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A resilient Chinese yuan is supporting Hong Kong equities and antipodean currencies

Yesterday’s significant US dollar up moves against the EUR, GBP, and CHF have not spread to the Chinese yuan and antipodean currencies. The choice of…

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  • Yesterday’s significant US dollar up moves against the EUR, GBP, and CHF have not spread to the Chinese yuan and antipodean currencies.
  • The choice of China’s central bank, PBoC latest monetary policy easing measure via a cut on the required reserves ratio and upbeat retail sales and industrial production have led to a short-term “K-shaped performance” seen in the FX market.
  • Short-term bullish momentum elements are sighted in AUD/USD and NZD/USD supported by a weakening USD/CNH.

Despite the European Central Bank (ECB) hike of 25 basis points to bring its policy deposit rate to 4%, market participants have viewed that as a dovish hike that triggered a significant rally in the US dollar against the Euro that has also spilled over to other European currencies such as the UK pound and the Swiss franc.

The EUR/USD tumbled by 85 pips to close yesterday, 14 September US session at 1.0644 and breached below the recent closing level’s swing lows of 31 May and 6 June reinforced by the latest ECB’s economic forecast on the Eurozone which has painted a stagflation condition; 2024’s inflation projection is upgraded to 3.2% while GDP growth is being trimmed downwards to 1% for 2024.

Not all currencies are sucked into a USD’s bullish vacuum

Interestingly, the antipodean currencies (AUD and NZD), CAD, and JPY did not manage to get ramped down by the US dollar’s bulls inflicted on the European currencies. It is likely the resilient Chinese yuan is playing either a direct or indirect role in the short-term “K-shaped” performance seen in the FX market (see chart of figure 1).

Fig 1:  Rolling 1-month performance of the US dollar against the major currencies, AUD, NZD, CNH & SGD as of 15 Sep 2023 (Source: TradingView, click to enlarge chart)

China’s central bank PBoC’s latest monetary policy stimulus manoeuvre does not involve a direct cut on the 1-year medium-term lending facility rate, a key policy interest rate but rather a reduction on China’s commercial banks’ reserve requirement ratio by 25 basis points, a second reduction on the ratio so far this year.

USD/CNH major uptrend’s momentum has started to ease

Fig 2:  USD/CNH major & medium-term trends as of 15 Sep 2023 (Source: TradingView, click to enlarge chart)

Thus, by leaving interest rates unchanged in China, the upward pressure on the shorter-term US Treasuries yield premium over China’s sovereign notes is likely to be negated which in turn may choke off potential near-term US dollar strength against the offshore yuan that lead to a bullish tapering of the current major uptrend phase of the USD/CNH in place since 16 January 2023 low to allow the pair to consolidate between 7.3165 and 7.2330 (also the 50-day moving average) in the short-term.

Also, fundamental factors are also supporting today’s minor yuan strength against the US dollar. China’s retail sales for August have come in at 4.6% y/y, above the consensus of 3%, and surpassed July’s 2.5% y/y, its strongest pace of growth since May.

August’s industrial production in China also managed to beat expectations of 3.9% with a growth of 4.5% y/y, its highest reading since April.

All in All, this latest set of key economic data suggests that the risk of a deflationary spiral in China has abated by another notch.

How does it impact the Aussie and the Kiwi?

From a momentum and technical analysis standpoint, the AUD and NZD have a rather high direct correlation with the CNH (offshore yuan), and from a fundamental aspect, Australia’s commodities producers/trading firms are dependent either directly or indirectly on the fortunes of China’s economy.

Hence, a slowdown in the bullish trend of the USD/CNH is likely to lead to some form of bullish momentum to ignite the AUD/USD and NZD/USD. Let’s look at their respective short-term technical charts.

AUD/USD is forming a potential minor bullish double-bottom base

Fig 3:  AUD/USD minor short-term trend as of 15 Sep 2023 (Source: TradingView, click to enlarge chart)

As seen on the 1-hour chart, the price actions of the AUD/USD have failed to have a clean break below the 17 August 2023 low of 0.6365 in the past two weeks since the start of September.

Today’s price action has tested and rebounded significantly from the 20-day moving average which suggests an emergence of bullish momentum at least in the short term.  If the 0.6400 key short-term pivotal support is not broken down, the AUD/USD may see a further potential push-up towards the intermediate resistance at 0.6510 (the neckline of the minor double bottom base). Above 0.6510 sees the next resistance at 0.6555 (the 50-day moving average).

On the flip side, failure to hold at 0.6400 negates the bullish tone for a slide back toward the minor base support at 0.6360.

NZD/USD’s recent minor drop is supported by an ascending trendline

Fig 4:  NZD/USD minor short-term trend as of 15 Sep 2023 (Source: TradingView, click to enlarge chart)

The technical elements seen in the NZD/USD are not as bullish as the AUD/USD but since its 6 September 2023 low, the price actions have traced out a series of “higher lows” and an ascending trendline is now acting as a support at around 0.5900.

Watch the 0.5900 key short-term pivotal support and a clearance above 0.5940 intermediate resistance may trigger a more pronounced bullish momentum towards the next resistance at 0.6000.

However, a break below 0.5900 may see another round of choppy movement to retest the 6 September 2023 swing low of 0.5860.

Benchmark Hong Kong stock indices are looking to end on positive weekly closing levels

Fig 5:  USD/CNH’s correlation with Hang Seng indices as of 15 Sep 2023 (Source: TradingView, click to enlarge chart)

Since late October 2022, the Heng Seng Index (HSI) and the Hang Seng China Enterprise Index (HSCEI) have moved in lockstep with the USD/CNH (offshore yuan) where a significant yuan weakness against the USD tends to see a similar bearish sentiment towards HSI and HSCEI.

Since the bullish momentum of USD/CNH has started to abate which in turn has led the HSI and HSCEI to erase their earlier losses at the start of this week and recorded intra-session weekly gains of +0.20% for both indices at this time of the writing.

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

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With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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