Must Read Research

In a world full of questions, the dollar still answers most of them. This week, we explore concerns about the USD’s perceived “safe haven” status, examine key questions on healthcare policy and introduce a groundbreaking aircraft design that promises soaring efficiency improvements.

U.S. policy-induced uncertainty and the underperformance of the U.S. dollar during April’s market turmoil have prompted questions about the currency’s long-standing.

“Safe-haven” status. FX Strategist Alex Cohen explains in his FAQ that the dollar’s safety is tied to its role as the predominant reserve currency and its central position in the global financial system. Although some structural aspects of the dollar’s safety have recently been called into question, Alex points out that it will likely take years or even decades for many changes to reach critical mass and notes that despite these near-term challenges, there are currently no viable alternatives that could surpass the dollar’s status as the global reserve currency. But while the reserve status may be secure, the FX team presently remains bearish on the USD for various reasons including overvaluation.

Washington healthcare analyst Andy Bressler joined fundamental analysts to address six policy FAQs.

One of the key conclusions is that Federal budget cuts, from those impacting Medicaid to the National Institutes of Health (NIH), will likely be smaller than proposed. But there will be impact and looking at Medicaid, work requirements could reduce covered lives by 2% while also negatively impacting the risk pool. For hospitals, the bigger risk is with cuts to state-directed Medicaid payments, something that could weigh on capital spending and the exposed Medtech stocks. About 3900 FDA employees have already been cut, raising concerns around the potential for slower drug approval times and a loss of institutional knowledge; PDUFA (Prescription Drug User Fee Act) dates have already been missed. While this presents risk to a number of companies, drug distributors may actually benefit from this and tariffs, as they’d see an earnings boost from higher generic drug prices.

Investor attention around open rotor aircraft engines has been rising.

The technology, which is a turbofan engine but without the outer housing, offers 20% fuel savings, which also helps to reduce emissions. Engine makers could find the business more profitable -- Ron believes that open rotor engines might be sold at positive margins, unlike the low or negative margins of today’s commercial aircraft engines. These new engines would probably require a new clean sheet aircraft, since increased fan diameter makes direct replacement of existing engines unlikely. But the timing for a new aircraft design could be excellent as operators aim to replace their aging fleets while pursuing climate goals. A program launched now could be ready to fulfill orders in the early 2030s and there’s reason to believe an open rotor program could eventually capture a majority of market share in the narrowbody segment.

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