EM LATAM CREDIT: Raizen: Q3 2025 Earnings – Neutral
(RAIZBZ; Baa3*-/BBBneg/BBB-*-)
• Net revenue declined 18% while adjusted EBITDA fell 13% so earnings overall were not good, though there were some bright spots in that the Brazil fuel distribution business performed well. The weak link was the sugarcane and ethanol processing division with adjusted EBITDA down 26%.
• We liked the positive free cash flow generation overall of about BRL3bn (USD566mn) with most of it coming from a reduction in capex of BRL1.7bn and asset sale proceeds of BRL884mn so that offset the negative operational result and leaves us neutral on the credit profile view but optimistic Raizen will sell the Argentina assets and get a capital injection.
• Raizen expects another BRL3.9bn (USD735mn) over the next few months upon completion of previously announced divestments. Gross debt increased 38% YoY while net debt grew 49%. Net debt leverage was reported at 5.1x vs 4.5x the previous quarter and 2.6x a year ago.
• The Argentina asset sale process continued as the company appeared to have binding offers and is reviewing them with expected proceeds previously reported at USD1.5bn.
• The company said representatives from shareholder companies Cosan and Shell have been meeting regularly but there was no significant further information provided.
• The Brazil fuel distribution business continued to perform with EBITDA up 35% QoQ and up 25% YoY. Another positive was Argentina fuel distribution with EBITDA rising QoQ 39%, though it was down 25% YoY.
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NZD: Lags Softer USD, Rate Differentials Still Pointing To Weakness Vrs USD, AUD
Broader USD sentiment remained softer as Wednesday trade unfolded, although NZD was an underperformer (up only 0.14% for the session, against a 0.30% fall in the BBDXY). This has been a fairly consistent theme in recent weeks/past month for the Kiwi. The pair tracks around 0.5720 in early Thursday dealings, with lows yesterday near 0.5700 supported. A clean break south of 0.5700 is likely to see the 0.5500/0.5600 region targeted. On the topside, moves to 0.5760 could draw selling interest, while the 20-day EMA is around 0.5790.
- General softness in NZ yields continues to work against the currency. 2yr swap rates are near 2.33%, while the NZ-US 2yr swap rate differential is around -88bps, so near cycle lows. A mixed economic picture for NZ, where the strength of the recovery has a question mark, leaves the market pricing in beyond a further 25bps cut in Nov (although another full 25bps is not priced in).
- The better risk tone to global equities didn't do much for NZD/JPY, which remains close to recent lows, the pair last 86.40/45, with downside focus on a test back under 86.00. The 50-day EMA is back near 87.00 on the topside.
- The AUD/NZD cross is at 1.1380/85 in latest dealings, with AU-NZ 2yr swap spread at +106bps and continuing to suggest we can test above 1.1400 again. We do have Aust jobs data later, with the market looking for jobs growth to rebound by 20k, but the unemployment rate to nudge up to 4.3% (from 4.2%).
- Locally, Sep food prices have just printed, which fell 0.4%m/m, after a 0.3% rise price. This is the first m/m drop since Feb of this year. Other components like airfares and electricity saw m/m rises, while accommodation fell. Note next Monday we get Q3 CPI, a key input for the RBNZ outlook.
AUSSIE 3-YEAR TECHS: (Z5) Strong Start to Week
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.685 - 1.000 proj of the Sep 3 - 12 - 15 price swing
- RES 1: 96.615 - High Sep 12
- PRICE: 96.510 @ 15:38 BST Oct 15
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Aussie 3-yr futures surged on the resumption of trade after the weekend, returning focus higher after the break of support last week. While prices appear more stable, the recent break of Sep 3 low of 96.435 negates the recent short-term bullish theme. This breach signals scope for an extension towards 96.280, the May 15 low on the continuation chart. The short-term resistance to watch is 96.615, the Sep 12 high. Clearance of this level is required to reinstate a bullish theme.
AUD: Risk Appetite Helps AUDUSD Hold Above 65c, Key Jobs Data Coming Up
AUDUSD spent most of Wednesday trading above 0.6500 supported by stronger risk appetite. It dipped to 0.6490 in line with the S&P but then recovered to 0.6513 to be up 0.4% on the day. RBA Governor Bullock’s comments in the US were in line with previous ones indicating that the November decision will depend on upcoming data especially Q3 CPI. AUDUSD is currently trading around 0.6510. The USD index fell 0.3%.
- Bullock believes that monetary policy is currently “marginally tight” and that the output gap is almost in balance, which means the Board can be cautious with any rate changes. With growth recovering, inflation within the band and unemployment low, she thinks the economy is in a good place. However, there is a lot of uncertainty and she doesn’t agree with markets’ “rosy” view.
- Today September jobs data print and are forecast to rise 20k with the unemployment rate up 0.1pp to 4.3%. The data is volatile and the RBA focuses on the 3-month average and so a print materially different from consensus needs to be put in that context.
- AUDUSD’s intraday high at 0.6523 remained below initial resistance at 0.6556, 50-day EMA. This week AUDUSD is up 0.6% which could be signalling a reversal and end of the bear leg started 17 September. Moving average studies continue to highlight a dominant medium-term uptrend. Initial support is at 0.6440, 14 October low.
- With the contrasting central bank stances, AUDNZD rose 0.3% to 1.1379 after a high of 1.1393.
- AUDJPY was down 0.1% to 98.374 off the intraday low of 98.065 and is currently around 98.376. AUDEUR was slightly higher at 0.5591 and AUDGBP fell 0.2% to 0.4859.
