Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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London Quick Take - 7 May
Neil Wilson
Investor Content Strategist
FTSE lower with AZN, GSK down on Prasad appt, US futures higher on China trade talks
- US-China trade talks go ahead
- Fed to stay on hold
- UK and India sign trade deal
- China central bank eases policy
- AZN, GSK fall on US FDA appointment
The FTSE 100 edged lower in early trade on Wednesday, pulling back from the 8,600 level as investors continued to assess the broad risk spectrum – buoyed by US-China trade talks, perhaps concerned about India-Pakistan tensions...plus we have the Fed tonight and Bank of England tomorrow to set the scene from a central bank point of view. Wall Street was lower yesterday but futures are firmer on trade talk news. Higher crude prices lifted the oil majors but AstraZeneca and GSK fell on a Trump appointment in the US that could be negative for vaccine makers. AstraZeneca, the index biggest weight, was down 2% and GSK fell 4% after the US Food and Drug Administration appointed Vinay Prasad as head of its Center for Biologics Evaluation and Research. He's there to tighten up vaccine approvals - it could be much longer approval timelines for new drugs and we saw 20-30% declines among some US biopharma names yesterday.
Will-they, won’t-they on trade seems to have been answered with the US and China set to begin some kind of formal negotiations in Switzerland this week. Like I said before there is zero chance they won’t talk so I don’t know if this is already priced...we saw a big spike in equities overnight but the move higher in US futures has been faded a bit. Gold eased back after two big days of gains took it close to the all-time high again. Oil rallied with front month WTI back to $60 this morning on trade talks, lower US output and signs of uptick in demand in China and Europe. Major U.S. producers Diamondback and Coterra are dialing back output, with Diamondback saying U.S. oil production may have already peaked.
What do we expect from these talks? Tsy Sec Bessent thinks it’s about de-escalation. The point of maximum leverage that the Chinese will have with talks is coming – when shelves start to empty - so there is no need to rush. Meanwhile, the UK has signed a free trade deal with India and the government is copping some flak for what looks to be a tax break for Indian workers...even if it’s not true it could be yet more voter-toxicity for Labour.
China unloaded a bit of monetary stimulus overnight, trimming rates and its reserve requirement. This helped lift the mood a bit but Asian equities had a muted reaction overall.
It’s Fed Day but markets are not anticipating a shift yet. The Fed is still in wait-and-see mode and while the survey data in the US been really soft, the huge pull-forward in demand as people rushed to beat tariffs means the hard data is yet to catch up. Powell doesn’t need to really say or do anything yet. Nevertheless, I feel they are about to tee up a willingness to cut a few times in the second half of the year should the economy fall over. But the truth is the Fed cannot predict, or offer forward guidance, with any credibility given the uneven path ahead.
Veteran macro investor Paul Tudor Jones said the stock market will hit new lows even if Trump cuts China tariffs to 50%...goes to my point about there being way too much complacency in the market with back to pre-Liberation Day levels despite tariffs being on pause and nowhere near cancelled...plus oil prices are down heavily and likely to remain so, which is good for Trump re inflation and the Fed is about to pivot which will embolden the President...plus he’s getting some concessions. Market volatility is on pause for now though.
Companies
GSK and AstraZeneca led the pack in London lower after vaccine sceptic Prasad won a key FDA appointment, while Vodafone was lower after announcing CFO departure.
Disney tonight – any read on film tariffs to be analysed. Wall Street expects earnings per share of $1.20 and revenue of $23.14 billion. DIS in November said it expects a “modest decline” in subscriptions during the December period. In Feb it said it expected another “modest decline” in subscribers...let’s see if that cadence remains.
Novo Nordisk cuts forecasts amid US sales struggles for obesity and diabetes drugs, citing competition. Revenue growth now up to 21%, operating profit up to 24% at constant rates. Wegovy losing ground to Eli Lilly's Zepbound, but wins CVS deal for wider availability.
Biopharma - vaccine stocks hit hard with Vinay Prasad appointment at FDA- big critic of vaccines, particularly covid boosters and cancer vaccines - v critical of gene therapy - Sarepta and UniQure, Verve, Rocket Pharmaceuticals and Beam Therapeutics all whacked very hard. Moderna, Pfizer also hit very hard by the news...GSK and AZN are down this morning quite a bit.
AMD - beat, forecast $1.5bn hit from tariff – Arm Holdings reports today. Palantir fell 12% despite a big beat on earnings...growth looks good but institutional investors say it’s a retail story and no one really covers it. Is Palantir a meme stock? Double top at $125...dare we call the top? I don’t know.
Finally, Meta – first death cross since Dec 2021 – last one sent shares down 73% in 11 months.
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