CROSS ASSET: HY Credit Spreads - Pointing To More Pain
Credit spreads have continued to explode higher as extreme risk aversion takes hold.
- Credit spreads have behaved pretty well for most of the year, but are now starting to accelerate higher.
- The break of the pivotal 400 area could see this move really gather pace as people attempt to exit the HY space in search of better liquidity and safe havens.
- This break does not bode well for stocks, every time we have seen an acceleration through this pivotal area it has coincided with a period of extreme volatility and lower stocks.
- This move could add further fuel to an already nervous market, with scope for a further move lower in yields and a weaker USD, particularly against safe havens.
Fig 1: HY Spreads - Past 400 Area
Source: MNI - Market News/Bloomberg
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AUSTRALIA DATA: Broad Based Pick Up In Growth
Q4 GDP printed exactly in line with consensus at +0.6% q/q & 1.3% y/y up from 0.3% & 0.8% in Q3. Public, private and overseas demand contributed to growth. See ABS press release here. More details to follow.
MNI: AUSTRALIA Q4 GDP +0.6% Q/Q
- MNI: AUSTRALIA Q4 GDP +0.6% Q/Q
- MNI: AUSTRALIA Q4 GDP +1.3% Y/Y
LNG: Global Uncertainty Is Driving Volatility In Gas Markets
Expectations of colder weather later this month were not enough to support European natural gas prices in the face of significant uncertainties from geopolitics and around the impact of US trade policy on global growth. Lower growth will mean lower energy demand. The unclear outlook is causing volatility, especially with swings around hopes for a deal on Ukraine and subsequent easing of sanctions on Russia. European prices fell 5.2% on Tuesday to EUR 42.85 after rising 3.3% on Monday.
- After saying that peace was a long way off, Ukrainian President Zelensky has said that he is prepared to work towards a timely end to the war. It still seems too early to expect the easing of sanctions on Russian fossil fuels though.
- European storage levels have stabilised but at around 38% (it was 62% same time in 2024) and concern regarding summer refilling remains, especially as it will coincide with scheduled Norwegian maintenance. There are expectations of regulation changes to make targets more flexible but details are yet to be released. Summer month contract prices are slightly below the current April contract.
- US natural gas rose 4.3% to $4.30 driven by forecasts for colder weather in the west in mid-March and expectations that the 10% tariff on imports of Canadian energy will increase US gas prices. The difficulty in agreeing on a Ukrainian ceasefire is also likely to drive stronger demand for US LNG, which Europe has become more reliant on since Russia’s invasion.
- While North Asian gas followed Europe lower, the demand outlook for the region is looking strong heading, according to ANZ.
