The European primary market reopened Wednesday despite risk markets being on the defensive for much of the session due to US presidential election jitters as well as a renewed drop in oil prices following a large rise in oil inventories (more on that later).
After two-days without Euro issuance across all asset classes, it was the corporate sector which ensured it wouldn't be a third where 6 issuers, from three different continents, printed Euro paper which totalled EUR3.3bn.
This came as the borrowers looked to capitalise on the small window of opportunity ahead of the Fed verdict due Wednesday evening as well as Payrolls data on Friday and US presidential elections on November 8th. However, not all of these deals flew off the shelves, supplying further evidence that investors are becoming more selective when it comes to allocating capital.
For example, Abertis Infraestructuras S.A. received a rather tepid response for its EUR500m long 10yr (Feb 2027) line which only printed at the wide end of +70/75 guidance on the back of lukewarm demand of over EUR750m.
This lacklustre investor interest came despite Abertis offering a final NIC of 15bps which is the upper end of what we have been accustomed in recent times. However, it's worth noting that this is the second time the issuer has targeted the 10yr part of the curve after it issued a EUR1.15bn May 2026 line in May this year.
One deal that did get a sizeable order book on Wednesday was G4S International Finance's long 6yr (Jan 2023) trade which marked the issuer's first Euro issue in four years. Final demand stood at around EUR3.6bn which allowed pricing to be ramped in to a final reoffer of m/s +140, from a m/s +170/175 IPTs starting point.
As well as the rarity factor enticing investors, there also seemed to be a rather generous NIC on offer for investors where the issuers old outstanding short dated deals implied fair value at around m/s +125 area, although it is worth noting these weren't the most liquid of securities.
Also offering rarity value on Wednesday was New Zealand headquartered multinational dairy co-operative Fonterra Co-operative Group Limited. The borrower brought a Nov 2024 line, becoming only the second New Zealand corporate and just the 5th Australasian corporate to visit the single currency in 2016.
With books standing at just EUR650m at reoffer, Fonterra appeared to go for price over size with the issuer printing a EUR350m sized deal at m/s +55 which was the bottom end of the EUR350m-500m expected size and 10bps inside m/s +65 area IPTs.
Also adding to the total on the day were Dover Corp and Statoil which printed a EUR600m (from exp EUR500m) 10yr and an equally weighted EUR1.2bn 10/20yr dual-tranche line respectively.
The former printed at m/s +85 which was tightened from +100/105 IPTs with no booksize communicated due to the trade being SEC-Registered.
Statoil's two-parter attracted combined interest of EUR1.9bn (skewed to 20yr) which resulted in EUR600m 10yr and EUR 20yr lines printing at m/s +38 and +68 from IPTs at m/s +50 area and +75 area respectively. This equated to a NIC of circa 4bps on the 10yr and 20bps on the 20yr tranche when extending from Statoil's previously longest outstanding 1.625% Feb 2035 deal. However with the issuer's credit curve largely flat from the 2027 to 2035 maturity, in reality the NIC on the 20yr is smaller than this.
There was also a number of additions to the corporate pipeline on Wednesday including LyondellBasell Industries which held an investor call ahead of a potential Euro 12yr benchmark which could comes as early as Thursday.
Looking further ahead and Akelius Residential Property AB, Louis Dreyfus Company BV and AbbVie Inc. all mandated banks for investor roadshows next week. The latter looking to follow the recent raft of US issuers that have issued in the single currency in the last two weeks.
Negative risk risk tone persists
As with Tuesday's session, not helping was the negative tone in broader markets and adding to the well documented political jitters was a further retreat in European equities, led by Italian banks, thanks to concerns over the bailout of BMPS.
Oil was firmly back on the slide too following DoE inventory data showing a bigger than expected build in crude stocks, sending Brent down to its lowest level since OPEC members signalled an intention to cut production at a meeting in Algiers.
US data also weighed on sentiment ahead of Friday's NFPs where ADP Employment missed at 147k in Oct (exp 165k) although Sep data was revised sharply higher to 202k from 154k originally reported.
The left the govvie complex as one one of the few winners as bunds garnered a FTQ bid while the broader Stoxx600 slid to a near 4-month low and iTraxx indices extended recent widening seeing Main and Crossover hit their widest levels in more than two weeks.
Thursday's event risk
As the US election draws nearer markets will keep a close watch on any fresh polls, especially after latest ones showed a tie or lead for Trump resulting in a FTQ on Tuesday/Wednesday.
Otherwise, the BoE concludes its two-day policy meeting with an announcement due at 12.00GMT although no change is expected. This will leave markets to focus on the latest inflation report instead, due at the same time. The latter follows a recent trend lower in the GBP which has lifted inflation prospects (Sep CPI at 1% YoY versus 0.9% expected and 0.6% previously).
Before then though, the UK releases Markit/CIPs Services PMI for Oct, which is seen a tad softer at 52.5 in Oct from 52.6 previously. That follows a better than expected Construction PMI Wednesday, but a tad softer Manufacturing print Monday.
Other European data comes in the shape of Eurozone Unemployment, which is seen softer in Sep, while the Spanish jobless claims for Oct precedes.
Across the pond, Factory Orders (Sep), weekly Jobless Claims and the ISM-Non Mfg Composite (Oct) form the key data highlights ahead of Fri's NFP.
Central bank speakers will consist of BoE's Carney, Cunliffe and ECB's Weidmann and Coeure.
Supply-wise, Spain plans to raise up to EUR4.5bn via 2021,2026, 2030 SPGBs and 2024 Linkers, France up to EUR8bn via 2026 & 2036 OATs, and Ireland EUR750m via 2030 bonds � reducing the scope for any sovereign-related syndicated activity. Some concession building is possible going into these sales.
Meanwhile, earnings could also help shape sentiment with 32 Stoxx600 and 27 S&P500 companies due to report, although Asian markets may provide initial direction with the China Caixin Services PMI for Oct due for release following a 52.0 read in Sep.
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