EU BASIC INDUSTRIES: LANXESS: Confererence Call (LXSGR; Baa3neg/NR/NR)
• Reiterates that the shareholder loan amount needs to be added to the price at which Lanxess put the stake to Advent.
• Q1: How could Advent delay ? They must have access to financing.
• Q2: If they sell 50% in 2028 when do they sell the remaining ?
• A1: Advent is one of biggest PE companies in the world. Financing is totally in their hands. They must answer that.
• A2: Today is about 2026 and 2028 rights. Has to be communicated by law. Other communication is privileged. Have unconditional exit right in 2028. Will go for a joint exit thereafter.
• Q3: EBITDA of €505m for Envalior ? Where does it come from ? What do the agencies think it will be ? What will you do with proceeds ?
• A3: €505m - number resides from when the deal was set up based on the initial reference point. It is not LTM number. Agencies - Fitch and Moody's can be checked - S&P Dec '24 expected 2025 380-420m (so well below the 505m and is old). Had €310m for 2024. YTD numbers communicated by Lanxess show 1H 24 equity number of 73m and 1H 25 59m for Profit. [Said that this showed improvement but this looks like it's getting worse] Proceeds ? Would look at deleveraging. Then share buybacks thereafter.
• Q4: Clarify who determines if Advent has the capital or a third party adjudicator ?
• A4: Lanxess has contractual rights.
• Q7: (5 & 6 meaningless) Can they just buy 50% ?
• A7: 0, 50, 100%
• Q8: If EBITDA <455m use 70% of €505m Base. If >505m what ratio ? Why now ? Should they wait for better synergies ?
• A8: Likelihood is that we are above >505m is not high. Likelihood is <505m. Why now ? Legal, business, balance sheet needs, market dynamics. Today have balance of all.
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FED: NatWest Now Sees Cuts In 2025, Starting In September
As with Deutsche earlier, NatWest has changed its Fed call after the Powell Jackson Hole speech to reflect a 25bp September cut. Previously, the call was for no cuts in 2025. The new baseline outlook includes further 25bp cuts in December and March, bringing rates closer to neutral ("however, the changing composition of the committee becomes far less clear once Powell term expires in May").
- "While the August jobs and CPI reports will be watched carefully, it is clear to us that Powell has already seen enough to decide renewed action to counter downside economic risks is likely warranted, and so we now look for a 25 basis point rate cut on September 17th.
- "We expect officials will very much downplay the likelihood of a 50bp rate cut leading up to the jobs data, but we have to admit if the report is "weak enough" (e.g., the unemployment rate increases by 0.3pct to 4.5% (where officials had it at year end) anything can happen and wouldn't rule anything out. However, given the latest pivot and with financial markets pricing (86% of a 25bp rate cut) a lot has to happen (unemployment rate 3-handle and core CPI +0.5%) for the FOMC to undeliver and hold off from a rate cut in September. "
USDCAD TECHS: Bull Cycle Hindered
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.3968 High May 20
- RES 1: 1.3925 High Aug 22
- PRICE: 1.3840 @ 16:55 BST Aug 22
- SUP 1: 1.3794 20-day EMA
- SUP 2: 1.3769/22 50-day EMA / Low Aug 22
- SUP 3: 1.3576 Low Jul 23
- SUP 4: 1.3557/40 Low Jul 3 / Low Jun 16 and the bear trigger
Gains this week in USDCAD and the breach of resistance at 1.3879, the Aug 1 high, marked a positive development, however the slippage into the Friday close undermines this sentiment - for now. Moving average studies have crossed and are in a bull-mode position, reinforcing current conditions. An extension higher would signal scope for a climb towards 1.4019, a Fibonacci retracement. On the downside, support to watch lies at 1.3769, the 50-day EMA - a level not yet challenged by the correction lower.
CANADA: Q2 Expected To See GDP Contraction, BOC's Estimate Looks Too Negative
The June retail sales release helps wrap up the last major data before Canadian Q2 GDP is released on Friday August 29.
- Current Bloomberg analyst consensus shows Q2 is expected to show a 0.7% Q/Q annualized contraction, versus +2.2% in Q1. The private sector consensus is more optimistic than the Bank of Canada's -1.5% estimate in its July Monetary Policy Report (which MNI thinks is too low) but the component-by-component breakdown is similar if of differing magnitudes.
- Widely expected are: a softening in household consumption growth (+1.2% in Q1), with a pickup in government spending, continued weakness in fixed investment (-3.0% in Q1) though with residential outperforming business capital formation, and a reversal of Q2's positive contribution from net exports. In short, the data are expected to confirm that trade activity was brought forward to Q1 ahead of tariffs, with the effects reversing in Q2.
- Going forward, the BOC envisages growth resuming in Q3 (+1.0% in its "current tariff" scenario). In the meantime, a weak Q2 reading could provide Governing Council with more conviction to resume easing rates in September, with the July meeting decision noting "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate".
