EU CONSUMER STAPLES: Barry Callebaut; read-through from Mondelez
(BARY 29s; Baa3/BBB-; Stable)
So read-through from MDLZ earnings (a client) are positive. In particular the comment that if cocoa remains here, MDLZ is still guiding to FY26 EPS increasing - it shows some ability for market to structurally function at higher prices with LSD-MSD volume falls for now, keeping in mind that relatively mute 0.4x elasticity to price increases it is seeing.
Of course, Barry will not see a WC reversal/inflow if Cocoa stays here but the above is still useful colour to estimate what normal operating cash flows may look like. Net of higher interest costs stability can give it some lever to deleverage with (we see ~CHF0.5b in FY26 against a potential debt load of CHF7.5b or gross leverage of ~7x by then).
Regardless, we still see Cocoa prices in the driver seat and potential for rating action post 1H results. Levels are interesting for a IG staple but not among broader speculative views (VF in retailing is slight value skew and trades wider).
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US DATA: Capital Investment Steadying Despite Downward Revisions
Factory orders came in stronger than expected in November when accounting for upward revisions in the final Manufacturers’ Shipments, Inventories, & Orders report, though core capital goods orders were slightly weaker than they first appeared.
- The 0.4% M/M fall in factory orders (vs -0.3% expected) was offset by an upward revision to October (+0.5% vs +0.2%), while ex-transportation growth came in at +0.2% for a second month (reflecting a 0.1pp upward revision to prior).
- Broader durable goods orders were revised down slightly (-1.2% vs -1.1% prelim), due to slower growth in machinery orders than previously estimated (-0.6pp to +0.4%). Core capital goods orders growth was revised down to 0.4% M/M from 0.1% (0.7% prelim), with core shipments down to 0.3% (0.5% prelim).
- The latter figures meant that while November was a fairly solid month in the context of a poor 2024 for core capital goods, the preliminary estimates painted an overly flattering picture.
- Despite the downward core revisions, we note the final data were still much better than expectations vs the preliminary release (core cap goods orders had been expected +0.1%), and we continue to regard the data as indicative of stabilizing domestic durable goods orders. That should translate into more solidity in broader business investment. Core capital orders have been positive for the past couple of months on a Y/Y basis (0.8% in Nov, after 0.7% in Oct), with shipments flat on a Y/Y basis (after 6 negative months).
- Though as broader surveys indicate (including ISM Manufacturing and MNI Chicago PMI), the manufacturing sector appears to have improved since a summer bottom even if activity remains weak.
US TSYS: Early SOFR/Treasury Option Roundup
Better SOFR & Treasury put option volume on net so far, SOFR more two-way as early underlying support reversed after Trump denied tempered tariff story by the Washington Post. Tsy options see huge Mar'25 10Y put buying. Projected rate cuts through mid-2025 look weaker vs. late Friday levels (*) as follows: Jan'25 at -2.3bp (-2.8bp), Mar'25 -11.8bp (-13.2bp), May'25 -16.8bp (-17.8bp), Jun'25 -25.8bp (-26.5bp).
- SOFR Options:
- -15,000 SFRZ5 95.25/95.75 2x1 put spds, 2.0 ref 96.02
- -3,000 2QH5 95.00/95.50 put spds 3.5 ref 95.98
- +6,000 0QZ5 97.00/98.00 call spds, 10.0 vs. 96.005/0.14%
- Block: 10,000 SFRU5 95.62/95.81 put spds 7.0 vs. 10,000 96.75/97.12 call spds, 4.5, 1.0 net package
- over 9,400 SFRH5 95.68 puts, 1.5 ref 95.82
- 2,000 SFRF5/SFRH5 95.87/96.00/96.06 broken call fly spd
- 2,000 SFRM5 97.00/98.00 call spds ref 95.935
- 4,000 SFRF5 95.75/95.81/95.87/95.93 put condors ref 95.80
- Treasury Options:
- over +100,000 (50k blocked) TYH5 106 puts, 14 ref 108-18.5
- 6,000 TYG5 106 puts, 2
- 4,500 TYG5 109.5 calls, 15 ref 108-17
- 2,250 TYG5 104 puts ref 108-15.5
- 4,700 TYH5 108 puts, 50 ref 108-15
US TSY FUTURES: Curves Extend Bear Steepener Move
- Tsy curves climbing to new multi-year highs with bonds extending lows (USH5 -23 at 112-26, 30Y yield +.0413 at 4.8523%), 2s10s taps 35.520 - highest since May 2022, 5s30s +1.306 at 41.043.
- Heavy volumes in TYH5, over 935,000 so far amid heavy rate lock selling with over 20 corporate debt issuers expected today, not to mention Tsy supply: $84B 13W and $72B 26W bill auctions and $58B 3Y note auction (91282CMF5).
