The old phrase used to be, 'when the US sneezes, the rest of the world catches a cold'. Seems fair to say we can at least add if not replace 'the US' with 'China' these days but in any case, both pose a risk to European cyclicals & global cyclicals more generally.
1) SKF PROFIT WARNING: Profit warning yesterday - whilst everyone will argue that we know things are bad in Europe, a reaction of -7% would suggest that positioning (& so expectations) are still too high for these names.
2) SKF is an early cycle name, their product (ie ball bearings) and exposure to distributors gives us early reads on what we might expect to see from the rest of the sector.
Note that For SKF, long-term margin expectations are at 15% (implying a continued strong FAI story in China, not taking into account litigation issues & China competition issues
We make a similar point on Schneider who, with their guidance of low single-dig sales growht and 14-15% margins, mean that the company assumes improved trading this year and an improvement in the construction markets!
3) DAIMLER, TOO MANY HEADWINDS, EPS CUTS AGAIN: the sharp declines in the E&S class are worth worrying about - these are the big margin cars. Finally they have heavy truck exposure (c30%+ of group profits)
4) GLOBAL TRUCKS, THE SITUATION IS GETTING WORSE: Total heavy truck sales in China fell 33% yoy in May. Brazil May total truck production -41% and slowdown in Europe continues (GY registrations -13% for May).
5) GLOBAL CHEMCICALS, THE WAITING GAME, TIK TOK: Asian buying activity is soft - last 4weeks, global spot ethylene prices -25%
6) WILL CHINA STIMULUS COME AND SAVE THE DAY FOR CHEMS (& CYCLICALS MORE BROADLY)? Whilst the government are clearly cognizant of the growth slowdown and are responding with accelerated project approvals in the 5yr plan which are being front-loaded) this is definitely not NEW STIMULUS just yet. They are not panicked by the slowdown and would settle for growth at 7.5-8% for this year.
Monetary stimulus via benchmark cut was encouraging but by no means are we out of the woods yet...the stimulus will be a softly softly approach rather than the aggressive pump we saw last time - is this well understood given peak margins we see at a lot of chems names?
7) CHINA STEELS & CEMENT: Baoshan Steel cut prices 2 days ago (by as much as R400/t, reverses most/all ytd rise)
8) US HOUSING RECOVERY RED FLAGS
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