EU BASIC INDUSTRIES: BASIC INDUSTRIES: Week in Review
- Spreads were +6bp on the week, in-line with the index. AGCO (+27) and CNHI (+15) were hit afresh with weak outlook from Deere & Co. German industrials generally underperformed due to macro weakness.
- Amcor’s takeover of Berry Global appears manageable from a credit perspective, with BERY bonds benefitting from convergence. S&P indicated Amcor ratings would likely be unaffected. Moody’s took a harder stance, moving to review for downgrade. It was already negative outlook, on stretched metrics. All three agencies moved Berry to watch positive.
- Moody’s issued a periodic review of Lanxess one year on from the last downgrade. Metrics are well into HY at this point but the tone of the update suggested reluctance to pull the trigger.
- Thales is under investigation for suspected bribery and corruption. It’s unclear at this point how far this could go; Airbus’ 36% of EBITDA in 2020 was a record fine for a wide ranging bribery scandal.
- Deere posted stronger-than-expected 4Q results, bucking the trend from AGCO and CNH Industrial. FY25 outlook was weak, however.
- We looked at Prysmian ahead of its return to the € market. The fundamentals and financial policies are supportive for credit, with outlook negative at S&P the only niggle given the BBB- rating. We saw 13/8bp NICs on these, exactly mirrored in secondary tightening at the time of writing.
Smurfit Westrock also came to the market with 8Y and 12Y bonds, its first issuance post-merger.
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US DATA: Higher Long-End Rates To Weigh On Housing Activity
The rebound in long-end US rates since late September is unsurprisingly hitting mortgage market activity, with the MBA composite index for dropping for the 4th consecutive week last week to the lowest level since late July. The purchases index fell to the lowest since mid-August with refinancings the lowest since early August - dropping 5% on the week (after dropping 7% prior) / 8% (26% prior) respectively.
- 30Y conforming rates stayed steady at 6.52% - but that was after a 38bp rise the previous two weeks, while Jumbo rates actually ticked 2bp lower (6.73%), in line with the 2bp drop in Tsys (4.08% last week, 4.10% the prior week, but pu from 3.65% in mid-Sept). 10Y yields are currently printing 4.23% so a further pullback in activity alongside a rise in mortgage rates is likely this week.
- In turn, that will continue to translate into weak housing activity data overall. We get home sales data for September on Wednesday (existing) and Thursday (new), with the former set to remain around 14-year lows, and the latter seen remaining up from 2022 lows but representing one-fifth the number of existing sales.
- Data already received showed US housing construction activity continued to stagnate in September, maintaining one of the seemingly few negative themes in US growth - residential construction is expected to drag on US GDP in H2.
FRANCE: PM Given Power To Use Art 49.3 To Push Budget Through If Needed
A meeting of the Council of Ministers has concluded in Paris, with the cabinet formally discussing the prospect of using Article 49.3 of the constitution to push through the gov'ts budget without a vote and approving its use if it is needed. As we noted earlier, PM Michel Barnier has so far proved reluctant to discuss the prospect of having to use the controversial procedure (see 'EUROPEAN FISCAL: French Cabinet To Discuss Art 49.3 For Budget', 0841BST). Gov't spox Maud Bregenon said that "The objective of the government is not to use 49.3". Bregenon said that President Emmanuel Macron, who was present at the meeting "mentioned the fact that it was probably healthier to be able to mention [Art 49.3] as a preventive measure".
- Pushing through using Art 49.3 would also allow the gov't to strip out amendments voted for by deputies. Notably on 22 Oct, deputies voted in favour of broadening an increased level of tax on high earners as well as making it permanent. Le Monde: "This provision, which is expected to bring in 2 billion euros in 2025, amounts to establishing a minimum tax rate of 20% for households declaring more than 250,000 euros of annual income for a single person, and 500,000 euros for a couple." The vote passed by 191-35 votes, with the leftist NFP, right-wing RN and even some MoDem (gov't) deputies voting in favour.
RIKSBANK: Jansson Sticks To Rhetoric From September Meeting Minutes
Riksbank Deputy Governor Jansson’s comments don’t appear to deviate much from his prior stance:
- Consistent with his September meeting minutes remarks: “The risk of inflation becoming too high has decreased significantly during the year. Therefore, we can proceed a little more decisively with our monetary policy easing”
- And: “Strengthening the economy is important in itself, but also a prerequisite for inflation to stabilize close to the target”
- His comments on “responsible wage formation” are also consistent with his views from earlier this year.
- Link here.
