After the release of rather hawkish FOMC minutes, markets began to raise the likelihood of a rate hike, putting emerging markets under pressure. Commodity stocks were among the biggest losers and emerging country currencies lost ground as the US dollar strengthened.
Commodities fell on US dollar strength prompted by the latest FOMC minutes, which raised the possibility of a June rate hike, and a more hawkish tone from some Fed members. Elsewhere, this week's disappointing China data refuelled doubts that the economy was stabilising and that caused concern over demand for commodities. Both factors triggered a moderate drop in base metal prices – the LME slipped 0.7%- and a more pronounced fall in precious metals with gold down 1.2% mainly due to the rising US dollar.
Production stoppages in Nigeria and Canada continued to underpin oil prices and offset the usually negative impact of the higher dollar. Forest fires in the Fort McMurray region rekindled and local producers were forced to evacuate staff as the blaze spread to production zones. The situation is worrying as this is a particularly dry period and it is difficult to assess the impact on production.
Instability in Nigeria continued to weigh on production which, according to the Ministry of Finance, fell to 1.62 million b/d, a 20-year low. Rebel attacks damaged infrastructure belonging to Exxon Mobil, Chevron and Shell at the Qua Iboe terminal which the groups say could take a long time to repair. Chinese production also suffered in April with a 5.6% drop to 16.59m tonnes but oil's fundamentals continued to improve.
All three agencies, the US Energy Information Administration, the International Energy Agency (IEA) and OPEC revised global demand estimates higher, particularly in China and also in India where there is strong demand for petrol. They also further cut estimates for non-OPEC production. US output –ex Alaska- fell by a further 30,000 b/d according to EIA weekly data. The
FMC Technologies merger should optimise and reduce development costs for offshore projects and help producers launch projects which at current price levels are not profitable enough.
High yield (+6bp) outperformed investment grade (-15bp) over the week due to a healthy EUR 150m in new money and the dynamic new issues market.
B-rated bonds (+20bp) outperformed the BB segment (+5bp) and the Xover widened by 5bp to 333bp to trade around the long-term mean for its third quartile.
On the new issues market,
Hanesbrands (BB) raised EUR 500m due 2024 at 3.5%.
Nexans (BB-) issued a EUR 250m bond due 2021 at 3.25%. In investment grade,
Vivendi raised EUR 1.5bn in two tranches, a 2021 maturity yielding 0.75% and a 2026 bond at 1.875%.
BP issued a GBP 400m 7-year equity neutral convertible while
Bekaert raised EUR 380m with a 5-year zero coupon convertible, enabling it to buy back EUR 284m of its 2018 convertible.
Telecom Italia's first quarter EBITDA came in 3.8% below consensus but operating FCF was 4.8% above. Debt fell 0.6% due to a 10% drop in CAPEX while NWC halved YoY.
Grand City reported a 50% YoY increase in rental and operating income and a 50% YoY increase in FFO I to EUR 38m (FFO1 per share after EUR 0.22 in hybrid notes attribution, up 10% YoY) and an expanded portfolio.
Technip shareholders will get two shares in the new company (TechnipFMC) for every Technip share held, while FMC investors will get one share, the statement said. The companies said they would deliver at least USD 400m in annual pre-tax savings in 2019. The deal is expected to deliver at least USD 200m in cost savings in 2018 and another USD 400m in 2019.
In the US,
Allegheny issued a USD 250m 4.75% 6-year convertible and
Repligen issued a USD 100m 2.125% 5-year convertible.
Salesforce.com reported strong quarterly billings of USD 1.62b (better than the expected USD 1.45bn) and revenues of USD 1.92bn (USD 1.892bn). Revenue guidance for 2017 was raised.
In Japan, new "BoJ-ready" ETFs, which meet the BoJ's requirements for purchasing ETFs invested in companies that raise wages and capital spending, are about to hit the market. Meanwhile, the BoJ's share of Japan's ETF market rose to a record 59% in April after the central bank spent around JPY 300bn on purchases during the month. In China/HK,
Kingsoft reported upbeat first quarter revenues of RMB 1.752b, while gross profits increased 45% YoY to RMB 1.28bn. However, the stock later fell when its Cheetah Mobile division (62% of the company's revenue) reported a drop in QoQ revenue and reduced guidance on operating margins.
Written on 20/05/2016