Must Read Research

Also featuring commentary from Global Economic Weekly

December 15, 2024

Candace Browning

Candace Browning, Head of BofA Global Research

Investors may be looking forward to some down time, but new and enduring themes keep popping up. This week we discuss which biopharma stocks are on the nice list, how Mexico can secure a more prosperous new year, where the puck may be going in clean energy and the gifts that quantum computing could bestow.

 

Senior U.S. Biopharma Analyst Tim Anderson recently re-launched coverage on Global Pharmaceuticals & Biotechnology stocks, including 11 U.S.-based large caps.

 

In his view, the fundamentals for the industry are mixed. On the upside, there is room to innovate across many disease areas like obesity and Alzheimer’s. Tim estimates the obesity market could exceed $100 billion in size, among the biggest ever. Elsewhere, immunotherapies for cancer, gene therapies and new therapies for autoimmune-related diseases are proof that progress continues to be made. But negatives for the industry include “the 3 Ps”: patent cliffs between now and the end of the decade could disrupt P&L; pricing power is in negative territory across major markets; and politics—the industry remains a target of Democrats and Republicans.

 

In late November, President-elect Trump announced plans to impose a 25% tariff on products entering the U.S. from Canada and Mexico.

 

Head of LatAm and Canada Economic Research Carlos Capistran highlights that Mexico is heavily exposed to U.S. tariffs—the country trades 40% if its GDP (gross domestic product) with the U.S. and sends the U.S. more than 80% of its exports. At 8% of GDP, Mexico’s trade surplus with its northern neighbor has doubled since 2015. If tariffs were introduced, Carlos thinks the Mexican peso would be the first shock absorber, falling by nearly the same amount as the tariff rate. In Carlos’s view, the 25% tariff announcement is an opening move in complex negotiations, and he expects Canada and Mexico to show willingness to negotiate to avoid tariffs. To reduce the probability of tariffs, Mexico likely needs to cut its growing trade deficit with China, currently around 6% of GDP.

 

Our December Clean Energy Symposium featured discussions on an array of energy sources, from solar and wind to nuclear and geothermal.

 

Reliability and resilience were key themes, especially as much of the growth in demand is for 24/7 power. This requires more collaboration between the demand drivers, like datacenters, and the utilities and regulators. At the most well-attended panel, speakers highlighted nuclear energy’s potential for a cleaner, more resilient, and secure energy market. As for renewables, storage is the key enabler. Utility scale demand for storage is expected to grow 100-400GW by 2030. Without storage, renewables create an imbalanced grid since these technologies don’t produce the same amount of power throughout the day. One-third of the solar and wind capacity in the U.S. will require storage repositories by 2030. Sodium-ion and LFP (lithium iron phosphate) batteries are gaining attention but safety and weight limitations remain key concerns for large scale deployments.

Featuring Commentary from Global Economics Weekly

Claudio Irigoyen

Claudio Irigoyen, Head of Global Economics, BofA Global Research

Happy Cuttingdays

Beyond a very busy electoral calendar globally, 2024 has been the year of rate cuts. Last week, we had many more, with the ECB, SNB, and BoC all cutting rates. And 50bp cuts have become somewhat frequent, as with the SNB and BoC last week and the initial September Fed cut. This week, we expect the Fed to deliver another 25bp (basis point) cut. We see some additional space to cut next year, though risks around the outlook are plenty. Going forward, we think global monetary policy will become increasingly less synchronized, as the case for a higher r* is the strongest in the U.S. and Trump 2.0 carries downside risks for the rest of the world.

 

In other central bank news, the central bank in Brazil opted for a shock and awe 100bp hike and signaled two more ahead. The central bank will not be able to solve Brazil's fiscal issues. But if this isn't divergence, what is it. In India, we now have a new RBI Governor, who the market has largely perceived as more dovish than the outgoing Governor. But we still expect the first RBI rate cut to be delivered in February.

 

Going beyond central bank meetings, last week has been eventful in China and the Middle East. In China, top policy makers pledged to increase fiscal support and cut interest rates at the annual Central Economics Work Conference (CEWC), as signaled in the Politburo meeting earlier in the week. In the Middle East, we watch the potential spillovers of regime change in Syria. We think Iran policy will be key. Developments could be supporting for Türkiye's disinflation and trade balance, while potentially weaker Iranian influence may open a reform window in the Levant region.

 

We will have much to learn in 2025. Happy Holidays.

Must Read Research will return January 5th. Have a happy holiday!