EU CONSUMER STAPLES: AB-InBev: Bolt-on

ERU6 97.93/98.06/98.18c fly, bought for 1 in 2k.

Bund Block trade, suggest seller:

• RXZ5 2.4k at 129.90.

• While the timing of S&P's decision came as a surprise, the outcome was in line with our expectations.
  • S&P wrote that “reflecting the likelihood of modifications to the 2026 draft budget, we expect deficits to remain elevated over the next three years"
  • "Even if snap parliamentary elections were to be called and produce a clear majority in the National Assembly, there is no guarantee that this would smooth the path for a credible medium-term fiscal consolidation plan or economic reform implementation. The closeness of the 2027 presidential elections casts doubt on whether any such strategy could be consistently implemented--or whether France could realistically achieve its 3% of GDP budget deficit target by 2029"
  • S&P's 2026 deficit forecast of 5.3% is well above Lecornu’s target of 4.7% (which is expected to move closer to 5.0% through the budget negotiation phase).
• Moody's are scheduled to review France's sovereign rating on Friday (Current rating Aa3, Outlook Stable). An outlook downgrade to Negative is likely (and probably in the price for OATs), but a downgrade to A1 remains a risk.
  • At the April periodic review, Moody's noted that "a reversal of the reforms implemented since 2017, such as labour market liberalization and pension reform, would be credit negative if we were to determine that this policy choice would have materially negative medium-term implications for France's growth potential and/or fiscal trajectory".
  • A reminder that Lecornu has temporarily suspended the 2023 pension reform until the 2027 elections to appease the Socialists.