EU AUTOMOTIVE: Stellantis (STLA Baa1[N]/BBB/BBB): Fitch Downgrade
- With FY24 EBIT margins of 4.2% against a 6% BBB+ threshold, Fitch downgraded Stellantis. It’s well documented at this point that aggressive inventory reduction was a large part of that. It expects some recovery to 5-7% between now and FY27.
- Fitch expects FCF slightly above break even this year despite costs associated with production shifts to the US, helped by working capital release on inventory reduction. Net leverage is seen remaining neutral to negative which is appropriate for BBB.
- FCF margin is expected to be 1.5%, in line with current rating levels.
- Tariffs are of course a concern going forward, with almost 40% of US sales manufactured abroad. North America generates ~40% of revenue, but there is still the issue of parts tariffs and retaliation from other countries.
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EUROZONE DATA: Worth Monitoring Labour Cost Increases In Feb Services PMIs
The Eurozone-wide services PMI saw a small downward revision to 50.6 (vs 50.7 flash, 51.3 prior), with a downward revision in Germany outweighing a smaller upward revision in France. The Spanish and Italian prints were stronger than consensus expectations, but this doesn’t necessarily imply an upward revision to the flash reading.
- A key theme in the services PMIs across the four major Eurozone economies were increased input costs, largely driven by labour costs. These cost increases were passed into output charges, most notably in Spain and Italy.
- The ECB has expressed considerably confidence in the 2025 compensation outlook (which should help drive disinflation in services), so these signals from the PMI are worth monitoring over the coming months.
- Meanwhile, services employment increased in Germany, Spain and Italy, but fell in France.
MNI: EUROZONE FINAL FEB SERVICES PMI 50.6 (FLASH: 50.7); JAN 51.3
- MNI: EUROZONE FINAL FEB SERVICES PMI 50.6 (FLASH: 50.7); JAN 51.3
- MNI: EUROZONE FINAL FEB COMPOSITE PMI 50.2 (FLASH: 50.2); JAN 50.2
BOBL TECHS: (M5) Pierces Support
- RES 4: 119.040 High Feb 28 and a reversal trigger
- RES 3: 118.950 High Mar 3
- RES 2: 118.310 Low Mar 3
- RES 1: 118.090 Intraday high
- PRICE: 117.870 @ 08:40 GMT Mar 5
- SUP 1: 117.650 Intraday low
- SUP 2: 117.600 Round number support
- SUP 3: 117.490 2.00 proj of the minor Feb 28 - Mar 3 - 4 price swing
- SUP 4: 117.318 2.236 proj of the minor Feb 28 - Mar 3 - 4 price swing
Bobl futures are trading sharply lower this morning. The contract has gapped down and price action is likely to remain volatile near-term. A key short-term support at 117.850, the Feb 20 low, has been pierced. This undermines a recent bullish theme. A continuation lower would signal scope for an extension towards the 117.600 handle. On the upside, key short-term resistance has been defined at 119.040, the Feb 28 high.
