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U.S. Week Ahead (Feb 3-7): Jobs & Pharma Earnings Grab Spotlight

By:

Senior Market Analyst at Interactive Brokers

Market participants in the week ahead will receive a fresh picture of the labor market, as well as quarterly earnings updates from some major players in the pharma sector.

While the U.S. Bureau of Labor Statistics is readying the release of its January employment situation report ahead of the weekend, companies such as California-based biotech giant Gilead Sciences (NASDAQ: GILD) and British drug-maker GlaxoSmithKline (NYSE: GSK) are set to announce their financial results.

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The backdrop for the data and earnings has been daunting recently, with the novel coronavirus (2019-nCoV) threatening to thwart global growth, leaving a potential trail of losses in its wake, including the cost of crude oil, as well as a myriad of other commodities.

Although the respiratory illness has been likened by industry experts to the severe acute respiratory syndrome (SARS) epidemic of 2002-2003, uncertainties persist over the economic costs and fatalities wrought by the newly unleashed 2019-nCoV.

International Monetary Fund chief Kristalina Georgieva recently said at the Center for Global Development that it is “premature to gauge the economic impact of the coronavirus outbreak on China’s economy, but it will certainly impact the first quarter.” 

She added that if the current emergency follows how SARS unfolded, it could slow growth in the short-term.

Meanwhile, the Wall Street Journal pointed to figures produced by Goldman Sachs, which pointed to expectations of a virus-induced, annual reduction of around 0.4-0.5% in U.S. output in the first quarter, with growth then rebounding in the second quarter, barring any material changes in the magnitude and speed of the outbreak.

State of the Spread

The Centers for Disease Control and Prevention (CDC), which is closely monitoring the spread of the respiratory illness, noted there have been thousands of confirmed cases in China, with the contagion having landed in a long list of other countries, including the U.S., Hong Kong, Taiwan, Australia, India, Singapore, Japan, South Korea, the Philippines, Thailand, Vietnam, as well as Germany, France, Finland, Italy, Spain, Russia, Canada and others. 

As of February 3, the CDC identified 260 cases of the disease across 36 U.S. states, with reported global fatalities exceeding 350.

To date, the relatively small number of domestic cases being investigated has spurred some analysts to anticipate an overall muted impact on certain U.S. corporate sectors.

Fitch Ratings, for instance, recently noted it does not yet expect the 2019-nCoV virus to have a material adverse effect on the operating performance, or overall credit profile, of U.S. health insurers.

The ratings agency said that given “the existing low number of confirmed cases and apparent lack of person-to-person transmission in the U.S., as well as containment measures being taken by U.S. authorities, Fitch is currently anticipating that the arrival of 2019-nCoV in the U.S. will not significantly differ from SARS-CoV or MERS-CoV in terms of its effect on the credit profile of the U.S. health insurance sector.”

Pharmas Take up Arms

Against this backdrop, certain pharmaceutical companies have been shoring-up efforts to combat the 2019-nCoV disease.

GSK, for example, said it had recently teamed-up with the Coalition for Epidemic Preparedness Innovations – a vaccine developer headquartered in Oslo, Norway, whose aims are dedicated to staving-off epidemics.

Among other actions, GSK said it will make its pandemic vaccine adjuvant platform technology available to enhance the development of an effective vaccine against 2019-nCoV. The company explained that an adjuvant is added to some vaccines to enhance the immune response, which in turn, may create a stronger and longer lasting immunity against infections than the vaccine alone.

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Also, Gilead Sciences, another pharma fighting against 2019-nCoV, recently said it joined forces with the U.S. Food and Drug Administration (FDA), the CDC, the U.S. Department of Health and Human Services (DHHS), the China CDC and National Medical Product Administration (NMPA), the World Health Organization (WHO), and the U.S. National Institute of Allergies and Infectious Diseases (NIAID), among other individual researchers and clinicians.

Gilead Sciences’ chief medical officer Merdad Parsey said the company is responding to the 2019-nCoV outbreak “through the appropriate experimental use of our investigational compound remdesivir.”

Although the firm admits remdesivir is not yet licensed or approved anywhere globally and has not been demonstrated to be safe or effective for any use, it is working with health authorities in China to establish a randomized, controlled trial to determine whether it can safely and effectively be used to treat 2019-nCoV.

The actions appeared to help boost some confidence among equity and exchange-traded fund (ETF) investors in the pharma space.

Gilead Sciences’ stock, for example, gained ground Monday, with recent quotes showing an intraday increase of around 5.44% to roughly US$66.64.

Also, shares of the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB), which has among its top holdings Gilead Sciences, as well as biopharmas Amgen (NASDAQ: AMGN) and Vertex Pharmaceuticals (NASDAQ: VRTX), rose around 1.70% intraday Monday to a little over US$115.70, according to the IBKR Trader Workstation.

Earnings

Tuesday, Feb 4

Gilead Sciences (Q4’19, FY 2019)

Expected EPS ~US$1.67 vs US$1.44 EPS y/y

Wednesday, Feb 5

GlaxoSmithKline(Q4’19, FY 2019)

Expected EPS ~US$0.67 vs US$0.81 EPS y/y

Jobs

Elsewhere, market participants will receive an update on the U.S. labor market ahead of the weekend, after total nonfarm payrolls rose 145k in December, while the unemployment

rate was unchanged at 3.5%.  The U.S. BLS said notable job gains were in retail trade (+41k) and health care (+28k), while the mining industry shed positions (-8k).

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Friday, Feb 7

Employment Situation (Jan)

Bloomberg Survey Outlook: 160k NFP, 150k Private Sector, 3.5% UR, AHE MoM, YoY 0.3%, 3.0%

Overall, the headline NFP number had slipped below the market’s expectations by around 15k.

Jefferies economists Ward McCarthy and Thomas Simons recently noted that December’s data told a “mixed but generally positive story about the state of the labor market.” They said that the establishment survey came in below expectations “primarily because manufacturing payrolls declined rather than rose, and that reflects a manufacturing sector that has been in a recession since the summer of 2019.” 

Jefferies added that the economy will “continue to generate jobs –outside of manufacturing—and will also continue to generate wage growth, albeit at a more moderate rate” than appeared to be the case prior to the revisions released in December’s report.

Indeed, the U.S. labor market seems to remain on a solid footing, with the Federal Open Market Committee (FOMC) having attributed its strength, in part, to its decision in late January to leave the target range on the federal funds rate at 1.50-1.75%.

The FOMC at its latest meeting touted job gains as having been “solid, on average, in recent months, and the unemployment rate has remained low.” However, the committee added that while household spending has been rising at a moderate pace, business fixed investment and exports remain weak.

Too Soon to Tell

Federal Reserve chair Jerome Powell also said that, in terms of domestic and global growth, the 2019-nCoV virus will “clearly” have “implications at least in the near term for Chinese output,” as well as likely some of its neighbors.

Powell said that there is likely to be “some disruption to activity in China and possibly globally based on the spread of the virus to date and the travel restrictions and business closures that have already been imposed.”

With the situation still in its early stages, he added it is “very uncertain about how far it will spread and what the macroeconomic effects will be in China and its immediate trading partners and neighbors and around the world.”

The Fed said it is “very carefully monitoring the situation.”

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Author Security Holding: No Positions

The author does not hold any positions in the financial instruments referenced in the materials provided.

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