Morning Note: Market news and an update from Deere.

Market News

Russian President Vladimir Putin praised the US for marking “quite energetic and sincere efforts” to stop the fighting in Ukraine. Putin expressed willingness to start work on a new arms control treaty, saying an agreement can “create long-term conditions for peace” between the US and Russia. President Trump described the upcoming summit as a “feel-out” meeting and said he foresaw “a 25% chance” that it would “not be a successful meeting”.

Treasuries weakened across the curve yesterday – the 10-year currently yields 4.28% – following a higher US inflation print, which led traders to trim bets on an interest-rate cut by the Federal Reserve next month. July’s Producer Price Index surged 0.9% month-over-month, the largest increase in three years and far above the 0.2% forecast, while rising 3.3% year-over-year. Markets still see over a 90% probability of a 25-basis-point cut next month, but odds of a larger 50 bps move have been priced out. Gold trades at $3,343 an ounce.

US equities were little changed last night. Intel rose by 11% following news that the US government could be taking a stake in the company, helping to shore up Intel’s planned factory hub in Ohio.

In Asia this morning, Japanese stocks (Nikkei 225, +1.5%) and the yen rose after GDP beat estimates, boosting the case for the Bank of Japan to raise its key rate again this year. Elsewhere, markets in Asia were mixed: Hang Seng (-1.1%); Shanghai Composite (+0.8%). China’s economy slowed across the board in July with factory activity, investment and retail sales disappointing, suggesting Beijing’s crackdown and spillovers from Donald Trump’s tariffs are casting a pall over the economy.

The FTSE 100 is currently 0.3% higher at 9,199, while Sterling trades at $1.3545 and €1.1610. OPEC+’s crude output moderated last month after reaching a two-year high in June, according to BloombergNEF estimates. Total production still exceeded quotas by 417,000 barrels per day. Brent Crude trades at $66.40 a barrel.

Source: Bloomberg

Company News

Yesterday lunchtime, Deere & Company released results for the three months to 27 July 2025, the third quarter of its financial year to end-October 2025. Although earnings were slightly ahead of market expectations, the industry outlook remains uncertain, and the company has lowered its full-year net income guidance. In response, the shares were marked down by 7% in US trading hours.

Deere is a global agricultural and construction equipment company with annual sales of almost $52bn. The group has a strong track record of innovation, a comprehensive distribution infrastructure, and global after-market capability. The group’s strategic aim is to outpace industry growth and generate a mid-cycle operating margin of 15%.

The business is benefitting from broad trends based on population and income growth, especially in developing nations, which are driving agricultural output and infrastructure investment. In addition, technological advances and agricultural mechanisation are expanding existing markets and opening new ones by helping customers increase their productivity, profitability, and sustainability.

The company believes it has incremental addressable market opportunities of more than $150bn that can be targeted through engaging with more customers and increasing levels of connectivity. The focus is on helping customers manage higher costs and increasingly scarce inputs, while improving their yields, using Deere’s integrated technologies.

However, in the near term, conditions in the global agricultural and construction sectors have been challenging because of higher interest rates, squeezed farming incomes, and lower government support. More farmers have switched to renting tractors and other equipment, and Deere has been forced to streamline field inventory.

During the latest quarter, worldwide net sales and revenue fell by 9% to $12.0bn, while net sales of equipment were also down 9% to $10.4bn, in line with the market expectation of $10.3bn. Tariff costs were around $200m in the quarter, driving net income down 26% to $1,289m. EPS fell by 24% to $4.75, slightly above the market forecast of $4.63.

The Production & Precision Agriculture segment includes large and certain mid-size tractors, combines, cotton pickers, sugarcane harvesters and loaders, and soil preparation, seeding, application and crop care equipment. During the latest quarter, sales fell by 16% to $4.3bn due to lower shipment volumes and unfavourable price realisation. Operating profit halved to $580m, mainly due to lower volumes and sales mix. The margin slumped from 22.8% to 13.6%.

The Small Agriculture and Turf segment includes certain mid-size and small tractors, as well as hay and forage equipment, riding and commercial lawn equipment, golf course equipment, and utility vehicles. During the quarter, sales fell by 1% to $3.0m, with lower shipment volumes partly offset by favourable pricing. Operating profit was down 2% to $485m, with the margin falling from 16.2% to 16.0%. Construction & Forestry sales fell by 5% to $3.1m, while operating profit fell 47% to $237m.

The group’s Financial Services division reported adjusted net income up 34% to $205m, due to a lower provision for credit losses and prior-year special items.

Deere’s balance sheet is robust, with net debt of c. $57bn, a level consistent with supporting a credit rating that provides access to low cost and readily available funding. The group has a policy to raise its dividend “consistently and moderately”, targeting a 25%-35% payout ratio of mid-cycle earnings. The latest annual dividend was raised by 16% to $5.88 per share (1.2% yield). 

Looking forward, market conditions are expected to remain weak due to subdued farm incomes and inflationary pressures which will continue to impact demand for the company’s equipment. The full-year impact of tariffs in FY2025 is expected to be around $600m. The company will continue to take steps to reduce costs and strategically align production with customer demands.

The group has narrowed its guidance for net earnings to $4.75bn to $5.25bn, at the bottom end of the previous $4.75bn-$5.50bn range. This compares to earnings of $7.0bn last year. Operating cash flow of $4.5bn-$5.5bn is still forecast. By division, net sales are expected to decline by 15%-20% in Production & Precision Agriculture, 10% in Small Agriculture and Turf, and 10%-15% in Construction & Forestry.

Source: Bloomberg