Earnings fill the vacuum

Earnings may well fill the information vacuum during the usual post-non-farm payrolls lull, and the season got off to a solid start with Alcoa.

The US aluminium producer posted adjusted earnings per share of seven cents for the second-quarter, marginally higher than expectations. Investors were also encouraged that Alcoa stuck with its 7% forecast for aluminium demand this year.

However, consensus expectations for Alcoa had been revised downwards several times, making the results less impressive. The company is one of the weakest in the Markit CDX.NA.IG, and it was downgraded to junk in May by Moody's.

Alcoa's CDS spreads tightened 13bps to 305bps, but this is still consistent with an implied rating of 'B', according to Markit data.

Credit is generally less sensitive to earnings than equities, though the results of JPMorgan and Wells Fargo are likely to affect sentiment. The biggest influence will remain the macro picture, and there was better news on that front when the Eurogroup approved the next tranche of Greek bailout aid.

The sovereign will receive €6.8bn, but the payments will be staggered to encourage the government to implement further austerity measures.

Trading in Greek sovereign CDS is still very illiquid, but spreads in OTE - the national telecoms carrier part-owned by the government - rallied today in response to the news. OTE was trading at four points upfront (600bps spread), 1.5 points lower (40bps).

Does this solve Greece's problems? Of course not - its debt burden is still unsustainable in the long-term and it is likely that there will have to be official sector involvement (EU governments) in getting Greece back to something that resembles fiscal normality. Tough decisions, though, are politically sensitive and will no doubt be pushed back beyond the German elections in September, at the very least.

We saw last week how austerity is destabilising Portugal, and the latest International Mmonetary Foundation World Economic Outlook showed how the global economy is feeling the effects. The IMF now expects global growth to be 3.1% in 2013, down from its previous forecast of 3.3% made in April.

The eurozone is expected to shrink by 0.6%, and there is little sign of meaningful improvement. But the IMF forecasts had little impact on market sentiment, with the Markit iTaxx Europe rallying by 2.5bps to trade at 107.25bps.