CreditTradingDeskAnalystCommentarywww.GlobalMarkets.bnpparibas.comPleaserefertoimportantinformationattheendofthecommentaryandMARdisclosure.EyesoniTraxx&CDXindicesWhathashappened?WhiletheCentralbankshadalreadypushedthemarketsintoastrongbullishmode,theagreementbetweenPresidentTrumpandPresidentXitorestartUS-Chinatradetalkstriggeredthecapitulationofafewinvestorswhohadremainedonthedefensiveside.Atthesametime,themacroeconomicdataremainspooracrosstheboard;keynumberswerei)ChinaManufacturingPMIforJuneat49.4(thepositiveisthatitisflatcomparedtoMaydespitecoveringthelastincreaseoftariffs);ii)MarkiteurozoneManufacturingPMIforJuneat47.6whichisconsistentwithrealGDPgrowthof0.2%anddoesnotsuggestanimprovementinQ3;andiii)USISMmanufacturingNewOrdersdroppedto50,itslowestprintsinceDecember2012.InEurope,iTraxxMaincontinuedtooutperformEuropeanEquitiesand€InvestmentGradeCashwhichhasbeenfloodedbyarecordamountofnewissues(€70bnattheQW5Alevel).iTraxxMainnonetheless,underperformedBTPSwhichhavebeenthefirsttobenefitfromanexpectedannouncementofanewQEprogrammeinSeptemberorDecember.iTraxxMain5yisnowarounditsmostexpensivevaluationinourtwo-factormodelvs.SX5EandEGBsspreads.IntheUS,$InvestmentGradeCashhasstronglyperformed(-8bpw-o-w),outperformingCDXIGbyc.3bp.IncontrastwithEurope,bothEquity/Creditrelationships(CDXIG/SPXandCDXHY/SPX)areunchangedw-o-w.ThissuggestssomeoutperformanceoftheCreditindiceswhenthe$3/bbldropinWTIistakenintoaccount.What’snext?Weexpectmarketstokeepaconstructivetoneintheweekstocome.FortheSyntheticmarket,weseeverylimitedupsideatcurrentlevelsinbothiTraxxMainandCDXIG5yandseemorevalueinCashgivenvaluationsandassupplyshoulddeclineascorporatesentertheirblackoutperiod.EuropeanTrades.WithiTraxxMain5ybelow50andInvestmentGradeCashcurvesattheirrecordflatlevelsinceMarch2015,theconditionsarealignedforasignificantbull-flatteningofiTraxxMain5/10y.WerecommendtoinvestorsiTraxx3/10yflattenerwhichistheoptimalimplementationoftheflattener.WerecommendmaintainingourLongQW5ATRSSeptember2019vs.iTraxxMain5y...
