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CREDIT COMMENTARY
Sep 02, 2013
Markets applaud PMI data
Credit markets reacted positively on Monday as upbeat economic data was released for Europe and Asia.
The final Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to a 26 month high of 51.4 in August, signalling that a eurozone recovery was still underway.
A PMI above the 50 point mark indicates expansion while a score below 50 indicates contraction.
The UK followed in fine style hitting a two-and-a-half year high of 57.2 for August, up from 54.8 in July. This is the fifth consecutive month of expansion and could very well signal acceleration in third quarter GDP growth.
Credit default swap spreads for the United Kingdom tightened by 2bps to 35bps as markets cheered news that the UK's factories are booming again.
Adding to the upbeat tone were the manufacturing PMIs for Italy that came in at a 27 month high of 51.3, while Europe's largest economy, Germany, recorded a PMI of 51.8, the highest reading in almost two years.
France's mediocre reading, though, at 49.7, remained unchanged from July and does raise some concerns as to the strength of the current eurozone recovery.
CDS spreads on Italy tightened by 4bps to 238bps, while spreads on Germany tightened 1bp to 28bps. France's spreads remained flat from Friday at 71bps.
There was also some good news for resource stocks on Monday as China's PMI came in at 51 for August, a 16 month high, indicating that the slowdown may be stabilising.
CDS spreads on Anglo American and Rio Tinto tightened by 7bps and 2bps to 195bps and 112bps, respectively.
With US markets closed for the Labor Day holiday on Monday, volumes are expected to remain low for at least one more day.
Spreads on the Markit iTraxx Europe index were trading tighter by 3bps at 104bps and spreads on the Markit iTraxx Crossover index were tighter by 14bps at 420bps.
Frans Scheepers, CFA
Vice President
Markit
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