Up front, my sympathies go to the family of Christophe de Margerie, the CEO of Total SA, who was killed in an accident in Moscow. He is also a great loss to the company and to the top group of leadership in the French economy. He was not part of the incestuous closed shop of the ENA elite but was a loyal corporate servant and an oil man through and through. France needs more like him and now, sadly, it has one less.
Markets disappointed on Monday with Europe taking another spanking – the Dax shed a further 1.5%, others a bit less – which was not quite what might have been expected on the back of a Tokyo rally of 3.9%. Credit markets were schizophrenic where anything we tried to buy suddenly tightening or being unavailable, while anything we thought of selling being equally suddenly long and offered only. It felt like trying to ski a slalom where lumps of rock had been placed in the middle of the piste.
That said, primary markets had been as good as closed since the mid-end of last week and nobody dared to stick their toe in the water until the old faithfuls arrived in US time with Morgan Stanley pricing a 10-year, Goldman Sachs a 5-year and Bank of America a callable perpetual issue which was fashioned as preference share issue rather than as a classic Tier 1. No doubt this will break the log-jam and we will be swamped during the next few days by some of the back-log. Issuance spreads will clearly be wider than they were this time last week and it will surely take Syndicate heads and DCM bankers a day or two to both get pricing absolutely right and to convince corporate treasurers that they have. Where there is uncertainty, there is opportunity. There is certainly no shortage of cash looking for somewhere to go.
Flatter China
Economics wise, it is a light day in both Europe and the US, so the chatter will all be about China which released its Q3 GDP numbers this morning. At 7.4% YoY and 1.9% QoQ, they were pretty much bang on expectations if not perhaps a tad better but still slightly behind the government’s declared target growth of 7.5%. What we of course don’t know is whether the target is being hit by the economy or by the statisticians – although that is a question we appear to have learnt to live with.
To some extent, the figures let the government off the hook when it comes to the call for stimulus. The Chinese economy is already at risk of being over-borrowed and more stimulus might satisfy the short-term demands for growth but apart from that all it does is to cast concrete around structural imbalances.
We should never underestimate the political implications of China’s growth story. The sort of unrest we have been experiencing in Hong Kong is something which could easily take root in other centres, should the sausage machine which is Chinese manufacturing and construction begin to splutter. Not that Hong Kong is about jobs and incomes, but Peking has to look solid and unmovable in order to retain unfettered credibility amongst the working population. The 7.4% points towards the gentle flattening of the country’s growth trajectory but not to such an extent as to scare the horses.
Asian markets initially rallied but they too are lacking conviction and by the end the day are back in the red, albeit not by much. Japan looks ugly at -2% but after the near 4% rally on Monday it means little. There is, quite clearly, a lot of stabbing around in the dark; I wish I could see what will give markets a clearer idea of where they want to go and how they intend to get there. Wisdom has it that gravity drags things down and unless there is something positive pushing markets higher, they have to fall in search of buyers. No market coincidentally drifts higher; it doesn’t happen.
Why so stealthy?
Meanwhile, the ECB has now finally begun to ramp up its much heralded covered bond buying programme, initially focusing on French and Spanish debt. My thanks to my old chum Ian McBride of Mirexa Capital who put out the following last evening which had me smiling all the way home: “The question is…Why is this some sort of Stealth Operation?? Wouldn’t you want to be yelling from the roof tops that you are bailing out the world and building your balance sheet as promised?? Maybe it’s because not all member states are enthusiastic of these programmes? Or that you’re not sure they’re going to work? Or perhaps the worst scenario is…that you aren’t actually able to buy the securities as there aren’t many sellers or you aren’t paying aggressive levels. All answers on a postage stamp….”
I wonder if he might not be closer to the truth than younger, more enthusiastic and less experienced observers would appreciate.
