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The Fed is just a little more cautious
European stock exchanges were flat yesterday, awaiting the release of the minutes from the Fed’s latest meeting that showed greater scepticism about next rate rises. In this regard, although the decision was unanimous, two members were in favour of keeping rates unchanged in July. Thus, although most members see upward inflation risks they are less willing to continue raising rates due to the uncertainty the accumulated tightening will generate on the macroeconomic data. As for the balance, some members expect the Fed not to finalise the deleveraging when cut rates start.
In the Euro STOXX, Retail and Consumer Goods were the best-performing sectors, while Media and Pharma saw the biggest drops. On the macro side, in the euro zone, the 2Q’23 GDP confirmed expectations growing 0.6% YoY, whereas the industrial output rose more than expected in June. In the UK, July’s inflation slowed down from 7.9% to 6.8%, while the core data remained at June’s levels of 6.9%, both worse than expected due to the contribution of services. In the US, July’s industrial output came in far above expectations, as well as housing starts that also beat expectations. In China, Zhongzhi bank would be planning a debt restructuring with investors, which led to drops in the financial sector. In US 2Q’23 Results, Target Corp came in betterr, Cisco Systems and Amcor in line.
What we expect for today
European stock markets would see a bearish opening following the poor reaction to the Fed minutes in the US. Currently, S&P futures are down -0.18% (the S&P 500 was -0.68% lower vs. the European closing bell). Volatility in the US rose (VIX 16.78). Asian stock markets are sliding (China’s CSI 300 -1.11%, Japan’s Nikkei -0.78%).
Today in the US we will learn weekly jobless claims and the Philadelphia Fed index for August. In US 2Q’23 Results, Walmart, Ross Stores and Applied Materials, among others, will release their earnings.
COMPANY NEWS
ARCELOR MITTAL, BUY
According to the press, MTS would be analysing the possibility of launching a bid for US Steel, without any certitude for the time being that the deal will go through. US Steel rejected last Sunday a bid from Cleveland-Cliffs valuing the company at some US$ 7.3 Bn (around € 6.7 Bn), meaning a 43% premium vs. trading levels. The US steel company Esmark would have also launched a bid worth US$ 7.8 Bn (around € 7.15 Bn). In the absence of the confirmation whether MTS will finally launch a bid, and of the terms of a potential offer, a deal at around US$ 7.8 Bn (EV) would mean ~27% of MTS’s EV and, according to our estimates, it would increase its debt level to around 0.8x NFD/EBITDA (vs. -0.2x in 2024 BS(e)), which we see as a reasonable level. In terms of valuation, the potential bid would mean valuing US Steel at 5x EV/EBITDA’24 vs. 3.9x at which MTS is trading. From a strategic point of view, if the deal is closed, MTS would increase again its footprint in the US after the sale of most of its assets in the country to Cliffs 3 years ago.
IBERIAN DAILY 17 AUGUST (ANÁLISIS BANCO SABADELL)
NEWS SUMMARY: ARCELOR MITTAL.The Fed is just a little more cautious
European stock exchanges were flat yesterday, awaiting the release of the minutes from the Fed’s latest meeting that showed greater scepticism about next rate rises. In this regard, although the decision was unanimous, two members were in favour of keeping rates unchanged in July. Thus, although most members see upward inflation risks they are less willing to continue raising rates due to the uncertainty the accumulated tightening will generate on the macroeconomic data. As for the balance, some members expect the Fed not to finalise the deleveraging when cut rates start.
In the Euro STOXX, Retail and Consumer Goods were the best-performing sectors, while Media and Pharma saw the biggest drops. On the macro side, in the euro zone, the 2Q’23 GDP confirmed expectations growing 0.6% YoY, whereas the industrial output rose more than expected in June. In the UK, July’s inflation slowed down from 7.9% to 6.8%, while the core data remained at June’s levels of 6.9%, both worse than expected due to the contribution of services. In the US, July’s industrial output came in far above expectations, as well as housing starts that also beat expectations. In China, Zhongzhi bank would be planning a debt restructuring with investors, which led to drops in the financial sector. In US 2Q’23 Results, Target Corp came in betterr, Cisco Systems and Amcor in line.
What we expect for today
European stock markets would see a bearish opening following the poor reaction to the Fed minutes in the US. Currently, S&P futures are down -0.18% (the S&P 500 was -0.68% lower vs. the European closing bell). Volatility in the US rose (VIX 16.78). Asian stock markets are sliding (China’s CSI 300 -1.11%, Japan’s Nikkei -0.78%).
Today in the US we will learn weekly jobless claims and the Philadelphia Fed index for August. In US 2Q’23 Results, Walmart, Ross Stores and Applied Materials, among others, will release their earnings.
COMPANY NEWS
ARCELOR MITTAL, BUY
According to the press, MTS would be analysing the possibility of launching a bid for US Steel, without any certitude for the time being that the deal will go through. US Steel rejected last Sunday a bid from Cleveland-Cliffs valuing the company at some US$ 7.3 Bn (around € 6.7 Bn), meaning a 43% premium vs. trading levels. The US steel company Esmark would have also launched a bid worth US$ 7.8 Bn (around € 7.15 Bn). In the absence of the confirmation whether MTS will finally launch a bid, and of the terms of a potential offer, a deal at around US$ 7.8 Bn (EV) would mean ~27% of MTS’s EV and, according to our estimates, it would increase its debt level to around 0.8x NFD/EBITDA (vs. -0.2x in 2024 BS(e)), which we see as a reasonable level. In terms of valuation, the potential bid would mean valuing US Steel at 5x EV/EBITDA’24 vs. 3.9x at which MTS is trading. From a strategic point of view, if the deal is closed, MTS would increase again its footprint in the US after the sale of most of its assets in the country to Cliffs 3 years ago.
Underlying
ArcelorMittal
Provider
Sabadell
Research Department
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