Credit Markets Stand Back and Watch Equity Markets Vacillate

Commentary on earnings calls suggests that economic activity in Europe continues to slow and the pace of consumer spending in the US has decelerated in April

Dave Sekera, CFA 23 April, 2013 | 12:41PM

For the most part, the credit markets stood by and watched the equity markets swing back and forth last week. The average spread in the Morningstar Corporate Bond Index ended the week unchanged at +138 and is essentially flat for the year. Year to date, our corporate-bond index has returned 1.27%, putting it on pace to meet our estimated low- to mid-single-digit return for the year.

New Issue Market Standstill as Investors Pore Over Earnings

The new issue market was virtually non-existent last week as most investors spent their time digging into earnings reports. From the syndicate desks we have talked to, this week should also be quiet, as the number of companies reporting earnings will peak this week. As we've seen for the past several quarters, top-line growth has been stagnant, but most companies seem to have been able to meet their earnings targets through tightened cost controls. Commentary on earnings calls suggests that economic activity in Europe continued to slow, while the pace of consumer spending in the United States decelerated last month. Trading volume felt quiet all last week but slowed significantly on Friday as attention was tuned into events in Boston. 

Economic Data Sluggish, but Not Recessionary

Economic activity continued to slow globally last week, as China reported that its first-quarter GDP grew at 7.7% year over year. While that growth rate would be the envy of any developed market, it was a reduction from the 7.9% recorded in the fourth quarter and much lower than the 8.0% consensus expectation. Subsequent to this report, most economists reduced their estimate for China's 2013 GDP by 0.4 percentage point to an average 7.8%.

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About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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