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CREDIT COMMENTARY
Apr 15, 2013
China slowdown hits risk appetite
Disappointing economic data from China led to risk assets starting the week on the back foot.
Growth in the world's second-biggest economy slowed to 7.7% in the first-quarter, down from 7.9% in the previous quarter and well below the 8% consensus estimate. The Chinese government warned this is unlikely to be a blip and that the double-digit growth rates seen over the last 30 years are probably a thing of the past.
If true, this will have an impact on developed and emerging economies. Companies such as Glencore and Xstrata depend on demand from China for their commodity products. Both saw their CDS spreads widen today, and they were among the worst performers.
However, the 180bps and153bps levels are still significantly tighter than where they were trading last year. Our economists note that the Markit PMIs and other indicators suggest that the slowdown could be temporary and growth should pick-up in the second-quarter. The full report can be found here.
Banks, as well as mining firms, lost ground today. The Markit iTraxx Europe was 0.5bps wider at 111.5bps and the Markit iTraxx Crossover was 4.5bps wider at 447bps.
In the US, Citigroup's first-quarter earnings per share of $1.23 beat expectations. JPMorgan and Wells Fargo posted solid results last week, and Goldman Sachs, Bank of America and Morgan Stanley all report in the coming days.
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