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Welcome to September — where the summer sputters out and post-Labor Day pipeline looms large.
Even if there haven’t been a lot of deals for sellside bankers to distribute these past few months, it’s been busy for the central banks as conferences and data prints continue to dominate market focus.
Markets had a fair bit to chew this week, macro morsels coming from both sides of the Atlantic. In Europe, inflation stopped slowing throughout the euro area (headline inflation remained at +5.3%, while core inflation fell back two-tenths to +5.3%).
Traders are also increasingly betting against any further tightening by Powell & Co — the latest JOLTs report reflected a softening US labour market. Job openings for July fell to the lowest level since March 2021 (8.8m in July vs. 9.5m expected). We also saw a decline in the quit rate of those voluntarily leaving their jobs — suggesting that workers feel less confident (2.3% in July — the first time it’s been back at its pre-pandemic level since the current fight against inflation began).
And of course, today’s US nonfarm payrolls print of 187,000 topped estimates, causing doves (and S&P 500 futures) to soar as it was paired with an unemployment rate that rose 0.3% to 3.8%. Importantly, we’re seeing a resilient economy but looser labour market (which will be encouraging for the Fed).
Adding the release of a weaker Q2 US GDP print to the mix (+2.1% vs estimate of +2.4%), another Fed pause is almost fully priced in for the next meeting and the chance of a hike in November now also stands below 50% — a boost for sentiment as we remain in the warped narrative of bad economic news is good news for the market and vice versa.
What does this all mean for primary? As we noted in our European LevFin pipeline preview, we’re expecting at least nine loans and 11 bond launches lined up for September, according to five banks speaking with 9fin, and this includes some real LBOs — near-term names include Applus, Palex, Infra Group and SUSE.
One sellsider said: “Conditions in both markets [bonds and loans] are really, really good right now which should cause a strong start out the gates in September.”
A deluge of deals is good news for some but a second sellsider feared that it could lead to lumpy demand — causing quiet periods as investors participate in the earlier deals but then sit on the sidelines.
“The pipeline is there — I just hope it doesn’t come all at once.”
It’s expected that the rest of the year should bring more speculative credits to market as sentiment improves but one buysider remains focused on quality and was comforted by the fact that, “there’s tonnes of classic high yield guys clearly needing to issue in the next 24 months.”
Even if things seem marginally more optimistic, sources are wary of getting ahead of themselves.
“The market probably won’t get properly going until the second quarter of 2024 when we’ve got more assurance around monetary policy cuts,” said the second sellsider.
Shoutout to Craig Nicol and the Barclays Credit Research team for their recent EHY analysis (Back to school refresh) — suggesting that higher rates still aren’t pinching corporates enough, which could also be interpreted as positive news for soft-landing optimists:
While refinancings have understandably been light over the summer, the ability and capacity of corporates to refinance under this higher rate environment remains front and centre, and will continue as the market works its way through the remaining 2025 maturity and larger 2026 maturity cohort of bonds. Needless to say, the cost to refinance has been multiples in some cases of previous funding costs and runs into the double digits for mid single-Bs and below;
However, the transmission mechanism as it pertains to the broader fundamentals for the market remains incredibly slow and gradual with the average coupon for the index not even 40bp above the all-time low, which we do not expect to hit 5% until early 2025.
We hope you’ve managed to relax and get away this summer but for those of you with a penchant for stress, check out the latest edition of Top of the Flops — a distressed watchlist for August.
9fin strives to save you time during earnings season with our Earnings Digest— this week’s version ranges from the good (Loxam), bad (Cerba) to ugly (Adler Group).
