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News & Views: Thursday, October 16

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

AbbVie Board Recommends Shareholders Vote Against Shire Acquisition (WSJ)

Russia's $50 Billion Repo Pledge Fails to Halt Ruble Drop on Oil (Bloomberg)

Buffett cuts Tesco stake to below 3 percent (Reuters)

Greek Bailout Exit Plan at Risk Amid Bond, Stock Selloff (Bloomberg)

ECB Said to Be Undecided on Easing Greek Collateral Requirements (Bloomberg)

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Another day of selling everything. S&P 500 futures began selling off at about 5am ET and have collapsed about 30 points since. The selling is due to a poor Spanish government bond auction that failed to meet its maxium allocated target.

US Treasuries are showing the largest positive risk adjusted gain in fixed income with the 10yr yield down about 12bps. European credit is showing the largest negative risk-adjusted return across all assets, especially bank credit risk. Investors are rolling back in on the risk curve and this will continue to grind Treasuries, AAA-rated sovereign bonds, and high grade corporates higher. The main question for investors today will be whether or not the spike in Treasuries yesterday was the end of the trend that has driven long-term yields lower all year, or the warning shot of things to come.

We are seeing pure liquidation in the "riskier" peripheral EU sovereign bonds. Yesterday a significant amount of damage was being done to Greek bonds (and that has bled over into Spain and Italy. The Greek 10yr bond yield has risen by 230bps this week to 8.83%. Today, Spain's auction of 10yr and 14yr notes did not hit its maximum target (EU3.2b v 3.5b target, but had plenty of bids) and its 5yr notes are +25bps, indicative of risk appetite being pulled WAY back, and there is more room for this sentiment to expand. That is dragging down their respective equities, and having a similar effect on the US. In tandem with this, although maybe not because of it, the ECB is considering easing the collateral requirements for Greek government bonds submitted at its various financing facilities.

The growth commodities - platinum/palladium/crude/copper/iron ore - are all very weak, highlighting how the continued de-risking is a concern over economic growth. The USD has retraced half of its losses from yesterday. The commodity currencies (CAD, NZD, AUD) are being hit in sympathy to the damage in iron ore and crude.

AbbVie (ABBV) officially announced that it was backing out of the tax-inversion based deal to takeover Shire (SHPG), telling its shareholders to vote against the deal because the beneficial tax metrics have now changed due to the US government's rule adjustments. Shire's shares are down about 10% this morning. Most market participants are concerned that this has caused severe losses amongst arb-based strategies.

Data:
- Eurozone CPI YoY (Sep final) unchanged at 0.3% vs 0.3% expected
- Eurozone core CPI YoY (Sep final) up to 0.8% vs 0.7% prior
- China new yuan loans (Sep) up to 857.2B CNY vs 750B exp, prior 702.5B


Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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