Core Viewpoint - The consumer discretionary sector has several oversold stocks, presenting potential buying opportunities for undervalued companies [1]. Group 1: Oversold Stocks - Goodyear Tire & Rubber Co (NASDAQ:GT) has an RSI of 20.4, with a stock price of $6.71, down 21% over the past month and a 52-week low of $6.51 [7]. - Ferrari NV (NYSE:RACE) has an RSI of 26.4, with a stock price of $382.19, gaining 0.9% recently, despite a 22% drop over the past five days [7]. - Carmax Inc (NYSE:KMX) has an RSI of 28.6, with a stock price of $44.00, down 27% over the past month and a 52-week low of $42.75 [7].

Core Viewpoint - Michelin has revised its 2025 outlook downward due to a tougher operating environment than previously anticipated, expecting segment operating income to be between €2.6 billion and €3 billion, down from a prior estimate of above €3.4 billion [1][3]. Group 1: Q3 Performance - In Q3, Michelin reported year-on-year volume growth outside North America, indicating its ability to expand across market segments despite ongoing volatility [2]. - However, North America experienced a significant decline, with sales volumes falling nearly 10% due to lower OEM demand in truck and agriculture sectors, sluggish truck replacement sales, and challenges in B2C demand [3]. Group 2: Financial Projections - Free cash flow before mergers and acquisitions is now projected to be between €1.5 billion and €1.8 billion, down from a previous estimate of more than €1.7 billion [3]. - For the first half of 2025, Michelin's sales totaled €13 billion, a decrease of 3.4% year-on-year, with tyre volumes declining by 6.1% due to weakness in original equipment markets [5]. Group 3: Market Conditions - Michelin noted that tariffs have negatively impacted competitiveness and margins, alongside a larger-than-expected depreciation of the US dollar, which has further pressured free cash flow [4]. - The company had previously indicated that tyre markets were expected to be stable in 2025 compared to 2024, amidst a highly uncertain economic environment [4].

Economic Policy and Market Sentiment - Philadelphia Fed President Anna Paulson supports two additional quarter-point rate cuts this year, emphasizing that current labor market conditions do not indicate sustained inflation despite tariff-driven price increases [1] - Investors remain optimistic, with a belief that retail investors are resilient and that the strategy of buying the dip continues to be effective [2] Stock Market Performance - Wall Street's main stock indexes ended positively, with notable gains from Tesla (+5%) and Alphabet (+3%), while Broadcom surged over +9% following a partnership with OpenAI [3] - Bloom Energy experienced a significant jump of over +26% after Brookfield Asset Management announced a $5 billion investment [3] - Fastenal was the top loser, declining over -7% after reporting weaker-than-expected Q3 EPS [3] Upcoming Events and Earnings Reports - Investors are awaiting a speech from Federal Reserve Chair Jerome Powell and earnings reports from major U.S. banks, including JPMorgan Chase, Wells Fargo, Goldman Sachs, and Citigroup [4][7][8] - The S&P 500 companies are projected to see an average earnings increase of +7.2% for Q3, marking the smallest rise in two years [7] International Trade and Relations - China imposed sanctions on U.S. units of Hanwha Ocean, raising concerns about a potential escalation in the U.S.-China trade war [5] - The U.S. rate futures indicate a 97.8% probability of a 25 basis point rate cut at the upcoming Fed meeting, reflecting market sentiment influenced by international trade tensions [6] Global Market Reactions - The Euro Stoxx 50 Index fell -0.59% amid renewed U.S.-China trade tensions, with mining and automobile stocks lagging [11] - Japan's Nikkei 225 Index experienced a significant drop due to political instability and trade tensions, marking its largest single-day decline since April [16] Pre-Market Movements - Chip stocks, including Micron Technology and Marvell Technology, are down in pre-market trading due to heightened trade tensions with China [18] - Cryptocurrency-exposed stocks are also declining, with Bitcoin prices down over -4% [19] - PotlatchDeltic's stock rose over +5% following a merger agreement with Rayonier valued at approximately $8.2 billion [20]

Core Viewpoint - Shares in French tyre maker Michelin fell over 9% following a significant reduction in its full-year profit outlook due to worsening market conditions and a notable decline in North America [1] Group 1: Company Performance - Michelin has sharply cut its full-year profit outlook, indicating challenges in the market [1] - The company cited deteriorating market conditions as a primary reason for the profit outlook adjustment [1] - A steep fall in North American sales has been highlighted as a critical factor affecting performance [1]

Group 1 - The French tire maker has cut its full-year outlook due to worsening market conditions [1] - The company cites the impact of U.S. tariffs as a significant factor affecting its performance [1] - There has been a sharp decline in sales in North America, contributing to the revised outlook [1]

Core Viewpoint - Michelin has adjusted its financial outlook for the 2025 fiscal year due to a deterioration in the business environment, particularly highlighted by the Q3 financial results [2][5]. Group 1: Q3 Financial Performance - Michelin experienced year-on-year volume growth in Q3, excluding North America, indicating resilience in various market segments despite a chaotic business context and uncertainties affecting B2C and B2B demand [3]. - The North American market saw a significant decline, with Q3 sales volume dropping nearly 10%, driven by reduced demand from OEMs in Truck and Agriculture sectors, a weak Truck replacement market, and challenges in B2C sales [4]. Group 2: Financial Outlook Adjustments - The full-year outlook for 2025 has been revised, with Segment Operating Income (SOI) at constant 2024 exchange rates now expected to be between €2.6 billion and €3.0 billion, down from a previous estimate of above €3.4 billion [7]. - Free Cash Flow (FCF) before M&A is now anticipated to be between €1.5 billion and €1.8 billion, revised from a prior expectation of above €1.7 billion [7].

Business Outlook - Bridgestone anticipates a more challenging second half of the year [1] - The company's US business is expected to experience a significant decline in truck tire demand [1] Financial Impact - Tariffs are negatively impacting Bridgestone's financial performance [1] Operational Challenges - A cyberattack has disrupted Bridgestone's production [1]

Regulatory Compliance - Italian probe closed, investigating whether Sinochem, Pirelli's largest shareholder, violated restrictions on its role, restrictions aimed at limiting Chinese influence over strategic assets [1]

Summary of the Conference Call on the Autos/Auto Parts/Tire Sector Industry Overview - The conference call focused on the **Autos, Auto Parts, and Tire sectors** in Japan, highlighting the current market conditions and future outlooks for these industries [1][4]. Core Insights and Arguments Autos Sector - A **bullish stance** has been adopted due to the easing of tariffs and environmental regulations, which is expected to significantly improve the external environment for the sector [4][6]. - The **gross tariff impact** on seven major automakers is estimated at **¥1.6 trillion**, with a net impact of **¥890 billion** after recovery measures, based on a **15% tariff rate** assumption under USMCA [11]. - Relaxation of regulations such as **ACC-II, GHG, and CAFE** is projected to reduce compliance costs by **¥1.2 trillion**, surpassing the net tariff impact [11]. Auto Parts Sector - The ability to pass tariff costs onto OEMs is a key factor, with potential profit erosion of **20-30%** for companies like **Denso** and **Aisin** [11]. - The sector is encouraged to explore value addition in **vehicle intelligence** and **Software-Defined Vehicles (SDV)** [11]. - The impact of tariffs is expected to be manageable for Toyota, but negotiations with overseas OEMs will be crucial [11]. Tire Sector - The impact of tariffs on the tire sector is considered relatively minor, but the competitive environment remains challenging [4][7]. - Localized production benefits are expected to be evaluated in the medium term, as tariffs increase the cost of cheaper imports, providing advantages to local manufacturers [7]. Stock Recommendations - The order of preference for subsectors is: **1) Autos → 2) Tires → 3) Auto Parts** [5]. - Specific stock recommendations include: - **Overweight**: Toyota Motor, Suzuki Motor, Yamaha Motor, Denso, Aisin, Bridgestone - **Neutral**: Nissan Motor, Honda Motor, Mazda Motor, Subaru - **Underweight**: Subaru, Koito Manufacturing, TS Tech [10][12]. Additional Important Insights - The complexity of the **Toyota Group structure** is increasing, which may impact strategic decisions and operational efficiency [14]. - The **global auto demand** is expected to normalize post-COVID-19, with a projected growth of around **2% CAGR from 2024** [29]. - The **US localization ratio** for major automakers shows that Honda has a high ratio of about **70%**, while Toyota, Subaru, and Nissan are slightly below **60%** [69]. - The **tariff exemption impact** on operating profit over two years is significant, with Toyota's operating profit expected to be impacted by **¥744 billion** due to tariffs [74]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the Japanese automotive industry.

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **tyre industry**, specifically the **passenger car (PC)** and **truck tyre** segments, with insights into various regional markets including **North America**, **Europe**, and **China** [3][10][33]. Core Insights and Arguments 1. **Passenger Car Replacement Tyre (RT) Demand**: - Global PC RT demand increased by **1% YoY** in August, with North America declining by **4%** while Europe and China showed growth at **3%** and **4%** respectively [3][10]. 2. **Original Equipment (OE) Demand**: - Global PC OE volumes fell by **2% YoY** in August, with Europe experiencing a significant decline of **13%**. North America and China also faced challenges, with declines of **6%** and **2%** respectively [4][10]. - OE truck demand deteriorated sharply, down **8% YoY**, with North America facing a severe decline of **33%** due to economic conditions and oversupply in the freight market [5][10]. 3. **Regional Performance**: - In North America, RT truck demand remained stable with a growth of **13%** in August, attributed to pre-buying in anticipation of tariffs [6][10]. - Europe showed a slight decline in RT truck demand at **-1%**, while South America remained stable at **-3%** [6][10]. 4. **Market Trends**: - The Chinese market is viewed as stable with a favorable trend, while Europe continues to face economic challenges impacting demand [3][4]. - The overall truck tyre market is experiencing a downturn, with global volumes down **8%** [10]. Additional Important Insights 1. **Raw Material Composition**: - Key raw materials for tyres include natural rubber (~25%), synthetic rubber (~25%), and fillers (~30%). The composition varies between passenger and truck tyres, with passenger tyres typically containing more synthetic rubber for durability [33][40]. 2. **Commodity Price Trends**: - The tyre commodity index has shown a **-19%** change from 2Q23 to 2Q24, indicating a significant drop in raw material costs [35][38]. - Prices for rubber and steel have also seen declines, with rubber prices down **-13%** and steel prices down **-7%** over the same period [38][41]. 3. **Valuation Metrics**: - The report includes a valuation sheet for global tyre companies, highlighting market capitalizations, revenue growth rates, and earnings projections for companies like Michelin and Continental [55]. 4. **Market Outlook**: - Analysts maintain an "In-Line" industry view, suggesting cautious optimism amidst ongoing economic challenges and shifting demand dynamics [8]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and outlook of the tyre industry.