European autos provide diversion

The impending Fed decision dominated the agenda on Wednesday, but the European auto sector gave investors something to chew on over in the meantime.

Peugeot is considering selling a stake in the company to Chinese firm Dongfeng MotorCorp, according to reports today. The French car maker already has a partnership with DongFeng, and recently opened its third assembly plant in China.

The sale of the stake, if it indeed goes ahead, would probably be the next step in expanding into one of the world's largest auto markets.

Peugeot's CDS spreads tightened 24bps to 471bps, and have now rallied almost 400bps since late June. The completion of a debt buyback today was also welcome news for credit investors.

But it was the possible expansion into Asia that was the real driver of today's rally. Peugeot is heavily dependent on Europe, and the periphery in particular, and it is this lack of geographical diversity that has led to its underperformance in recent years.

Even with the recent improvement, it still trades wider than all of its European peers, though it has closed the gap on fellow high -yield credit Fiat. Investors are looking for Peugeot's management to reduce capacity in its home continent and increase its presence in emerging markets.

The broader credit market also rallied, though the mood was understandably cautious ahead of the Fed announcement after the European close.

The consensus seems to be that the Fed will taper its monthly purchases of securities by $10bn to $75bn, but there is considerable scope for surprises elsewhere in the Fed's policy measures. The all-important unemployment threshold could be tweaked, as could inflation projections and rate guidance.

Download full article