European Bond Research - July 24, 2019

EURO ZONE PMI PLUMMETED IN JULY as German manufacturing hits a seven-year low suggesting further deterioration within the European economy;  PMI across the Euro Zone fell from 52.6 to 51.4. The German automotive industry significantly contracted, however, the labor market and household spending remains robust preventing an all-out recession. “The health of German manufacturing went from bad to worse in July.” FTSE 100 -0.70%, German DAX +0.39%, CAC 40 +0.18%, STOXX Europe 600 +0.50%. The 10-year Gilt lost 1.1 basis points.  

THE IMF CUTS GLOBAL GROWTH FORECASTS once again citing a number of catalysts slowing growth, the global economy is expected to expand by 3.2 percent in 2019.  “They include further trade and technology tensions that dent sentiment and slow investment; a protracted increase in risk aversion that exposes the financial vulnerabilities continuing to accumulate after years of low interest rates.”  Struggling Carige bank of Italy may receive the backing of 600 million euros from Italian banks contingent on the plan passing one major obstacle with the FITD, Italy’s depositor protection fund.  Some of the bank’s assets participating in the bailout are not guaranteed by the FITD in which case the FITD will not approve the use of funds. ADI (Advantage Data Inc.).  Extensive corporate-bond index data showed a net daily yield increment for high-grade versus high-yield constituents. High-grade bonds edged out high-yield debt as of 3 PM, London time.  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded,  Mylan Inc. (USD) 3.75% 12/15/2020 made some analysts' 'Conviction Buy' lists. (See the chart for Mylan Inc. below). Corey Mahoney (cmahoney@advantagedata.com).

 

LATEST NEWS: Top moves, sovereign tighteners (5Y): Germany 11 bp and France 21 bp. Sovereign wideners (5Y): Finland 11 bp and Italy 160 bp.

New Issues	New Issues [Continued]
1. Cranbrook SA (EUR) 4% 1/31/2029 (07/23/2019): 58MM Senior Unsecured Notes, Price at Issuance 108, Yielding 3.03%. 2. Raiffeisen Bank Intl. AG (HUF) 1.6% 8/6/2024 (07/23/2019):20000MM Senior Unsecured Notes, Price at Issuance 100, Yielding 1.6%.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 07/24/2019, 134.83	NAV as of 07/24/2019, 105.48
Daily NAV Change (%) +0.19%	Daily NAV Change (%) +0.21%

OVERALL EUROPEAN CREDIT MARKET:
The euro-zone economy shows signs of positive momentum, although conditions are expected to deteriorate hindered by the termination of quantitative easing, weakening credit rating quality, and uncertainty regarding the outcome of Brexit. Closely watched indicators and rates:

• Eurostat's unemployment rate: currently 7.5% (seasonally adjusted, May 2019)
• Eurostat's quarterly GDP: 0.4% (2019 Q1)
• 6-month Euribor: current value -0.362%, as of 07/23/2019

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