Market commentary: Gilead Science, the Euro, the bonds markets

Last week was a rather turbulent week for investors around the world, with rising bonds’ yields, dropping stock prices and sizable shifts in the currency markets, while, at the same time, the ongoing earnings season allowed for few single stocks to shine in defiance of the general selloff.

One of such stocks is Gilead Science Inc., the largest biotech firm on the market, and recently in the spot light after releasing a blockbuster hepatitis drug with a $92,000 price tag per regiment, that has made the firm both controversial and the undisputed “King” of the lucrative HCV’s market.

On Thursday 30, Gilead reported great results that largely exceeded analysts’ expectations and confirming that the company has conquered the market as it did years ago with its successful HIV-drugs franchising.

The company posted revenue for $7.6 billion, a 52% increase from a year earlier and $680 million ahead of market’s forecasts. Profit stood at $4.33 billion, a stunning 94.5% year-on-year increase that resulted in a more than doubling EPS of $2.94 per share, $0.02 ahead of estimates and 107.5% up from the same quarter last year.

Full year guidance was also slightly better than expected, with Gilead forecasting a net product sale of $28B-$29B, up from $26B-$27B, while maintaining its previous estimation for a gross margin in the range of 87%-90%. Shares closed 4.50% up on Friday, after gaining nearly 6% throughout the trading session.

In Europe, the common currency had its best week in two months, after economic data signalled that the ECB’s liquidity injection may prove effective in sustaining the Eurozone economies and exiting deflation.

The Euro gained as much a 3% against the dollar, closing the week around 1.1188, bringing the monthly gain for April to 4.6%, the first monthly advance since last June. The last CPI data also confirmed that the Eurozone inflation has stopped declining, posting its first positive reading since the beginning of the year.

Analysts believe that the recent correction was due to the Euro been way oversold and the Dollar retreating after disappointing economic data in US, and they bet there may be more room for the Euro to reach the 1.15 level.

Personally, I think it is likely to witness volatility in the currency markets within the immediate future, but in the medium term the US Dollar should prove the winning bet, and it has so far proved to be the best performing currency among the developed countries by gaining 18% over the past 12 months.

In contrast, the European bond markets had a rather difficult time, with yields rising across the board, erasing QE fuelled gains, especially among peripheral states.

The sudden rise in German bunds’ yields, which act as a benchmark for Eurozone government bonds, triggered a domino effect on most of the other sovereign bonds that witnessed a general selloff, which, through its peak on April 29, cost investors as much as €55 billion in lost value. US Treasuries yields also saw a rebound for previous multi-year lows, with several hedge funds and speculators trimming their short positions on US government paper, pushing the US 10 Year Treasuries’ yield up 20 bps to 2.11%.

Although some investors might have been burnt by the recent price’s drop in government bonds, with the FED hinting postponements for its anticipated interest rates hike, the Greek crisis still hanging over Europe and the global economy struggling to keep up with previous expectations, last week sell off may prove an interesting entry point for investors that continue to see value and upside potential within the sovereign bonds market.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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