Shaky start for credit as global economic fears weigh

LONDON: The dismal month of June continues on the open in London for European credit markets. According to Tradeweb, iTraxx Main is a basis point wider at 106.5, HiVol is 1.5bps wider at 149 and Crossover is 3bps wider at 395, having opened at 397.

The moves this morning has taken all three indices to record wides for the S15 series and follows the high yield market in the US last night where the CDX HY16 index fell below par for the first time this year.

The global economic concerns, allied to the periphery concerns in Europe are finally filtering down into the previously ebullient corporate sector. Overnight these concerns have been heightened after Saudi Arabia failed to convince OPEC members to raise output levels. There was also the Beige Book report that showed that US growth had decelerated in some areas.

Today is central bank day in Europe. First up will be the Bank of England, where both rates and QE are expected to remain on hold. The consensus is for a 7-2 split in the MPC, with Fisher and Posen the dissenters to King's posse, although the exact split will remain uncertain until the minutes are announced in a couple of weeks time.

Then it is over to the ECB 45 minutes later, where June's rate announcement is also expected to be unchanged. This is followed a further 45 minutes later by what will be a much-anticipated press conference. Conspiracy theorists will be looking for those two little words "strong vigilance" as a trigger for a July rate hike. One wonders whether any of the journalists at the meeting will be brave enough to ask if he has received any letters recently on the subject of Greek non-voluntary maturity extensions?

It was the leaked letter from German finance minister Schauble that was the catalyst for another spate of peripheral widening that took Greece out 80bps to the threshold of the 1500 level once again. Overnight we have seen Schauble's deputy saying that euro area governments had agreed to set up a working group to draw up a model for soft restructuring of Greek debt, which would avoid the dreaded credit event. Look for more sovereign volatility today.

On the data front, things finally pick up in the US after a dearth of data releases so far this week, but not to any great extent. Initial Jobless Claims are expected to drop marginally to 415k, while the International Trade Balance is expected to come in at -47.3bn in April from -48.48bn in March.

Copyright Reuters, 2011