Wed, 01 DEC 2021
China HY closed in positive territory for the most part, Times China Holdings, KWG Group and Roadking leading the charge. Agile, Yuzhou and Fantasia remained under pressure with Yuzhou sliding 4pts. Macau gaming names consolidated after Monday’s 5pt fall, supported by both real and fast money. Suncity is rumoured to be closing all VIP gaming rooms in Macau casinos today.
IG was well supported heading into month-end, until Moderna CEO’s predicted that vaccines will struggle with the latest strain. The markets chose to ignore Pfizer CEO’s comment that Pfizer vaccine protection would work and spreads finished a couple wider. There was some activity in the 30yr sector with sellers pushing HK Governments 2051 bond 5bps wider, while onshore accounts bought China 51’s, which are still trading 4bps wider than launch spread.
News that Aoyuan failed to repay the US150mm Rainmaker issue will keep alternative funding sources in focus. The company is also rumoured to have defaulted on CNY65.9mm onshore trust loan, which it maintains was due to disputes in the JV that took the loan out. Shimao has had to react to rumours regarding a Lujiazui Trust that negotiated an extension. Guosheng Securities estimates that developers have $14bn of onshore China trusts coming due in December, including bespoke “single trusts” that were not tracked by UseTrust.com. The pressure builds next year with US$23.8bn equiv. coming due from March through to June.
Powell changed his tune yesterday and spoke of inflation no longer being temporary. This puts Lagarde in an awkward position as the ECB members are discussing the need for a new bond buying programme after PEPP expires in March. The Eurozone CPI flash release showed headline inflation for November at 4.9%, up from 4.1% last month. If confirmed in mid-Dec this will be the highest since July 1991. Talk of the US accelerating the taper prompted a rally in the long end of the US treasury curve. 5yr/30yr curve flattened aggressively from 74bps overnight to 59bps, then retraced to 64bps. The 10yr closed at 1.44%, from 1.70% area a week ago and commodities were lower with oil down almost 5% at $66.60 per barrel. We kick off the December data dump tonight with ADP, US Manufacturing PMI, ISM Manufacturing and the Beige Book. Powell and Yellen will speak again.