EU BASIC INDUSTRIES: Stora Enso: Asset Sales #3
Spreads have shown little rating concern, trading at the tight end of low triple B Basic Industries. Some form of deleveraging was well flagged. Apart from potential event of default implications for STERV 0.625 30 detailed above, we see little spread impact.
- Forest asset sales have on the agenda for Stora Enso for over a year. It has been above Moody’s leverage thresholds; we estimated recently announced asset sales should see reported leverage come down to ~2.4x, with sub 2x targeted. We believe that should protect ratings.
- These hard assets potentially being spun off should have reasonable debt capacity. We expect the SpinCo would take on debt to enable deleveraging at the parent. No details on future capital structure are available at this point, however.
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SFIU5 95.90/95.80/95.70p fly, bought for 1.5 in 2k.
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GBP: GBP/USD Still Struggling Above 1.34 Pre-CPI
The GBP trend condition is undoubtedly positive, with the pick-up in the S/T upside trend for spot evident in the growing premium of the 50-dma over the 200-dma - which now sits at its widest since October last year. This keeps the $1.3400 handle in focus, a level that markets have had difficulty in sustaining a move above on several occasions this year, as well as in 2019, 2020 and 2024. The keeps focus on the bearish tweezer candle formation printed on April 28/29, which could mark a near-term top.
- Overnight GBP vols have ticked higher ahead of the print, and now clear 10 vol points against the USD and 7 points against the EUR - although outright implied remains well below recent tariff-tripped highs. We see EUR/GBP vols as a cleaner read, which post a near 3 point vol premium into the CPI print - the largest pre-UK CPI premium of the year so far.
- As a result, a downside surprise for CPI tomorrow could see a correction lower of decent size, particularly as the market maintains a net long GBP position which, while off the year's best levels, still accounts for a net of 14.0% of open interest.
- 1.3342 undercuts as first support, ahead of the more meaningful 50-day EMA at 1.3126. A move through here would challenge the near-term bullish trend narrative.
