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"Friday’s mixed bag of US macro data did not shift the broad expectation of June being the data for the Fed’s next rate hike. Fund futures presently price an 83% expectation for 25bp being added to the Discount Rate in four weeks’ time. US$ strength nevertheless reversed on weak inflation and retail sales figures, allowing 10-year Treasury yields to dip 7bp to 2.33%, its largest fall for a month. The closely watched University of Michigan Consumer Sentiment report for May, however, defied sceptics coming in at 97.7, compared with April’s final of 97.0 and consensus forecasts of 97.3. While all three of the principal US equity indices closed with just fractional movements, with marginally declining bond yields bolstering defensives and income-paying stocks, thereby spurring a 0.6% rise in the S&P’s utility index at the expense of financials, industrials and retail, although technology shares still mustered sufficient support to ensure the NASDAQ alone closed in the positive. High relative valuations and the market’s apparent unwillingness to convincingly move into a higher trading range ahead of Trump being able to secure sufficient support from Congress to deliver on his ambitious campaign pledges has, however, seen global asset allocators looking elsewhere to deposit incoming funds with, for example, a record US$6bn of new capital being injected into European equities over the past week alone. London certainly noticed, with the FTSE-100 rising 1.89% over the five trading days, although the Eurofirst 300 managed only 0.37% having been subject to profit taking following significant gains made as Macron’s election appeared to squeeze Europe’s populist parties out of contention. After falling some 0.5% minutes after the opening bell, Japan’s Nikkei and Australia’s ASX had both recovered half their losses by the close, while the Hang Seng rose 0.4% amid gains by mainland companies as Chinese stocks and bonds rose amid optimism that Beijing is now softening its strictest demands to reduce leverage and lighten risk in the debt-laden financial system. Oil prices also surged in Asian trading as the market wavered between a possible OPEC agreement to extend production cuts, continued growth in U.S. oil-drilling activities and resumed international production. Libya output, for example, has recently recovered to 800,000 bbl/day, its highest for over two years, while interrupted supplies from Nigeria are also starting to normalise once again. Oil futures rebounded more than 3% last week following release of US inventory data and June Nymex saw July Brent up 74 cents to $51.58 during this morning’s trading. The only significant UK macro publication due today is the Rightmove House Price Index for May which is expected late this evening. Nothing is scheduled from the EU today, but this afternoon the US will provide its NY Empire State Manufacturing and its NAHB Housing Market indexes for May, along with Net Long-Term TIC Flows for March. UK corporates expected to release earnings or trading updates include TUI Group (TUI.L), Dignity (DTY.L), Lonmin (LMI.L), NEX Group (NXG.L) and Victrex (VCT.L). Trading will be nervous again this morning in the wake of warnings from law enforcement group’s that the cyber pandemic that interrupted global computer systems over the weekend may see a renewed assault today and ahead of tomorrow’s key UK CPI data for April, which is expected to rise as high as 2.7%, up from March’s 2.3%, possibly starting to test the Bank of England’s resolve to leave interest rates unchanged during the government’s prolonged period of Brexit negotiations. London however is seen leaning on the optimistic side with a firmer opening this morning; the FTSE-100 expected to rise around 20 points in early trading."
– Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday’s session 0.66% higher at 7,435.39 whilst the FTSE AIM All-Share index was up 0.09% at 974.92. In continental Europe, the CAC-40 finished up 0.41% at 5,405.42 whilst the DAX was 0.47% higher at 12,770.41.
Wall Street
In New York overnight on Friday, the Dow Jones Industrial Average fell 0.11% to 20,896.61, the S&P 500 fell 0.15% to 2390.9 and the Nasdaq gained 0.09% to 6121.23.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.27% to 19,830.85, while the Hang Seng firmed 0.58% to 23,301.5.
Oil
In early trade today, WTI crude was up 1.59% to $48.60/bbl and Brent was up 1.53% to $51.62/bbl.
Headlines
Microsoft: Cyber-attack a ‘wake-up call’
A cyber-attack that has hit 150 countries since Friday should be treated by governments around the world as a “wake-up call”, Microsoft says. It blamed governments for storing data on software vulnerabilities which could then be accessed by hackers. It says the latest virus exploits a flaw in Microsoft Windows identified by, and stolen from, US intelligence. There are fears of more “ransomware” attacks as people begin work on Monday, although few have been reported so far. Many firms have had experts working over the weekend to prevent new infections. The virus took control of users’ files and demanded $300 (£230) payments to restore access. The spread of the virus slowed over the weekend but the respite might only be brief, experts have said. More than 200,000 computers have been affected so far.
Source: BBC News
Company news
N4 Pharma (N4P.L, 7.88p) – Speculative Buy
The specialist pharmaceutical company which reformulates existing drugs and vaccines to improve their performance, this morning announced the filing of its Patent Cooperation Treaty patent application for its sildenafil reformulation. Following successful completion of the laboratory testing to establish the correct dissolution profile required for its lead product, the Company is now seeking worldwide protection of its methodology. At the same time, management also provided shareholders with an update on the work done to date in moving towards clinical trials, whilst also detailing the filing of two new patents which now expands its potential reformulation product pipeline to five. CEO, Nigel Theobald noted that “With the funds raised from our recent placing we are well placed to take our program forward and I look forward to making further updates on our various projects as and when appropriate.”
Our view: Finalisation of scoping of work and deliverables for silenafil in coming weeks will mark a significant milestone for the recently-quoted Company, prior to commencement of clinical trials in the second half of this year. Its next phase is selection of healthy volunteers to determine the precise level of the drug in blood plasma to then take those results to the relevant regulatory authorities such as the Food and Drug Administration (‘FDA’) in the USA and the Medicines and Healthcare Regulatory Agency (‘MHRA’) in the UK. Discussions detailing the trial parameters, as well as working through submission requirements, are presently underway. Regarding the new formulations, the first is with regard to the anti-depressant drug already approved for these treatments by the FDA, paroxetine, to develop a new product for the treatment of hot flashes and night sweats in menopausal women; the second is for a reformulation of another anti-depressant drug, duloxetine, for the treatment of premature ejaculation. These take N4’s potential product pipeline to five, each addressing significant established markets for a range of complications. Both of these conditions ideally require the product to be faster acting and longer lasting and N4’s formulations will provide strong patent protection if granted in these areas. The market for menopausal hot flashes drugs, for example, is forecast to grow to US$5.3bn annually by 2023; in the case of duloxetine, PE is believed to affect up to 30% of American males, around 20m adults per year. Having adopted a relatively low-risk business model that also offers a rapid route to first revenues, N4 Pharma’s valuation still appears to ignore the opportunity its lead candidate and pipeline presents. Even after awarding a lowly 20% probability of success and assuming a call for an additional £2m raise to complete clinical studies before attracting a suitable partner, a net-present value of £10m is still more than twice yesterday’s closing price. Beaufort reconfirms its Speculative Buy rating on N4 Pharma.
Beaufort Securities acts as corporate broker to N4 Pharma plc
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Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
(t) +44 (0) 207 382 8384
(e) [email protected]
Weekly diary
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Recommendations
During the three months to end-April 2017, the number of stocks on which Beaufort Securities published recommendations was 216, and the recommendations were as follows: Buy – 73; Speculative Buy – 118; Hold – 22; Sell – 3.
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