EM LATAM CREDIT: CSN: Higher Iron Ore Prices – Positive
(CSNABZ; Ba3/BB-/BBneg)
• In the past quarter iron ore prices were up about 11%. That should support EBITDA in CSN’s iron ore mining business and allow for a further reduction in debt leverage overall. CSN leverage was reported at 3.24x last quarter and that was down from 3.33x QoQ and lower than 3.36x YoY.
• Note that in 2Q most of CSN’s businesses were stable to improving with iron ore mining a weak link so if the company can duplicate a similar performance to those non-mining businesses this quarter, a more profitable iron ore segment should boost overall results. Also supportive for CSN is a potential capital infusion into the iron ore mining subsidiary CSN Minerao by existing shareholder Japanese conglomerate Itochu Corp that already has a 20% stake.
• CSNABZ 32s recently tightened 105bp in about three months from June 30th to Sept. 24 in anticipation of a positive earnings trend, prior to the Braskem (BRASKM; Caa3neg/CCC-neg/CCC-neg) debacle. After widening out about 70bp in reaction to the Braskem news, CSNABZ 32s have now recovered about 20bp so far. CSN stock has been up 15% since June 30th.
• BRASKM 34s went from $63 to $38 Sept. 19-30th as first the company was downgraded to B+ by S&P from BB- then a week later Braskem announced it hired advisors to restructure its debt. It was a case of debt leverage of over 10x, persistently bad operating performance spanning years, an environmental liability dating back about seven years but continuing and event risk with vulture investor Nelson Tanure circling so somewhat of a unique case in our view.
• Investors in Ambipar (AMBIBZ; NR/D/C) bonds were reeling from a corporate governance and balance sheet transparency issue that led bonds to decline about 70 points in September 2025. People recall a similar situation with Americanas, a Brazilian retailer that filed bankruptcy amid accounting irregularities January 2023, so corporate governance might take on some renewed importance going forward.
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
