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LIVE MARKETS-Tight lending standards no longer doomsday for high yield bonds

Thu, 17th Sep 2020 10:55

* European shares open lower: STOXX down 0.6%

* Fed fails cheer investors

* BoE in focus, no change expected

* Unibail-Rodamco drops on capital strengthening move
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Danilo Masoni
(danilo.masoni@thomsonreuters.com) and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in


High-yield credit spreads have managed to tighten even as banks tighten their lending
standards, Goldman Sachs says in a research note.

That's in contrast to the 2001 and 2008-2009 recessions, where credit spreads widened as
lending standards tightened, the bank said.

While lending standards tighten, high-yield issuance in the public markets is on track for a
record year. Nearly $300 billion of debt issued this year is already higher than full year
issuance in every single year since 2014.

One might argue that the pace of issuance demonstrates firms are opting for the public debt
markets given restrictive lending standards. Goldman doesn't buy into that argument, since
credit spreads are tightening despite a heavy pace of issuance, which signals strong demand.

Had the opposite been the case, credit spreads would widen with the increase in issuance.

Goldman sees the disconnect between bank lending and public debt markets as a positive for
credit risk, as it means that companies will become less vulnerable to the impact of an
exogenous shock that could hit commercial banks, since they are relying on a wider range of

And it's not only the public markets that offer companies an alternative to bank lending.
Assets under management by private debt vehicles - which finance firms unable or unwilling to
issue public debt - were up 200% since 2009 by the end of last year, Goldman said.

(Yoruk Bahceli)



The tech bubble dilemma has been the talk of town for months. At the beginning of September
the Nasdaq was at an all-time high but only three weeks later a sharp correction has wiped off
around 1,000 points from the tech-heavy U.S. index.

Software has been Credit Suisse's largest overweight for the last decade but now the Swiss
bank reduced the size of its overweight saying that "excess in tech is high" though "in most
instances not extreme."

Fund managers recently surveyed by BoFA sounded a bit more cautious. For them the "tech
bubble" is now the second biggest tail risk after COVID-19 second wave.

But valuation metrics would suggest we're still far from bubble territory, according to
Credit Suisse. Bubbles have re-rated to a P/E ratio of 45-72 times and the Nasdaq is currently
on 37 times, it says in a research note.

The Swiss bank still recommends being overweight because tech is defensive, cyclical into an
upturn, growth-oriented and will likely benefit from a weak dollar.

Even though it cut software to overweight from strong overweight it remains "very positive"
on Microsoft and SAP. It has a small overweight on semis and likes gaming

Despite the broadly positive stance, Credit Suisse warns that a COVID-19 vaccine "could
cause a short-term reversal in some of the online trends and would help other sectors" such as
financials and leisure.

(Stefano Rebaudo)



Europe is literally painted red this morning with the STOXX 600 and all sub-sectors
posting losses in early deals after the Fed failed to provide fresh reasons to cheer.

Autos, banks and miners are sliding over 2% while tech is down 1.6%.

Despite the undistinguished sell-off, main indexes aren't breaking any new ground, the STOXX
is just giving up two days of gains and it remains anchored within its recent trading range.

Top faller is shopping centres landlord Unibail-Rodamco down 8% after it announced
a 9.0 billion euro plan to strengthen its finances. IG Group and Next are among the few stocks
on the up after well-received trading updates.

Here's your snapshot:

(Danilo Masoni)



Futures in Europe are pointing to falls of more than 1% as investors digest a number of
central bank meetings, starting from the Fed which failed to offer any new reason to cheer, and
fresh heavy falls in U.S. tech stocks.

Earlier this morning the BoJ kept monetary policy steady and slightly upgraded its view on
the economy, while later on the BoE is expected to signal that it is getting ready to pump yet
more stimulus into Britain's economy.

Euro STOXX 50 futures were last down 1.3% and FTSE 100 futures fell 1% following a tech-led
sell off on Wall Street overnight. Nasdaq futures were down nearly 2%.

On the corporate front a few companies are taking steps to strengthen their balance sheets.

Shopping centres landlord Unibail-Rodamco announced 9.0 billion euros plan to
strengthen its finances that includes a 3.5 billion capital increase along with curbs to cash
dividends and non-essential capex.

In the UK, Rolls-Royce said it continued to review funding options, including debt
and equity, to boost its balance sheet, while the world's largest holiday company
TUI is planning a share sale to raise up to 1 billion euros, according to people
close to the matter.

In more upbeat news, Delivery Hero shares could rise after news it will buy the
Latin American operations of Glovo for up to 230 million euros.

Next raised its profit outlook for the second time in two months as the British
clothing retailer reported strong recent trading.

Eyes also on Spanish banks with Caixabank and Bankia set to approve a
deal today that will create Spain's biggest domestic lender.

Meanwhile on the COVID-19 front, there are no signs of the global pandemic slowing
but more positively an Oxford University document said the adverse events that led
to a pause in trials evaluating AstraZeneca vaccine candidate may not have been
associated with the vaccine itself.

(Danilo Masoni)



European shares are expected to open lower this morning with futures on the Euro STOXX 500
falling almost 1% following losses on a tech-led sell-off at Wall Street overnight and after the
Federal Reserve took no new policy action.

The U.S. central bank kept interest rates pinned near zero and promised to keep them there
until inflation is on track to "moderately exceed" its 2% inflation target "for some time."

Over in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was
down 1.1%, running out of steam after five straight days of gains. Japan's Nikkei shed

(Danilo Masoni)


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