OPEC+ Impasse and NFPs ahead
Further strong data prints out the US (Initial Jobless Claims 364k vs BBG cons. 388k, US June Manufacturing PMI 62.1) added to the positive sentiment on the day, sending US indices to record highs once again. The Dow Jones Industrial Average rose 0.38%, to 34,633.53, the S&P 500 gained 0.52%, to 4,319.94 and the Nasdaq Composite added 0.13%, to 14,522.38. But that is not the end of the good news, J&J has reported yesterday that their vaccine neutralizes the delta variant and is durable over time. US and European futures are higher whilst Asian stocks are mixed, with China and HK markets underperforming: HSI -1.88%, NKY +0.27%. USTs tightened with 10Y yield down 1bps to 1.455% at the time of writing. All eyes will be on NFP numbers due later today with projections pointing to a further improvement to 720,000 in June (though the whisper number is as high as 800,000), hence the flows are expected to remain subdued today especially given the long weekend ahead for the US.
In Europe, German Bund yields opened higher in the morning with 10Y yields reaching -0.18% levels but drifted lower after the US open, ending the day at relatively flat -0.20% amid solid economic data (Eurozone Manufacturing PMI for June 63.4 vs flash 63.1). Main move was in peripherals however with BTPS spreads tightening close to 3bp yesterday with BTPS 31 currently standing of just below 100bps over DBRs, marking 20bps overall tightening since May. SPGB move was also in line with 10Y spreads tightening 2bps, while GGB was the underperformer, with GGB 31 widening 4bps in spread terms to just above 104bps at the time of writing.
In MENA region we had a busy morning with the much-expected Qatar Petroleum deal (QPETRO) opening up for secondary trading. The 4-tranche deal was a success gathering more than a 40bn books for a 12.5bn deal, however some early selling has put pressure on the prices with QPETRO 51 being the loser of the day trading down as much as 50c in EU hours before going back up to just below reoffer later while QPETRO 31 outperformed ending the day around 37.5c above reoffer, although down from+75c highs of the day. Overall, some selling pressure was seen across the complex with underperformance lying in the HY sector. This was particularly so for EGYPT and BTUN which closed down as much as -1.25pts and -1pt on the long ends respectively, while OMAN and MOROCCO were -0.375/-0.5pts lower.
In SSA, the market was generally weak on the day with most names down .125 -.25pts in cash price, with some notable underperformer being IVYCST (-.75pts in cash). However, buyers finally seemed to return to the EUR curve, while the USD curve saw some profit taking flows. The new REPCAM 32 was another underperformer yesterday, down almost 1pt at the secondary trading open, although it finished the day off the wides, seen bid 50c below the reoffer. NGERIA was better offered with most bonds coming out in the belly and long end, while ANGOL and SENEGL continued to trade strong with RM seen adding risk along the curves.
RUSSIA and CIS space traded marginally flat to stronger, with RUSSIA and UKRAIN Sov being the underperformers, adding 1-2bps in yield on the day, while BELRUS/ARMEN/UZBEK ended the day tighter, down 2bps in yield terms. In the corporate space Oil sector slightly outperformed, with GAZPRU/SOIAZ/TENGIZ up 20-30c in cash price.
In LatAm, HY paper was very well bid, with the lack of supply driving the prices up around 0.5pts on average. Some good demand was seen in ECUA with the curve up 30-70c in cash price and ARGENT (up 50c). PEMEX was another notable winner with buying cares finally returning to the name, sending the bonds as high as +1pt on the long end. BRAZIL Sovereign was the underperformer, ending the day another 50c lower across the curve on the back of the supply indigestion of the recent new issue.
The start of the new half of the year yesterday was certainly eventful, with the main drama developing around the OPEC+ meeting, where the “will they – won’t they” theme starting to resemble episodes of drama series with exciting plot twists. After the markets cheered the reaching of the preliminary agreement between Saudi and Russia finally yesterday with a lower-than-expected oil increase of 400k barrels/day with Brent rising to as high as $76.5, the UAE delivered an unexpected blow by blocking the deal at the last minute, forcing the group to postpone its meeting for another 24 hours. A cliffhanger anyone? Brent reversed some of its gains of the day, although finishing still in the green around $75.5/b while WTI futures finished the day above $75 for the first time since 2018.