to support the U.S. economy.

There’s a 68 percent chance they will increase the rate by their December meeting, based on the assumption that the effective federal funds rate will average 0.375 percent following the increase, data compiled by Bloomberg show.

An investor who bought two-year notes Tuesday would lose about 0.6 percent by Dec. 31 if JPMorgan’s forecast is accurate, according to data compiled by Bloomberg.
Most Sensitive

Two-year notes are among the most sensitive to what the Fed does with its target because of their short maturity. The securities have returned 0.7 percent in 2015, compared with 1.3 percent for 10-year notes, according to indexes compiled by Bank of America Corp.

Ten-year notes will benefit because of low inflation, said Toshifumi Sugimoto, the chief investment officer at Capital Asset Management in Tokyo.

Falling commodity prices and low labor costs are keeping prices in check, he said.

The Bloomberg Commodity Index has tumbled 14 percent from this year’s high set in May. The U.S. employment cost index advanced 0.2 percent in the second quarter, the smallest gain on record, according to data compiled by Bloomberg that go back to 1996.

“As long as inflation is low, I don’t think long-term interest rates are going higher,” Sugimoto said.

Corporate Pipeline

August 4th, 2015 7:02 am

Via Bloomberg:

2015-08-04 09:35:48.717 GMT

By Robert Elson
(Bloomberg) — The most recent updates to the pipeline:

* Kookmin Bank (CITNAT) A1/A, plans 144a/Reg-S 5Y Covered
Bonds as soon as this week, via managers BNP/C/SG
* Royal Bank of Scotland Group (RBS) Ba1/BBB-, mandates
BofAML/CS/MS/RBS RBS to arrange investor meetings commencing
Aug. 3; USD CRD IV compliant Additional Tier 1 transaction
may follow
* CBRE Group mandates BofML/HSBC/JPM/WFS for investor calls to
begin Aug. 3

The following names may be added to calendar in coming days,
weeks, months:

* Mandates
* Thai Oil (TOP TB) Baa1/BBB mandates HSBC/SCB for
investor meetings from July 13 for $1b GMTN program
* America Movil (AMX) A2/A- picks C/Inbursa/BBVA/Santan
for MXN and/or USD 144a/Reg-S deals; meetings began June

* M&A-related:
* Avago Technologies (AVGO) to buy Broadcom (BRCM) A2/A-
for $37b; sees $6.5b debt to refinance, $9b of new debt
* Pfizer (PFE) A1/AA to buy Hospira (HSP) Ba1/BBB- for
~$17b; ~1/3 expected to be new debt
* Halliburton (HAL) A2/A to buy Baker Hughes (BHI) A2/A
for $34.6b; intends to use cash on hand and fully
committed debt financing via BofAML/CS; $8.6b bridge
loan as of April 23
* Teva (TEVA) Baa1/A- to acquire generic business from
Allergan (AGN) Baa3/BBB- for $40.5b; $33.75b cash
portion will be financed partially through debt
* Anthem (ANTM) Baa2/A- to acquire Cigna (CI) Baa1/A;
bridge pact of as much as $26.5b via BofAML/CS/UBS
* Danaher (DHR) A2/A+ may issue $2b debt sooner than
expected to help finance $13.8b acquisition of Pall
(PLL) Baa1/BBB+
* St. Jude Medical (STJ) Baa1/BBB+ to acquire Thoratec
(THOR) for $3.4b; bridge commitment via BofAML, sees
financing with as much as $3.7b new debt
* Aetna (AET) Baa1/A to acquire Humana (HUM) Baa3/BBB+ for
$37b cash/stock; sees financing to include ~$16b new
term loans, debt and commercial paper
* Ace (ACE) A3/A+ to buy Chubb (CB) A2/A+ for about $28.3b
in cash/stock; sees financing to include $5.3b sr notes

* Other corporate actions:
* Sysco (SYY) A2/A- plans to use debt to partially fund an
added $3b of share buybacks
* Campbell Soup (CPB) A3/BBB+ may borrow more than $2b for
acquisitions, BI says
* Macy’s (M) Baa2/BBB+ maturity schedule gap leaves door
open for new issues, BI says; may be able to issue at
least $650m of debt
* Waste Connections (WCN) na/BBB+/BBB proposed $125m 7Y,
$375m 10Y, according to Fitch

* Shelf Filings
* Applied Materials (AMAT) A3/A- files; last issued in
2011; announced $3b share repurchase in April
* British Telecommunications (BRITEL) Baa2/BBB files; last
issued in Feb. 2014
* United Mexican States (MEX) A3/BBB+ registers up to $2b
debt and/or warrants off its $110b Global MTN shelf via
* General Dynamics (GD) A2/A, files; last issued in 2012
with $2.4b 3-part deal

What to Watch Today

August 4th, 2015 7:00 am

Via Bloomerg:


* (All times New York)
* Economic Data
* 9:45am: ISM New York, July (prior 63.1)
* 10:00am: Factory Orders, June, est. 1.8% (prior -1%)
* Factory Orders Ex Trans, June (prior 0.1%)
* (10:00am: IBD/TIPP Economic Optimism, Aug., est. 47.8 (prior
* Central Banks
* 12:30am: Reserve Bank of Australia cash rate, est. 2%
(prior 2%)
* Supply
* 11:30am: U.S. to sell $40b 4W bills

Corporate Bond Trading Yesterday

August 4th, 2015 6:57 am

Via Bloomberg:

IG CREDIT: MS, TCKBCN, DE Led Trading With Large Client Flows
2015-08-04 09:55:44.742 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $9.9b vs $12.2b Friday, $11.7b the previous Monday.

* 10-DMA $13.5b; 10-Monday moving avg $11.4b
* 144a trading added $1.3b of IG volume vs $2.6b on Friday,
$1.8b last Monday
* Most active issues, longer than 3 years:
* MS 4.00% 2025 was 1st with 2-way client flows accounting
for 98% of volume
* TCKBCN 5.40% 2043 was next; client flows took 100% of
volume, buying 2x selling
* DE 2.30% 2019 was 3rd with client flows taking 100% of
* ANZ 2.85% 2020 was most active 144a IG issue with client
flows accounting for 46% of volume
* Bloomberg US IG Corporate Bond Index OAS 162.3, a new wide
for 2015, vs 160.9; 129.6 was 2015 low; 2014 high/low
* BofAML IG Master Index unchanged at +158, a new wide for
2015; +129, the tight for 2015 was seen Mar. 6; 2014 range
was +151/+106, the tightest spread since July 2007
* Markit CDX.IG.24 5Y Index at 72.0 vs 70.2; 73.2, a new wide
for 2015 was seen July 27; 2014 high/low was 76.1/55.0, the
low for 2014 and the lowest level since Oct 2007
* IG issuance totaled $9.25b Monday
* Weekly issuance stats; tenors, ratings, sectors
* YTD IG issuance now $1.040T
* Pipeline – CITNAT, RBS, CBRE possible this week


August 4th, 2015 6:53 am

Via Marc Chandler at Brown Brothers Harriman:

Dollar Block in Focus

– The Aussie was bid after supportive data, and the RBA did not talk the currency lower

– A poor milk auction later today in New Zealand could bring Kiwi in focus

– Despite expectations for supportive news on Thursday, sterling is not participating in the correction against the dollar today

– On the EM side, Korea’s CPI came in at 0.7%, as expected, and the RBI kept rates on hold

Price action:  The dollar is broadly weaker on a Turnaround Tuesday.  The antipodeans are outperforming, while the yen and sterling are underperforming.  The Aussie rebounded after the RBA left rates steady but omitted any reference to further currency weakness in its statement.  The euro is little changed, trading just below $1.10.  Sterling is trading just below $1.56, while dollar/yen is trading around 124.  EM currencies are mostly firmer, with HUF and MYR underperforming.  RUB and INR are outperforming, after the RBI left rates unchanged.  MSCI Asia Pacific rose 0.3%, with the Nikkei down 0.1%.  The Shanghai Composite rose 3.7%, while the Shenzhen Composite rose 4.8%.  Mainland stocks rebounded after restrictions on short selling were announced, but nearly 20% of Chinese stocks are still not trading.  Euro Stoxx 600 is down 0.4% near midday, with Greek stocks down 1.2%.  S&P futures are pointing to a lower open.  The US 10-year yield is up 2 bp to 2.16%, while European bond markets are mostly firmer within narrow ranges.  Commodity prices are rebounding today.  

  • Narrow ranges in the foreign exchange market continued for the most part, and the US dollar is a little softer.  The Reserve Bank of Australia did not talk the Aussie lower, and the data were better than expected.  This sent the Australian dollar sharply higher.  Its 1.25% gain is the biggest in two months.  This, coupled with gains in Chinese stocks (Shanghai Composite + 3.7%) and firmer commodity prices (including oil) are helping to lift the dollar bloc currencies more generally.  
  • The Australian dollar is trading at an eight-day best, just below $0.7400.  It had fallen to fresh multi-year lows at the end of July near $0.7235.  The RBA left cash rates unchanged at 2.0%, as nearly everyone had expected.  In past statements, it argued that a weaker currency was both necessary and desirable.  This time it recognized that the Australian dollar had depreciated in line with key commodity prices.
  • Separately, Australia reported stronger than expected retail sales and a smaller than expected trade deficit.  June retail sales rose 0.7%.  The consensus was for a 0.4% increase.  The May series was revised to 0.4% from 0.3%.  This put Q2 real retail sales up 0.8%, twice what consensus forecast.  The June trade deficit was A$2.933 bln, just less than expected, though still larger than the downwardly revised A$2.677 bln deficit in May.  Exports rose 3% while imports rose 4%.  
  • But caution is still in order as today’s Aussie gains are corrective in nature.  It is obvious that RBA policy must remain accommodative.  Monetary policy in the US and UK will shift in the other direction, even if the precise timing is being debated.  Moreover, sentiment may prove fickle if the employment data later this week disappoints.  The Australian dollar has not closed above its 20-day moving average since June 25.  It is found today near $0.7365.  
  • A poor milk auction later today in New Zealand could see the Kiwi stall in front of its 20-day moving average (~$0.6625).  This would set the stage for a disappointing Fonterra meeting later this week.  Turning to the Canadian dollar, the US dollar peaked near CAD1.3180 yesterday and is consolidating the move today.  Thus far, it has held above CAD1.3100.  Sentiment is poor as it has become clear that the Canadian economy is the worst performing of the high income economies here in 2015.  It has contracted each month this year.  Monetary policy divergence with the US, weak oil prices and the political uncertainty raised by the October election may limit corrective gains in the Canadian dollar.  
  • Despite expectations for supportive news on Thursday, sterling is not participating in the correction against the dollar today.  The disappointing construction PMI has kept sterling flat.  The consensus had expected a small rise from the June reading of 58.1.  Instead, the construction PMI slipped to 57.1.  Sterling remains inside yesterday’s range, which was inside last Friday’s range.  
  • Trading in most Greek stocks is calmer today.  The Athens Stock Exchange is off 1.2%.  However, banks are struggling to find a “clearing price” and financials are off 14% today.  At its worst, the index of the top four banks was off 29%, after a 30% decline yesterday.  Utilities are up 8%, and industrials and energy are up more than 6%.  
  • Chinese stocks advanced, with the Shanghai Composite snapping a three-day down draft.  After the markets closed yesterday, it announced a ban on intraday shorts as well.  Regulators had already banned buying and selling shares on the same day.  That is, one cannot short a stock in the morning and buy it back in the afternoon.  Chinese regulators also froze a little more than three dozen accounts as they crack down on algorithmic traders they blame for disrupting market stability.  The policy response to the price action, more than the price action itself, will likely encourage international fund managers to continue preferring the ADRs and H-shares to the mainland markets.  
  • We note that the US reported strong July auto sales.  The 17.46 mln unit pace compares with 17.11 mln consensus expectations.   This is the third consecutive month above the 17 mln mark and the first such streak since Q2 2000.  It bodes well for headline retail sales.  Strong sales, especially by US brands, which gained market share, will also underpin production.   The US reports factory orders, which outside of some response to the headline, is not a market mover, with durable goods orders out earlier, and the market is no longer focused on the Q2 data.  Lastly, the default of Puerto Rico yesterday is a talking point, and compare/contrast with Greece seems popular.  However, PR’s default is localized and does not have the existential quality of the Greek drama.  While the world sees it as a sovereign default, fourth largest (after Greece, Argentina, and Russia), the US sees it as a municipal failure.
  • Korea’s July CPI came in right on expectations at 0.7% y/y.  This is well below the 2.5-3.5% target range.  Officials have downplayed the need for more rate cuts, especially as a reaction to the MERS outbreak.  And with the key JPY/KRW cross moving higher, they may feel more confident.  However, we think domestic activity will need a boost soon, and so we see the possibility that the BOK will cut rates later this year.
  • Reserve Bank of India meets keep rates steady, as expected.  A small handful of analysts expected a 25 bp cut. CPI inflation picked up in recently, rising to 5.4% y/y in June and pass-through from the weaker rupee remains an upside risk, partially offsetting the benefits of lower oil prices.  Moreover, given uncertainty about the monsoon season, we think the RBI will remain cautious.  Easing is likely later in H2, however, if the monsoon impact is manageable.

Bad Apple

August 3rd, 2015 2:17 pm

Via Bloomberg:

Apple Chart Gets Congested as 200-Day Price Runs Into Correction
2015-08-03 16:58:39.117 GMT

By Callie Bost
(Bloomberg) — Apple Inc., which narrowly avoided falling
into a correction last month, is back at the brink again, this
time with another chart level in play.
The stock’s retreat Monday pushed it below the 200-day
moving average, a level of resistance commonly watched by market
technicians. The iPhone maker’s shares had spent 471 sessions
above the 200-day threshold, last falling below it in September
“Any time you get that type of a market leader with that
big of a following, it is disconcerting to see it break trend
like that,” said Peter Sorrentino, a Cincinnati-based fund
manager at Huntington Asset Advisors Inc., which oversees $1.8
billion including Apple shares. “It is a popular stock and it
had to lose speed, but for the broader market it makes one
wonder if we are staring down a price correction into the end of
the summer.”
Apple is the biggest stock in the world, accounting for 3.7
percent of the Standard & Poor’s 500 Index and 13 percent of the
Nasdaq 100 Index.
The stock, which tumbled 2.8 percent to $117.97 at 12:57
p.m. in New York, is down more than 10 percent since reaching
its all-time high of $133 on Feb. 23. If it closes at that
level, it would meet the common definition of a correction.
In July, Apple stock posted its steepest post-earnings
tumble since January 2013 after disappointing iPhone sales
rekindled concerns over whether the company can keep making
must-have products. While Chief Executive Officer Tim Cook has
succeeded in introducing an entirely new category with the Apple
Watch, sales remain modest, indicating that Apple will have to
keep relying on the iPhone to fuel growth.
Losses in Chinese equities, where almost $4 trillion was
erased from June to July, may leave consumers with less money to
buy gadgets in a market Cook expects to become Apple’s biggest.
Apple got 17.4 percent of its revenue from China in its last
full-year reporting period, Bloomberg data show.

Overnight Data Preview

August 3rd, 2015 1:26 pm

Via Robert Sinche at Amherst Pierpont Securities:

AUSTRALIA: The BBerg consensus expects the RBA to keep the policy rate at a record low 2.0% for another month after cutting to that level in May. The consensus also expects a June Trade balance of -$A3.0bn, maintaining the recent range of extremely large trade deficits that is undermining the AUD.

S. KOREA: The BBerg consensus expects the July Headline CPI to be up 0.7% YOY, matching the June rise. However, better to focus on the Core CPI which was up 2.0% YOY in June and up 2.0% or more for each of the first 6 months of 2015.

INDIA: The BBerg consensus expects the RBI to hold its policy rates unchanged after a 25bp cut in June.

JAPAN: The BBerg consensus projects a 0.9% YOY rise in nominal wages in June, which could bring the first rise in Real Cash Earnings since April 2013.

RUSSIA: With the RUB weakening in recent months as oil prices fell, the BBerg consensus is expecting the July Headline CPI to have increased 15.8% YOY, up from 15.3% in June, which was the lowest reading since January.

SPAIN: The BBerg consensus expects the summer tourist season will contribute to another -44.5K decline in reported Unemployment, data that is not SA; the level of unemployment dropped –29.8K in July 2014.

UK: As the housing market has improved in recent months, the BBerg consensus expects the Markit Construction PMI to tick up to 58.5 from 58.1 in June, which would be the strongest since February.

CANADA: The Markit PMI for Canada rebounded to 51.3 in June following 4 months of readings <50; another reading above 50 would be encouraging.


August 3rd, 2015 12:01 pm

Via Robert Sinche at Amherst Pierpont Securities:

As Steve Stanley noted last week, the setback in the Employment Cost Index Wage Index in 2Q2015 came as a surprise, but a slowdown that probably does not tell us a lot about the future. As noted in the chart below, the wage gains in the ECI report generally tracks he gain in the monthly Average Hourly Earnings (AHE) index, but the surge in commission-based earnings reported in 1Q2015 pushed the ECI wage measure well above the AHE measure. The retracement lower in 2Q brought the two measures more in line, suggesting the aberration may have been in 1Q, with 2Q a return to a more normal reading, and the drop in ECI-based wage gains likely not telling us much about the future.

With the past firmly in the past…the July Employment Report will provide the first piece of information on wages in 2H2015. While the impact should be very minor, Maryland and Washington DC did have minimum wage increases that went into effect July 1, and the total of 21 state minimum wage increases in 2015 will continue to work through YOY comparisons. Many of those increases were effective January 1, and AHE did rise 0.6% MOM in January, although part of the rise was an offset to a -0.2% MOM drop in December (likely driven by a mix shift of workers). Moreover, a number of well-known corporations have announced wages increases as we move through the year.

Of note, on a monthly basis AHE were unchanged MOM in July 2014, were +0.3% MOM in August and again unchanged 0.0% MOM in September. As a result, any MOM increase in July should boost the YOY increase, with relatively easy comparisons during the entire third quarter. The Bloomberg consensus expects a 0.2% MOM rise in AHE in July, which would bring the YOY gain to 2.3%, matching the high for 2015 reached in April and May.

Hilsenrath Story

August 3rd, 2015 11:52 am

I am busy being retired today so I have been late posting on the blog. This Hilsenrath story appears to be about 4 hours and 20 minutes old but it is a worthwhile read. The story suggests that FOMC officials would be comfortable raising rates even with wages increasing slowly. Ergo, the ECI data from last week is not a deal breaker for those who wish to hike rates.

Via Jon Hilsenrath at the WSJ:

Federal Reserve officials have fuzzy views on how wage growth fits in with their objectives for the economy. They would like to see wages growing faster. It would give them confidence that the economy is closer to their dual goals of producing healthy job growth and modestly rising inflation. But the linkages between wages, jobs and inflation are unclear, and so they’re not banking on faster wage growth materializing.

In classical models of the economy, as the unemployment rate falls, slack in the job market diminishes, producing upward pressure on wages. Because wages are such a large component of business costs, wage pressures in turn get passed on to consumers in the form of higher consumer prices. But a growing body of research suggests the economy hasn’t been working like this for decades. Other factors — including global pressures, in addition to household and business views about the stability of inflation — have large effects that potentially outweigh any impact from domestic wages on prices.

A recent paper by Fed board economists Ekaterina Peneva and Jeremy Rudd finds little evidence that the ups and downs of wages had large effects on broader consumer price trends either before or after the 2007-2009 recession. “Wage developments are unlikely to be an important independent driver of (or an especially good guide to) future price developments,” they conclude.

Fed chairwoman Janet Yellen is well aware of all this research. In a speech in March, she laid out the connections she sees between wages, jobs and inflation and how they fit into her plans for short-term interest rates: “The outlook for wages is highly uncertain even if price inflation does move back to 2 percent and labor market conditions continue to improve as projected. For example, we cannot be sure about the future pace of productivity growth; nor can we be sure about other factors, such as global competition, the nature of technological change, and trends in unionization, that may also influence the pace of real wage growth over time. These factors, which are outside of the Federal Reserve’s control, likely explain why real wages have failed to keep pace with productivity growth for at least the past 15 years. For such reasons, we can never be sure what growth rate of nominal wages is consistent with stable consumer price inflation, and this uncertainty limits the usefulness of wage trends as an indicator of the Fed’s progress in achieving its inflation objective.”

This all matters now because the current pattern of wage growth is confounding.

Ms. Yellen said last month in semiannual testimony to Congress on the economy that wages showed tentative signs of picking up. Fed officials want to see this because it would imply the job market is getting back toward full health and producing pay gains for workers. The Labor Department’s employment cost index had risen 2.6% in the first quarter from a year earlier, it biggest increase since 2008.

Then on Friday, the Labor Department reported that the index tumbled down to a 2.0% growth rate in the second quarter, in line with its disappointing pace for most of the post-recession period. An upturn in wage growth seemed to disappear with one single disappointing report. Other measures of wage growth, including Labor Department measures of the average hourly earnings of workers, also are creeping along at a little above 2% per year.

This plays in complicated ways into the Fed’s thinking on interest rates. Fed officials expect to raise short-term interest rates this year. Will they proceed in an environment in which wage growth is not materializing?

Ms. Yellen said explicitly in that March speech that she is prepared to start moving interest rates up even before she sees sure signs that wages are rising faster. “That said,” she added, “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken.”

Given her stance, Friday’s employment cost report doesn’t look like a deal breaker for the Fed in its long-running debate about when to raise short-term interest rates. Wages appear to be stagnant but not clearly weakening, which is what she set out as her threshold for not acting. Still, it creates new doubts for officials and doesn’t help them build the confidence they’re hoping to build that the job market is nearing full employment and inflation rising toward 2%.

The September policy meeting is thus shaping up to be a cliffhanger for the Fed and markets. Officials could decide they want to take a bit more time to makes sense of all of this. Still, other evidence could emerge before then that convinces them to look past the report and act on rates. This coming Friday’s jobs report, and its measures of average hourly earnings of workers, now becomes all the more important for the Fed in its continued search for evidence that the economy is truly on the mend.

-By Jon Hilsenrath