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09 July 2019 by jbchevrel

BASF (BASGR) was among underperformers today, with its 5y CDS spread wider by 6.5bp, not much in absolute but c30% wider compared to the 22bp closing level yesterday. BASGR last night conveyed to the market that it expects Q2-2019 adjusted EBIT to be “considerably below expectations” (c€1B which would imply both a steep decrease compared to last year the same period c-50% YoY and a big miss compared to consensus c50% below). Interestingly, as far as the reasons for the update, BASGR cited significantly weaker-than-expected industrial production and a weak development of the agricultural sector in North America. BASGR has also logically lowered its FY19 adjusted EBIT, which is now expected to be up to 30% below the prior year level. That drove chemical to underperform from this morning. Still in Germany, Bayer (BAYNGR) was downgraded by Fitch by one notch to BBB+ with a Negative outlook. This was on the back of a deterioration in the crop science division, obviously linked to the debate surrounding glyphosate, that putting at risk the company’s de-leveraging trajectory. Fitch guided that this new BBB+ rating now absorbs a single-digit multi-billion disbursement by 2021 and added that a reversion to Stable outlook depends on a resolution of the glyphosate litigation. The move wider later extended to other high-beta sectors such as metals and mining, until a general reversal at the end of the London session. After closing in low 51s yesterday, the Main31 reached 52.5 this morning, before rallying back this PM to sub 51.