EM LATAM CREDIT: Suzano Earnings Release 2024 (SUZANO; Baa3pos/BBB-/BBB-)
Neutral for spreads
• One of the top global pulp producers, Brazil based Suzano reported strong sales and adjusted EBITDA, but net income was reduced by extraordinary derivative hedge losses. Benchmark 2032 bond spreads have tightened the past three months, ranging from T+ 135–160bps, last at T+140.
• Suzano management has been focused on deleveraging. According to the company, Net debt/adjusted EBITDA in USD fell from 3.1x to 2.9x thanks to strong EBITDA growth of 31% y/y. Net revenue grew 16% and cash costs fell 7% sequentially.
• The company doesn’t envision any large, transformational merger or acquisition and capex is expected to diminish allowing for more free cash flow generation to pay down debt. Maintenance capex fell 23% sequentially and operating cash flow rose 10%.
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GILTS: Still Under Pressure
Gilts edge away from recent session lows, although markets seem keen to continue to fade rallies at this stage, with Chancellor Reeves offering little new in the Commons today.
- Reeves conceded that the UK is facing “economic headwinds”, while stressing the need to go further to kickstart growth and pledging to meet the fiscal rules at all times. A reminder that her future in the role is in doubt
- Futures as low as 89.15, last 89.23.
- Bearish technicals intact, initial support at cycle lows of 88.96.
- Yields little changed to 2bp higher, curve bear steepens.
- 10s & 30s within 3.5bp of cycle highs, located at 4.921% & 5.473%, respectively.
- Tomorrow’s 10-Year gilt supply is eyed, although today’s 30-Year I/L supply saw decent enough demand.
- CPI and comments from BoE dovish dissenter Taylor also due Wednesday.
FOREX: EURGBP Rally Extends, Focus Turns to UK CPI Release
- Sterling weakness continuing to stand out in G10 currency markets, as EURGBP extends session gains to 0.5%, registering a fresh two-month high in recent trade ~0.8443, helped by the quick fade of GBPUSD strength following the soft US data release.
- Price action for EURGBP narrows the gap to the next target of 0.8448, the Oct 31 high and a reversal trigger from a technical perspective. Further upside would signal scope for a move towards 0.8494, the August 26 high.
- The next key input for the Pound will be UK CPI, released tomorrow at 07:00 GMT, with focus on the services Y/Y figure for which consensus stands at a slightly softer 4.8% (vs 5.0% November). Our full preview for the release will be published shortly.
STIR: Effective Fed Funds Rate
FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $306B
