US stocks are calling the tune this morning as AI news out of China about how inexpensive it was to develop a new platform called DeepSeek triggered a sharp sell-off in the technology sectors.
The news is seen as a threat to other AI companies, which are devoting billions of dollars to platform developments, and their stocks.
At the open, the S&P 500 is down more than 1% while the Nasdaq is down over 2%. The downward pressure was driven by concerns over tech earnings and the viability of AI-fueled valuations, BMO said in a report this morning.
The expected front-loading of corporate bond issues today ahead of the Fed meeting may not materialize as the market ructions trigger risk-off sentiment. Syndicate desks were expecting around US$24bn of IG supply this week, BMO said.
So far, just two investment-grade issues are slated for sale today. The high-yield primary expects just one issue.
Even with the storm in equities, six US IPOs are scheduled to price this week, including China-backed pork processor Smithfield Foods in a rare Monday night Nasdaq IPO, and two deals launched early Monday.
It is a busy week for economic data releases, including the December durable goods report on Tuesday, the inflation data within the first look at Q4 GDP on Thursday, and the Personal Income and Outlays and Employment Cost Index reports on Friday. On the calendar for Monday are three releases, including new home sales at 10:00am New York time.
In addition, the Federal Reserve's FOMC meeting begins on Tuesday and concludes on Wednesday with a decision on rates and comments on policy. The CME FedWatch Tool forecasts a 97.3% probability that the FOMC will leave the current fed funds rate unchanged at 425bp-450bp.
Earnings reports will undoubtedly be in the spotlight, with approximately 40% of the S&P 500 slated to release earnings this week, BMO said
In the IG primary last week, 23 tranches were priced totaling US$24.25bn, lifting January volume to 179 tranches totaling US$162.95bn, according to IFR data. The average new issue concession for the IG deals last week was 1.79bp and the average order book was 3.11x subscribed, according to the data. The average move last week from initial price thoughts to pricing was 26.22bp tighter.
Over in the HY arena last week, three tranches were priced totaling US$1.205bn, raising January IG volume to 15 tranches for US$8.33bn, according to IFR data.
The average IG bond spread remained unchanged at 80bp on Friday and the HY bond spread narrowed by 1bp to 260bp, according to ICE BofA data. US yields across asset classes were lower on Friday.
"Despite a modest widening in CDX spreads and selloff in equities, IG index spreads were unchanged during Friday’s session that continued to see strong secondary market volume and client activity skewed toward better buying," BMO said.
Mutual fund flows are off to a relatively strong start in 2024 after last week’s Lipper data for the week ending January 22 showed a US$915m inflow, BMO said. Through three weeks, inflows into IG funds as measured by Lipper total US$4.5bn, the bank said.
HIGH GRADE
There are at least two investment-grade bond deals on Monday.
Peruvian power company Kallpa Generacion is marketing a US$500m seven-year senior unsecured note for a tender offer. Elsewhere, Banco Internacional del Peru announced an offering of a 10.25-year non-call five note.
LEVERAGE/HIGH YIELD
Three junk-rated borrowers have got the ball rolling in the US primary markets on Monday.
Insurance broker Ardonagh is back in the market today after raising funding last week to repay a private loan.
This time, it is approaching investors with a US$315m add-on to its 7.75% senior secured 2031 and a €300m tap of its 6.875% senior secured 2031s.
Proceeds from the issue, which is expected to price today, will fully repay an existing euro-denominated credit facility.
Sinclair Television Group is also in the market with a hefty US$1.43bn eight-year non-call three bond as the media company moves forward with its debt restructuring plans.
Proceeds will repay US$1.175bn in principal of term loans and possibly help fund the repurchase of certain notes.
The company has released initial price thoughts in the mid 8% area on the bond, which is expected to price on Wednesday.
Elsewhere, student loan provider SLM Corp has kicked off marketing for a possible SEC-registered senior unsecured deal.
STRUCTURED FINANCE
The asset-backed primary is poised for another busy week after more than US$9bn of supply landed last week.
At least seven ABS offerings totaling over US$5bn are in the market for pricing this week, led by a US$1.4bn inaugural issue from fiber network provider Zayo.
The auto sector remains active with a US$1bn of fleet securitization from Enterprise and a US$586m subprime deal from American Credit Acceptance.
Meanwhile, the CMBS pipeline is humming with a steady stream of deals making their way to market. Stockbridge is seeking a US$270m refinancing on two office buildings in California leased to online gaming platform operator Roblox.
LATAM
Mexico is expected to price a two-part euro-denominated offering today. Spreads for the €1.4bn long eight-year note offering have been set at 230bp over mid-swaps. For the €1bn long twelve-year note, guidance was set at 265bp over mid-swaps.
BNP Paribas, Credit Agricole, Deutsche Bank, HSBC and Societe Generale are joint bookrunners.
In the dollar market, two Peruvian issuers are expected to price today. Electric energy producer Kallpa Generacion is looking to price a US$500m offering of seven-year notes. Price thoughts are in the 200bp area over US Treasuries. Deutsche Bank, JP Morgan and Santander are joint bookrunners.
Also, Banco Internacional del Peru is expected to price a 10.25-year non-call five Tier 2 note offering. Price thoughts are in the high 6% area. Goldman Sachs, JP Morgan and Santander are the bookrunners.
Finally, Mexico's power generator Saavi Energia mandated JP Morgan, Mizuho, Scotiabank and SMBC as joint global coordinators for a 10-year non-call five senior unsecured 144A/Reg S bond offering. Investor calls begin today.
EQUITIES
Stocks are getting hammered early Monday after Chinese AI startup DeepSeek spooked investors with a new platform that in early tests has matched or outperformed ones that Microsoft, Meta Platforms, Alphabet and Amazon spent billions of dollars developing.
The sell-off (including a 3% drop in the Nasdaq Composite Index at the open) comes at an inopportune time for six IPOs lined up to price this week, though a deluge of fourth-quarter earnings and the Federal Reserve’s latest rate decision this week are likely to keep a lid on overall ECM activity in any case.
China-backed pork processor Smithfield Foods is scheduled to price an IPO in a rare Monday night Nasdaq deal.
The syndicate led by Morgan Stanley, Bank of America and Goldman Sachs told investors early Monday that the offering of 34.8m shares is now expected to price at US$20, below the US$23-$27 range, after the market close.
The offering is multiple times covered with "incremental mutual fund conversions," according to a banker.
Another five US IPOs are scheduled to price this week, including two deals launched early Monday.
Not far behind Smithfield are medical device maker Beta Bionics (US$120m) pricing on Wednesday and E&P Infinity Natural Resources (US$278.3m) and mid-market lender/business development company MSC Income Fund (US$74.4m) both pricing on Thursday night.
Maze Therapeutics launched a US$132.6m Nasdaq IPO early Monday.
JP Morgan, TD Cowen, Leerink Partners and Guggenheim Securities are marketing 7.8m shares at US$15-$17 for pricing this Thursday, January 30.
The offering is well-covered at launch with a mix of new and existing shareholders, according to a banker working on the deal.
The Phase II kidney specialist is marketing its IPO at a step up from the US$13.90 mark struck in November on a US$115m Series D crossover round.
With the IPO proceeds, Maze would have roughly US$700m to fund the Phase II trial of its lead kidney drug through completion early next year.
Metsera was a late addition to the calendar with an up to US$292m Nasdaq IPO also expected to price this coming Thursday.
Bank of America and Goldman Sachs are leading a syndicate of five banks in marketing 17.2m shares at US$15-17 each.