EU HEALTHCARE: Healthcare: Week in Review
We still do not know what the Trump administration intends for the Pharma sector. The tariff pause this week does not technically include Healthcare as it was never part of the reciprocal charges. Several clients have been asking about production figures by company and whilst this is important, it is complicated by the location of the intellectual property. As Brad Setser at the CFR pointed out, in 2024 the Top 7 US Pharma companies generated $252bn in domestic sales but received a Net US Tax Rebate of $3.6bn.
• Novartis pledged to invest $23bn over the next 5 years in US manufacturing and R&D. This should give them some protection against the regime and was greeted with a 1.5% equity uptick. The company spends c$10bn per year in R&D and we have no reason to believe that this $23bn is an increase – simply a geographic reallocation. NOVNVX reiterated guidance.
• Bayer filed with a writ at the Supreme Court to have the Durnell Case reviewed. This is not without risk but a positive outcome on product labelling would be very positive for the company. Bonds are 34bps wider MtD making it second worst in the sector. Bayer has a 35% exposure to the US.
• Eurofins was wider again although not the worst this week. The company is exposed to the global economy, but tariffs should have negligible direct impact. ERFFP is one of the top performers in equity of the names in this sector.
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US DATA: CPI Core & Supercore Latest Trends Still Hot
- Core CPI surprisingly eased to 3.12% Y/Y in February (cons 3.2) from what had been a surprisingly strong 3.26% in January.
- Within the seasonally adjusted data, both three- and six-month run rates are still running hotter though, at 3.6% annualized.
- Supercore (core services ex-housing) inflation pulled back more than expected on the month although as noted above it was dragged lower by softer than expected airfares and vehicle insurance (for which PPI and not CPI feeds into PCE).
- Supercore run rates are still robust despite easing in the latest month, at 4.8% annualized over three months and 4.5% over six months, but there has been a large wedge with PCE supercore which stood at 3.3% annualized over six months back in January.
Core CPI (SA)
- % M/M: 0.227 in Feb'25 after 0.446 in Jan'25
- % 3mth ar: 3.6 in Feb'25 after 3.9 in Jan'25
- % 6mth ar: 3.6 in Feb'25 after 3.7 in Jan'25
CPI Core Services Non-Housing (SA)
- % M/M: 0.215 in Feb'25 after 0.757 in Jan'25
- % 3mth ar: 4.8 in Feb'25 after 5.4 in Jan'25
- % 6mth ar: 4.5 in Feb'25 after 4.7 in Jan'25
STIR: Dovish CPI Reaction Fades, Less Than 3 25bp Fed Cuts Priced Through Dec
Initial dovish market reaction to the CPI data fades with feedthrough to the Fed’s preferred PCE reading seemingly less dovish than the headline readings.
- Fed Funds essentially unchanged vs. pre-data levels as a result, showing 1bp of easing for March, 9.5bp through May, 25.5bp through June and 71.5bp through December.
- 79bp of cuts were briefly priced through December following the data.
DATA REACT: USD Sheds Initial CPI Weakness, And Then Some
Having been sold on the CPI headlines, the dollar is recouping the losses and then some - putting EUR/USD now at fresh daily lows, having traded a daily high in the snap CPI reaction.
- Move mimics that seen in stocks and, in particular, bond markets - as Treasuries trade to new daily lows having erased the ~15 tick CPI spike.
- Details of the inflation print still being pored over and in particular the feedthrough to PCE, which could define the broader reaction here.
