EU CONSUMER CYCLICALS: CONSUMER CYCLICALS: Consumer & Transport; Week in Review

Oct-25 16:02

McDonald’s causing a E. Coli outbreak, Kering with an outsized earnings miss and a US Judge surprising markets with a ruling against Tapestry has given us an eventful week. It won’t slow down next week with VF earnings on Monday and local Airlines kicking off. DSV’s 5-part supply will come alongside all that. (links in the weekly pdf)

Fundamentals linked news

  • Kering gives FY EBIT guidance that implies an over halving in year-on-year 2H profits. We expect S&P downgrade. The co struggling to turn around larger Gucci in this macro environment and it does not bode well for Burberry.
  • Edenred numbers were firm but upcoming Italian regulation looks to be having an outsized earnings impact has frightened markets to read-through on other regions. Bonds are coming out of tights, but Pluxee levels remain interesting ahead of its earnings
  • Electrolux continues to give weak numbers ex. LATAM. We expect a S&P downgrade
  • Carrefour YTD trends continued in the sales update. The read through to Auchan is negative on a still competitive French hypermarket pricing environment
  • Phillip Morris reports firm earnings continuing its streak. Investments it made - while peers prioritised equity payouts - is benefiting it now

Event Driven Movers
 

  • Tapestry; Judge rules in favour of FTC catching the market by surprise - pricing was moving towards 60% in equities and 70% in local bonds. A 101 forced call is the likely outcome now across the ~$6.1b in bonds
  • McDonald’s causes a E-Coli outbreak across several US states. 49 cases, 10 hospitalisations and 1 tragic death are still contained vs. Chipotle issues and leaves it more in-line with past outbreaks that had smaller impact to companies. Earnings next week is likely to paint a bleak picture on trading conditions this week
  • VF Corp equities face a broker cut. It seems to echo what we are seeing in US card data - a lack of a turnaround. Bonds are repeating last quarter moves, selling off aggressively into the print
  • Auchan; French paper carries headlines it has found a domestic seller of the Russian business. S&P sees it at ~10% of earnings but unclear in the restricted market what multiple it will get. Bonds rallied on the news
  • Air Portugal; Air France the latest of companies rumoured to be lining up for a stake. The mover for credit will be if the government offloads a majority stake – and if so to who. Earnings ahead.
  • Alimentation Couche-Tard comments late last week turned less conservative on the debt/equity funding mix – yet it continues to commit to “high” IG rating. The target (7-11) remains defensive attempting to appease investors in its ‘IR Day’ this week.
  • JDE Peets stock bounces as it names a new CEO and reaffirms FY guidance. It is the local F&B reject in credit – somewhat unfounded vs. fundamentals.
  • IDS does a bolt-on taking a 20% stake in Greece’s largest parcel carrier. We revisit levels ahead of earnings

Primary (fundamentals linked, levels below)

  • Priced; Nestle (6 & 12yr), Fressnapf (7NC3), Picard (4.7NC0.7 floater tap)
  • Mandates: DSV (2,4,6,8,10yr; M&A supply), Boparan (£5NC2), Takko Fashion (5.5NC2)

Rating Actions

  • Victoria (Secured; B3 Neg/B Neg/BB); Moody’s downgrades to B3 and stays on negative outlook after rough earnings
  • Adidas (A3 Neg/ A- Stable); An overdue stabilisation in ratings from S&P
  • Agrifarma (B1/B CW Pos): S&P moves to CW positive. It expects it to remain a separate subsidiary to Fressnapf but is accessing level of support latter may provide in the absence of cross-default and guarantees.
  • Picard (B2/B neg/BB-); S&P moves to neg outlook as the co does a €200m tap of the floater to buyout current majority owner (Lion Capital). It sees the change of owner as positive to BS governance.
content_image

Historical bullets

FOREX: Greenback Hits Highs Through London Close

Sep-25 15:57

Greenback edges to new daily highs alongside the London close, helping GBP/USD fade through earlier lows and open an 80 pip gap with the overnight highs.

  • No specific headline or news trigger behind the greenback move, but persistent gains for US yields and the steepening of the curve are helping the case - Treasuries have extended losses following the modestly higher than expected New Home Sales data, with Treasury supply still to come later today ($28B 2Y FRN Note, $62B 17W bills and $70B 5Y notes).
  • Influx of potentially large corporate issuance from Oracle and Saudi Aramco also being absorbed, with the ripple effects leading through to dollar strength in recent trade.

US TSYS: US TSY 1Y-10M FRN AUCTION: HIGH MARGIN 0.261%; ALLOTMENT 16.37%

Sep-25 15:32
  • US TSY 1Y-10M FRN AUCTION: HIGH MARGIN 0.261%; ALLOTMENT 16.37%
  • US TSY 1Y-10M FRN AUCTION: DEALERS TAKE 42.57% OF COMPETITIVES
  • US TSY 1Y-10M FRN AUCTION: DIRECTS TAKE 0.89% OF COMPETITIVES
  • US TSY 1Y-10M FRN AUCTION: INDIRECTS TAKE 56.54% OF COMPETITIVES
  • US TSY 1Y-10M FRN AUCTION: BID/CVR 2.86

US TSYS: US TSY 17W BILL AUCTION: HIGH 4.430%(ALLOT 38.21%)

Sep-25 15:32
  • US TSY 17W BILL AUCTION: HIGH 4.430%(ALLOT 38.21%)
  • US TSY 17W BILL AUCTION: DEALERS TAKE 36.12% OF COMPETITIVES
  • US TSY 17W BILL AUCTION: DIRECTS TAKE 5.03% OF COMPETITIVES
  • US TSY 17W BILL AUCTION: INDIRECTS TAKE 58.85% OF COMPETITIVES
  • US TSY 17W BILL AUCTION: BID/CVR 2.80