EM LATAM CREDIT: Transelec: China Southern Power Takes Control? - Neutral
(TSELEC; Baa1/BBB/BBB)
China Southern Power Grid owns 27.7% already of Chile electricity transmission company Transelec and is in advanced stage talks to buy the rest of the company from the other owners who are Canadian asset managers.
We don't see a big impact on the credit profile and there aren't many bonds outstanding. This will be an interesting litmus test for the region on how far foreign buyers will be allowed to go in acquiring assets in Latin America, especially owning 100% of key infrastructure assets like a transmission power grid.
China Southern Power is a state owned enterprise and has been actively making large acquisitions in Latin America for a few years now. In 2023 they paid about USD3bn to Enel SPA of Italy for their Peruvian assets.
It will be interesting to see if the Chile government allows 100% ownership of a meaningful portion of their transmission grid, especially with presidential and legislative elections looming in about two months.
TSELEC 29s were last quoted T+94bp, 18bp tighter since June 30th and 16bp wider YTD. Its a relatively small issue at USD350mn outstanding and the only USD bond on the curve.
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OUTLOOK: Price Signal Summary - Bear Threat In Gilts Remains Present
- In the FI space, Bund futures traded sharply lower Friday resulting in a breach of support at 128.84, the Jul 25 low and bear trigger. Note that the 129.00 handle marks the base of a broad range and a clear range breakout would strengthen a bearish threat. This would open 128.40 initially, the Apr 9 low. Strength above the 50-day EMA of 129.97, is required to signal a reversal. Resistance at the 20-day EMA is at 129.72.
- Gilt futures traded sharply lower Friday, alongside global bonds. The move down resulted in a print below key short-term support and a bear trigger at 91.08, the Jul 18 low. This once again highlights a bearish threat and signals scope for an extension towards 90.59, the May 29 low. On the upside, resistance to watch is seen at 92.05, the 50-day EMA. Clearance of this average is required to highlight a potential reversal.
EUROZONE DATA: Indeed Wage Tracker Continues To Soften; But Data Has Caveats
The trend in Eurozone wage growth remains to the downside, according to Indeed job posting data for July (released on Friday). The 3mma of Y/Y Eurozone wage growth eased to 2.53% Y/Y, down from 2.64% in June for the lowest since late 2021. While a useful monthly series to track, it’s worth noting that the Indeed wage tracker’s importance to markets has declined since the ECB started publishing its own forward-looking negotiated wages tracker. Overall, the signals from Indeed are broadly consistent with the ECB tracker excluding one-off payments.
- A reminder that French job postings make up the bulk of the observations for the Eurozone-wide index (see chart), followed by Germany. Spanish and Italian samples are much smaller, and the Italian data often (questionably) reports wage growth of 0.00% Y/Y.
- With these caveats in mind, July 3mma Y/Y Indeed tracker wage growth eased to 3.35% in Germany (vs 3.49% prior) and 1.84% in France (vs 1.87% prior).
- The ECB’s Q2 negotiated wages series is released on Friday. It is expected to rebound from the soft 2.45% Y/Y seen in Q1. The ECB’s wage tracker with unsmoothed one-off payments (which best tracks the actual negotiated wages series) points to a rebound of ~4.0% Y/Y.
SONIA OPTIONS: SFIZ5 Call Fly Liquidation
From a little earlier: SFIZ5 96.40/96.65/96.90 call fly, sold for 1.25 in 2k (suggested liquidation).
