Good Morning,

Data flow this week is expected to continue to hint towards a persistent slowdown in the economic recovery in the euro zone and will thus keep the pressure on the ECB for further easing. At its meeting, analysts expect further details on how the ECB aims to expand its balance sheet significantly through asset purchases, while maintaining a dovish tone. The ECB will announce on Thursday the details of its much talked about ABS and covered purchase programmes, numbers which the market will be eager to closely scrutinise whilst inflationary numbers are expected to record low prints. Meanwhile, the EC’s indices are set to slide below their long-term average, consistent with below potential growth. Less significant is the announcement of the French budget tomorrow, which is not expecting to raise any eyebrows as the macroeconomic forecasts have already been announced.

On the other hand, in stark contrast, incoming US data is likely to remain upbeat and post above-expectations figures, placing pressure on the Fed to exit its QE programme. Prints such as factory indicators and auto sales are likely to have surprised on the upside whilst consumer confidence hit a seven-year high. Employment data is also expected to register an uptick whilst a number of key Fed officials are expected to make public appearances. Meanwhile, yesterday’s pending home sales announcement, indicating a marginal decline, came on the back of somewhat mixed housing data during September with better-than-expected new home sales and homebuilder sentiment on one hand, and weaker-than-expected existing home sales and housing starts on the other.

In Asia, the Japanese Tankan (Short-Term Economic Survey of Enterprises in Japan) survey is expected to point to some improvement, while the manufacturing PMI in China is expected to show only a small decline to 51.

In the meantime, S&P Ratings Services stated overnight that it had taken numerous rating actions on hybrid securities, amounting up to 1,200 instruments, issued by European financial institutions. In effect, S&P lowered the credit ratings on 88% of reviewed hybrid capital instruments, and affirmed the credit ratings on the remaining 12% of the securities reviewed, with company officials stating that S&P plans to publish a list of instruments affected by these rating actions within the next few days.

On a final note, HY spread widening has been evident over recent sessions due mainly to flow technicals. This time the source is not mutual fund outflows but rather the robustness of the new-issue calendar. The recent profit taking is emanating from overdone fears of rising rates and that yield levels this low are not sustainable. Having said this, new issue volumes are expected to slow heading into the final quarter of 2014 and credit spreads could begin widen once again as recent price action in the HY and Treasury markets has dramatically improved the trade-off between carry and (interest rate) duration risk for HY bonds.

Have a nice day!