E The Global Shift

The global shift is coming. Michael Kurtz of Nomura writes on Global Equity Strategy today on how the US will lag Asia and Continental Europe this year:

“With Fed Chair Yellen professing confidence in US labor market strength and the ‘transitory’ nature of oil-induced low CPI readings, two phenomena impose themselves upon the global equity foreground:

  1. eventual acceleration in US wages, to the continuing benefit of US consumer spending power but the relative profit-margin disadvantage of US firms; and

  2. ongoing US dollar firmness sustained by Fed expectations which already is helping redistribute US demand growth into the rest of the global economy via stronger US imports.

“[This is clear from] the recent US Q4 GDP breakdown, within which -- largely unappreciated amidst a predominant focus on the ‘disappointing’ headline number -- year-on-year US private consumption actually continued to accelerate (both goods and services). A key subtractor from the 2.2% SAAR ‘headline’ figure was net trade meaning more of that underlying US consumption pickup is materializing as imports from the rest of the world. This is good news for global markets receptive to any external shot-in-the-arm.

“Both continuing dollar strength and gathering US wage pressure (even if the Hourly Earnings component of today’s otherwise surprisingly strong February job data underwhelmed), suggest US stocks could continue to underperform in months ahead, even as US growth remains the global recovery’s key pillar, and even as the S&P continues to rise in absolute terms (as we expect). This was the pattern during the last Fed hiking cycle (2004-06 and beyond), [when] the S&P 500 rallied a robust 45% but was still bested by MSCI World Equities’ greater 65% gains.

“We expect single-digit absolute S&P 500 upside [in] 2015, with our current index target of 2,175 based on modest multiple expansion to 18x forward (2016) EPS of $120.80/sh We expect greater returns in Japan and Asia ex-Japan (both Overweight) [and] Continental Europe (Neutral),markets that benefit from rising US wages and, dollar strength, leaving us Underweight the S&P 500 by default.”

Monday the European Central Bank belatedly begins its quantitative easing program, now expected to run only about 18 months. If Mario Draghi is to be believed, this will be long enough to produce the growth and inflation needed.

More  follows from Belgium, Spain, South Africa, Germany, Switzer-, Ire-, Fin- and The Nether-lands, France, and Britain. Including an annual report and a new stock pick and a sell.

Biosimilars and Other Drugs

• Belgian Galapagos Group reported unaudited full year 2014 revenues of €108 mn,including €18m from discontinued operations (Biofocus and Argenta, both sold). Net profit at €33 mn (v €8.1 mn loss in 2013) beat forecasts. This result of €1.24/sh mainly resulted from divestiture of its former US service operations.

It closed the year with cash of €198 mn, enough to operate until the end of 2016 but there may be more income from milestones and licenses.

Its phase 3 trials for rheumatoid arthritis drug filgotinib, after completing phase 2 trials Darwin 1 and 2, achieved 98% recruitment of eligible patients them now enrolled in the long- term extension Darwin 3. A decision on whether to proceed depends on interpretation of the 24-week phase 2B trials by AbbVie which licensed filgotinib. It delivered a pre-clinical osteo-arthritis candidate, GLPG1972, under its alliance with Servier. Phase 1 starts in 2015. Our former Milan-based biotech maven works in the RA area at GLPYY, why we own this stock.

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