EU FINANCIALS: AT1/RT1 November Issuance Review
As the dust settles on a relatively busy November we review AT1/RT1 issuance and performance in a month were spread widening offset carry to leave the AT1 indices quite flat.
STANLN 7% Perp - Negative tech headlines coincided with what we thought was very wide pricing for the new USD STANLN 7% Perp in our FV - https://mni.marketnews.com/4osXNfB. Despite a 2.25pt price rally from issue, it still trades almost 0.3% wide of STANLN 7.625% Perp with 6 years to call. The wide issue level means that the shorter bond only has around 15bps more float spread than the new bond, and given how flat the USD AT1 curve is for some issuers between 5 and 10 years this still looks like a steep curve to us.
EUROB 6.25% Perp - The bond struggled out of the gate, and pulled both the existing EUROB and the TPEIR bonds 20bps wider. While names that also trade wide like RBIAV and DB were unchanged on the month.
DB 6.75% Perp - The long end of the EUR AT1 market is still sparsely populated, with only 5 bonds longer than 8.5years to call. While we noted in our FV that the new DB 6.75% Perp leaves a little on the table given how steep a curve it implied from the DB 7.375 Perp, we were surprised by how much this bond was able to rally. It has 108bps less float spread than this DB 7.375 Perp, and assuming this is worth 25bps of yield, the extra 3 years to call still account for a 0.4% pick up.
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AUDUSD TECHS: Pullback Extends
- RES 4: 0.6707 High Sep 17 and a bull trigger
- RES 3: 0.6664 2.0% 10-dma Envelope
- RES 2: 0.6644 76.4% retracement of the Sep-Oct bear leg
- RES 1: 0.6562/0.6618 High Nov 3 / High Oct 29
- PRICE: 0.6494 @ 15:01 GMT Nov 4
- SUP 1: 0.6481 Intraday low
- SUP 2: 0.6440 Low Oct 14 and key support
- SUP 3: 0.6415 Low Aug 21 / 22 and a bear trigger
- SUP 4: 0.6373 Low Jun 23
A softer short-term tone in AUDUSD remains intact for now and today’s move lower reinforces this theme. The pair has also traded through the 50-day EMA - a bearish development - and the move down undermines a recent bullish theme. A continuation lower would signal scope for an extension towards the first key support at 0.6440, the Oct 14 low. Key resistance and a short-term bull trigger is at 0.6618, the Oct 29 high.
EURJPY TECHS: Corrective Pullback
- RES 4: 180.37 1.500 proj of the Jul 31 - Sep 29 - Oct 2 price swing
- RES 3: 180.00 Psychological round number
- RES 2: 178.94 1.236 proj of the Jul 31 - Sep 29 - Oct 2 price swing
- RES 1: 178.82 High Oct 30 and the bull trigger
- PRICE: 176.21 @ 14:56 GMT Nov 4
- SUP 1: 176.10 Intraday low
- SUP 2: 175.00 50-day EMA
- SUP 3: 173.92 Low Oct 6 and a gap high on the daily chart
- SUP 4: 173.36 Bull channel support drawn from the Feb 28 low
The trend in EURJPY is bullish and the latest pullback appears corrective. The cross traded to a fresh cycle high last Thursday, confirming a resumption of the primary uptrend. This opens 178.94 next, a 1.236 projection of the Jul 31 - Sep 29 - Oct 2 price swing. Today’s move down has resulted in a breach of 176.65, the 20-day EMA. This signals scope for a deeper correction towards the 50-day EMA, at 175.00. The bull trigger is 178.82, Oct 30 high.
FOREX: DXY Extending Recovery Highs Above 100.00
- Further upward pressure on the greenback on show as the US session takes shape, prompting the USD index to establish its position back above the 100 mark, at fresh recovery highs. Price action has led an impressive lurch lower for spot gold prices, briefly extending declines to 1.8% on the day to $3,930/oz.
- Across the G10, the risk off sentiment continues to weigh on AUD and NZD, although GBPUSD’s most recent dip below 1.3041 support closely aligns the pound as one of the weakest currencies today. To reiterate, a break for cable below here would bolster bearish conditions, with 1.2971 acting as interim support on the way to 1.2709, a key medium-term level.
- For EURUSD, spot continues to make headway below the 1.15 handle, and we would highlight 1.1425, the 1.500 projection of the Oct 17 - 22 - 28 price swing, as the next level, before 1.1392, the Aug 1 low and technical bear trigger.
- Slower progress for USDCAD, which slowly grinds to new cycle highs of 1.4096, narrowing the gap to 1.4111 as further details related to the Canada Federal Budget are awaited.
- The Japanese yen continues to outperform, with USDJPY exerting pressure on the prior breakout level at 153.27, although downside momentum relative to the overnight moves appears to have been tempered.
