EU HEALTHCARE: Viatris Inc: 2Q 25 (VTRS; Baa3/BB+/BBBneg)

• In the FI space, Bund futures are trading lower today, extending Monday’s sell-off. Support at 129.77, the Jul 3 low, has been cleared. The clear break confirms a resumption of the recent bearish theme and opens 129.30 next, the May 22 low. On the upside, resistance around the the 50-day EMA, at 130.51, has recently been pierced but for now, remains intact. A clear break of it is required to highlight a possible reversal.
• A bear cycle in Gilt futures remains in play and today’s sell-off reinforces this theme. The contract has breached support at 91.63, the Jul 2 low. Price has also pierced 91.50, the 61.8% retracement of the May 22 - Jul 1 bull leg. This exposes 90.97, the 76.4% retracement point. Clearance of this level would strengthen a bullish theme. On the upside, initial firm resistance is at 92.61, the 20-day EMA.

Ministry of Commerce data highlights a sharp drop in Y/Y French exports to the Americas since March, with exports falling 6.5% M/M in April and 6.4% M/M in May. The US makes up around ~80% of “Americas” exports. Clearly, already implemented tariffs and associated trade policy uncertainty are having an impact on trade with the US. 

• However, Eurostat data suggests France is not too exposed to the sector-specific 50% steel/aluminium and 25% autos levies imposed by the US.
• Instead, officials will be more concerned by French sensitivity to:
  • (i) Pharmaceuticals, which are currently subject to a Section 232 investigation.
  • (ii) Aircraft, given Airbus’ position as Boeing’s main competitor.
  • (iii) Food, alcohol and tobacco, with the agricultural sector threatened with 17% tariffs over the weekend and the alcohol sector previously being threatened with punitive measures following initial EU retaliatory plans.
  • Other machinery/manufacturing exports to the US are also worth ~0.8% GDP, so are impacted by the 10% baseline reciprocal tariff.
• This sensitivity to potential future tariff announcements has likely underscored the French Government’s slower, more detailed, preference for trade negotiations than the likes of Germany (whose auto industry is more sensitive to already-announced sector-specific tariffs, for example). Reports that spirits and aircraft may be exempted from tariffs in the latest US offer will come as a relief to some French producers. 

While the French goods trade deficit to GDP is broadly back in line with pre-covid levels (~3%), the downward trend in both exports and imports is reflective of a broader sluggishness in activity. Weak demand is constraining imports, while trade uncertainty and soft partner demand is limiting export growth.

• The trade deficit was E7.8bln in May according to Ministry of Commerce data, up from E7.7bln in April. Exports (ex-military equipment) fell 0.3% M/M to E48.8bln. Export growth has been negative on an NSA sequential basis for four of the last 5 months (March was an exception with +5.3% M/M growth).
• Meanwhile, imports (ex-military equipment) fell 0.2% M/M to E56.7bln, following a 3.0% M/M fall in April. Imports were down 1.7% Y/Y in May (vs -2.6% in April, +3.4% in March), consistent with weak domestic consumption and industrial production trends seen in recent months.
• Net exports pulled Q/Q real GDP down by 0.7pp in Q1. Recent export weakness suggests a similar drag may also be seen in Q2.