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Consumer & Transport: Week in Review

CONSUMER CYCLICALS
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The only point in macro we want to flag is today's US June PCE print that pointed to relatively solid real consumption (+0.2%). But as our economist notes real income growth was slowing towards the end of the quarter and personal savings rate at 3.4% is at the lowest since Dec '22. Our focus stays on earnings which will give better a forward indication for now. We've linked the movers this week below and it wasn't all in earnings; Essity continues to price out Event of Default triggered put at par, Rentokil has started pricing in a par put on potential PE buyers and Whirlpool is repricing (mainly in $s) its chances of a rating uplift after Bosch made another acquisition.

As an aside, we know credit doesn't like to care about governance but over time we often see that as a costly mistake. The most recent example was Burberry, a co we gave multiple warnings of when it came to primary. The bond we saw as effectively funding elevated equity pay-outs from the year before and the CEO's strategy to capex store refurbishments while refusing to disclose online sales exposure was worrying. He was let go by the board last week and the new '30 bond holders have been left with 40bps of spread widening. We again see red flags this week on Elo/Auchan who thought it was appropriate to have a private call for one of its most watched earnings before releasing a public presser. Yes, a private co, but it has €7b in public bonds, Xover member CDS and revisiting public markets as recently as April.

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The only point in macro we want to flag is today's US June PCE print that pointed to relatively solid real consumption (+0.2%). But as our economist notes real income growth was slowing towards the end of the quarter and personal savings rate at 3.4% is at the lowest since Dec '22. Our focus stays on earnings which will give better a forward indication for now. We've linked the movers this week below and it wasn't all in earnings; Essity continues to price out Event of Default triggered put at par, Rentokil has started pricing in a par put on potential PE buyers and Whirlpool is repricing (mainly in $s) its chances of a rating uplift after Bosch made another acquisition.

As an aside, we know credit doesn't like to care about governance but over time we often see that as a costly mistake. The most recent example was Burberry, a co we gave multiple warnings of when it came to primary. The bond we saw as effectively funding elevated equity pay-outs from the year before and the CEO's strategy to capex store refurbishments while refusing to disclose online sales exposure was worrying. He was let go by the board last week and the new '30 bond holders have been left with 40bps of spread widening. We again see red flags this week on Elo/Auchan who thought it was appropriate to have a private call for one of its most watched earnings before releasing a public presser. Yes, a private co, but it has €7b in public bonds, Xover member CDS and revisiting public markets as recently as April.

Keep reading...Show less