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Canadian Dollar Rallies Against US Peer Driven by Dollar Dynamics

Canadian Dollar Rallies Against US Peer Driven by Dollar Dynamics

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A fan of 100-dollar notes

The Canadian dollar today rallied against its US peer benefitting heavily from the latter’s decline as investors remained cautiously optimistic about the global economy. The USD/CAD currency pair fell as the loonie rallied driven by the upbeat investor sentiment as Canada insists that it will not open its borders to Americans given the surge in US coronavirus cases.

The USD/CAD currency pair today fell from a high of 1.3237 in the Asian session to a low of 1.3192 in the early American market mirroring the action in the dollar index.

The currency pair’s decline was mostly fueled by the dollar’s weakness as tracked by the US Dollar Index, instead of the loonie’s strength. The weak American crude oil prices as tracked by the West Texas Intermediate could not have boosted the commodity-linked loonie. The release of Canada’s weak manufacturing sales report for August by Statistica Canada also did not help the pair, and neither did the Canadian portfolio investment figures. News that Canada was shutting its borders to Americans also did not favour the loonie given the importance of the US as a major trading partner to Canada.

The release of the upbeat US retail sales data for September by the Census Bureau gave the currency pair some relief. The retail sales rose 1.9% in September versus consensus estimates of 0.7% growth.

The currency pair’s performance over the upcoming weekend is likely to be influenced by crude oil prices and US dollar dynamics.

The USD/CAD currency was trading at 1.3196 as at 14:19 GMT having crashed from a high of 1.3237. The CAD/JPY currency pair was trading at 79.81, having risen from a low of 79.47.


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Old Ideas and the New New Deal

Over the past decade and a half, virtually every branch of the federal government has taken steps to weaken the patent system. As reflected in President Joe Biden’s July 2021 executive order, these restraints on patent enforcement are now being coupled…

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Over the past decade and a half, virtually every branch of the federal government has taken steps to weaken the patent system. As reflected in President Joe Biden’s July 2021 executive order, these restraints on patent enforcement are now being coupled with antitrust policies that, in large part, adopt a “big is bad” approach in place of decades of economically grounded case law and agency guidelines.

This policy bundle is nothing new. It largely replicates the innovation policies pursued during the late New Deal and the postwar decades. That historical experience suggests that a “weak-patent/strong-antitrust” approach is likely to encourage neither innovation nor competition.

The Overlooked Shortfalls of New Deal Innovation Policy

Starting in the early 1930s, the U.S. Supreme Court issued a sequence of decisions that raised obstacles to patent enforcement. The Franklin Roosevelt administration sought to take this policy a step further, advocating compulsory licensing for all patents. While Congress did not adopt this proposal, it was partially implemented as a de facto matter through antitrust enforcement. Starting in the early 1940s and continuing throughout the postwar decades, the antitrust agencies secured judicial precedents that treated a broad range of licensing practices as per se illegal. Perhaps most dramatically, the U.S. Justice Department (DOJ) secured more than 100 compulsory licensing orders against some of the nation’s largest companies. 

The rationale behind these policies was straightforward. By compelling access to incumbents’ patented technologies, courts and regulators would lower barriers to entry and competition would intensify. The postwar economy declined to comply with policymakers’ expectations. Implementation of a weak-IP/strong-antitrust innovation policy over the course of four decades yielded the opposite of its intended outcome. 

Market concentration did not diminish, turnover in market leadership was slow, and private research and development (R&D) was confined mostly to the research labs of the largest corporations (who often relied on generous infusions of federal defense funding). These tendencies are illustrated by the dramatically unequal allocation of innovation capital in the postwar economy.  As of the late 1950s, small firms represented approximately 7% of all private U.S. R&D expenditures.  Two decades later, that figure had fallen even further. By the late 1970s, patenting rates had plunged, and entrepreneurship and innovation were in a state of widely lamented decline.

Why Weak IP Raises Entry Costs and Promotes Concentration

The decline in entrepreneurial innovation under a weak-IP regime was not accidental. Rather, this outcome can be derived logically from the economics of information markets.

Without secure IP rights to establish exclusivity, engage securely with business partners, and deter imitators, potential innovator-entrepreneurs had little hope to obtain funding from investors. In contrast, incumbents could fund R&D internally (or with federal funds that flowed mostly to the largest computing, communications, and aerospace firms) and, even under a weak-IP regime, were protected by difficult-to-match production and distribution efficiencies. As a result, R&D mostly took place inside the closed ecosystems maintained by incumbents such as AT&T, IBM, and GE.

Paradoxically, the antitrust campaign against patent “monopolies” most likely raised entry barriers and promoted industry concentration by removing a critical tool that smaller firms might have used to challenge incumbents that could outperform on every competitive parameter except innovation. While the large corporate labs of the postwar era are rightly credited with technological breakthroughs, incumbents such as AT&T were often slow in transforming breakthroughs in basic research into commercially viable products and services for consumers. Without an immediate competitive threat, there was no rush to do so. 

Back to the Future: Innovation Policy in the New New Deal

Policymakers are now at work reassembling almost the exact same policy bundle that ended in the innovation malaise of the 1970s, accompanied by a similar reliance on public R&D funding disbursed through administrative processes. However well-intentioned, these processes are inherently exposed to political distortions that are absent in an innovation environment that relies mostly on private R&D funding governed by price signals. 

This policy bundle has emerged incrementally since approximately the mid-2000s, through a sequence of complementary actions by every branch of the federal government.

  • In 2011, Congress enacted the America Invents Act, which enables any party to challenge the validity of an issued patent through the U.S. Patent and Trademark Office’s (USPTO) Patent Trial and Appeals Board (PTAB). Since PTAB’s establishment, large information-technology companies that advocated for the act have been among the leading challengers.
  • In May 2021, the Office of the U.S. Trade Representative (USTR) declared its support for a worldwide suspension of IP protections over Covid-19-related innovations (rather than adopting the more nuanced approach of preserving patent protections and expanding funding to accelerate vaccine distribution).  
  • President Biden’s July 2021 executive order states that “the Attorney General and the Secretary of Commerce are encouraged to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments.” This suggests that the administration has already determined to retract or significantly modify the 2019 joint policy statement in which the DOJ, USPTO, and the National Institutes of Standards and Technology (NIST) had rejected the view that standard-essential patent owners posed a high risk of patent holdup, which would therefore justify special limitations on enforcement and licensing activities.

The history of U.S. technology markets and policies casts great doubt on the wisdom of this weak-IP policy trajectory. The repeated devaluation of IP rights is likely to be a “lose-lose” approach that does little to promote competition, while endangering the incentive and transactional structures that sustain robust innovation ecosystems. A weak-IP regime is particularly likely to disadvantage smaller firms in biotech, medical devices, and certain information-technology segments that rely on patents to secure funding from venture capital and to partner with larger firms that can accelerate progress toward market release. The BioNTech/Pfizer alliance in the production and distribution of a Covid-19 vaccine illustrates how patents can enable such partnerships to accelerate market release.  

The innovative contribution of BioNTech is hardly a one-off occurrence. The restoration of robust patent protection in the early 1980s was followed by a sharp increase in the percentage of private R&D expenditures attributable to small firms, which jumped from about 5% as of 1980 to 21% by 1992. This contrasts sharply with the unequal allocation of R&D activities during the postwar period.

Remarkably, the resurgence of small-firm innovation following the strong-IP policy shift, starting in the late 20th century, mimics tendencies observed during the late 19th and early-20th centuries, when U.S. courts provided a hospitable venue for patent enforcement; there were few antitrust constraints on licensing activities; and innovation was often led by small firms in partnership with outside investors. This historical pattern, encompassing more than a century of U.S. technology markets, strongly suggests that strengthening IP rights tends to yield a policy “win-win” that bolsters both innovative and competitive intensity. 

An Alternate Path: ‘Bottom-Up’ Innovation Policy

To be clear, the alternative to the policy bundle of weak-IP/strong antitrust does not consist of a simple reversion to blind enforcement of patents and lax administration of the antitrust laws. A nuanced innovation policy would couple modern antitrust’s commitment to evidence-based enforcement—which, in particular cases, supports vigorous intervention—with a renewed commitment to protecting IP rights for innovator-entrepreneurs. That would promote competition from the “bottom up” by bolstering maverick innovators who are well-positioned to challenge (or sometimes partner with) incumbents and maintaining the self-starting engine of creative disruption that has repeatedly driven entrepreneurial innovation environments. Tellingly, technology incumbents have often been among the leading advocates for limiting patent and copyright protections.  

Advocates of a weak-patent/strong-antitrust policy believe it will enhance competitive and innovative intensity in technology markets. History suggests that this combination is likely to produce the opposite outcome.  

Jonathan M. Barnett is the Torrey H. Webb Professor of Law at the University of Southern California, Gould School of Law. This post is based on the author’s recent publications, Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property (Oxford University Press 2021) and “The Great Patent Grab,” in Battles Over Patents: History and the Politics of Innovation (eds. Stephen H. Haber and Naomi R. Lamoreaux, Oxford University Press 2021).

The post Old Ideas and the New New Deal appeared first on Truth on the Market.

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August Monthly

Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened..

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Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened most in July. While major US indices set new record highs, as did Europe's Dow Jones Stoxx 600, the MSCI Emerging Markets Equity Index fell 7%.

The preliminary July PMI reports were below expectations in the US, UK, and France.  Japan's composite PMI has been contracting since February 2020.  There has been some re-introduction of social restrictions in parts of Europe.  The UK's "Freedom Day" (July 19), when mask requirements and social restrictions were supposed to be dropped, turned into a caricature as the Prime Minister and Health Minister were in self-quarantine due to exposure, and the number of cases reached the highest level in 5-6 months. 

Given the large number of people in the world that remain unvaccinated, the challenge is that the virus will continue to mutate.  Moreover, even in high-income countries, where vaccines are readily available, and stockpiles exist,  a  substantial minority refuse to be inoculated. This is encouraging the use of more forceful incentives that deny the non-vaccinated access to some social activity in parts of the US and Europe.  In the US, the vaccines have been approved for emergency use only, and broader approval by the FDA could help ease some of the vaccine hesitancy.  Yet, rushing the process would be self-defeating.  An announcement still seems to be at least a couple of months away.  

In some countries, the surge in the virus even where not leading to hospitalizations and fatalities, maybe tempering activity and postponing more "normalization" like returning to offices.   The increase in the contagion has also prompted several companies to postpone plans to have employees return to offices. In other countries, like Australia, the virus and social restrictions are having a more dramatic economic impact.  Its preliminary July PMI crashed to 45.2 from 56.7, the lowest since last May.  Although many countries in East Asia seemed to do well with the initial wave, they have been hard hit by the new mutations.  For some, the recovery already had appeared to be in advanced stages.  

Floods in China, India, Germany, and Belgium add to the economic angst.    A freeze in Brazil sent coffee prices percolating higher.  Wildfires in Canada stopped the downside correction in lumber prices.  While rebuilding is stimulative, in the first instance, the natural disasters could be inflationary as transportation and distribution networks are impacted. 

The market reacted by pushing down nominal and real interest rates.  In late July, the US 10-year inflation-protected note yield (real rate) fell to a record low near minus 1.13%  Ten-year benchmark yields in the US, Europe, Australia, and China were at 4-5 month lows.  Expectations for rate hikes by high-income countries eased, and Beijing surprised investors by cutting reserve requirements by 50 bp (freed up ~$150 bln of liquidity).   

Still, other central banks, like Russia who hiked rates by 100 bp in late July, are pushing forward.  In Latin America, Brazil, Mexico, and Chile are likely candidates for rate hikes in August.  The market anticipates additional rates hikes from the Czech Republic and Hungary.  On the other hand, Turkey's central bank meets under much political pressure to cut rates.  Inflation is not cooperating, and it reached 17.5% in June,  a new two-year high.  Yet, the Turkish lira downside momentum eased, and this alone, in the face of a stronger dollar, meant it was the best performing emerging market currency last month, up about 3.0%.  Its 12% loss year-to-date still makes it the second-worst performing emerging market currency so far this year, behind the Argentine peso's nearly 13% decline.  

The Federal Reserve does not meet in August, but the Jackson Hole symposium (August 26-28) may offer a window into official thinking about the pace and composition of its bond purchases.  Under that scenario, a more formal statement would be provided at the end of the September FOMC meeting (September 21-22). Chair Powell has pledged to give ample notice about its plans to taper.  This means that the initial timing of the beginning of the tapering may be vague by necessity.  Many expect the Fed to begin reducing its bond purchases either later this year or early next year.  

The debt ceiling debate may add another wrinkle.  The debt ceiling waiver expired at the end of July.  There are several different ways that Treasury can buy time.  There are many moving parts, and it is hard to know exactly when Secretary Yellen would run out of maneuvers, but she probably has around two months.  In the past, the uncertainty was reflected in some T-bill sales.  Recall it was the debate over the debt ceiling (the government has already made the commitments or spent the funds and now has to pay for them) that prompted S&P to remove its AAA rating for the US in 2011. 

Meanwhile, Beijing is waging an internal battle to retain control in the technology and payments space.  It has also stepped up its antitrust actions and moved to make it more difficult for internet companies to have IPOs abroad. At the same time, the US threatens to de-list foreign (Chinese) companies if they refuse to allow US regulators to review their financial audits.  This is more than quitting before getting fired, though at the end of July the US announced that concerns over risk disclosures have prompt it to freeze applications for Chinese IPOs and the sale of other securities.  Its efforts to turn the private schools into non-for-profits are driven by Beijing's domestic considerations, but foreign investors--hedge funds, a couple US state pension funds, and provincial pensions in Canada appear to have been collateral damage.  Even the Monetary Authority of Singapore had exposure.

The jump in Chinese yields and the drop in equities that pushed the CSI 300 (an index of large companies listed on the Shanghai and Shenzhen exchanges) 21% below the February peak prompted some remedial measures by officials.  They succeeded in steadying the bonds and stock markets, and the yuan recovered from three-month lows as July wound down. However, both the disruption and the salve, the selling of industrial metals, coal, and oil from its strategic reserves, demonstrate the activist state that gives foreign investors reservations about increasing allocations to China.  To draw foreign capital, officials may be tempted to engineer or facility a strong recovery in shares and the yuan.  

Beijing is also meeting resistance from abroad.  Its aggressiveness in the region, including the aerial harassment of Taiwan and rejection of the Arbitration Tribunal at the Hague regarding the United Nations Convention on the Law of the Sea (that pushed back against Chinese claims in the South and East China Seas). Over the past few weeks, the situation has escalated. The UK announced it will station two naval vessels in the area.  Japan has promised to defend Taiwan should it be attacked by China.  The US has not been that unequivocal.   The EU has been emboldened.  Latvia became the first EU member to open a representative office of "Taiwan" instead of Taipei.  

Many wargame scenarios are premised on China attacking Taiwan, but this does not seem to be the most likely scenario. Top US military officials have testified before Congress that Beijing wants to have the ability to invade and hold Taiwan within six years based on comments from President Xi to the People's Liberation Army.  Yet, if China senses that the status of Taiwan is truly changing, it could move against the Pratas Island, which is off the east coast of China and the south tip of Taiwan.  It is closer to Hong Kong than Taiwan.  It is an uninhabited atoll with a garrison.  Taking this island would send a signal about its determination, with the costs and risks of invading Taiwan. It is true to the ancient Chinese idiom about killing a chicken scares the monkeys.  

Bannockburn's World Currency Index, a GDP-weighted basket of the top dozen economies, rose fractionally after falling 1% in June.  The two largest components after the dollar are the euro and yuan.  The former slipped by was virtually flat near $1.1860 and the latter softened by less than 0.1 %.  The yen, with about a 7.3% weighting in the basket, was the strongest, gaining about 1.25% against the US dollar.  Sterling was almost eked a 0.5% gain.  The Indian rupee slipped 0.1%, while Brazil's real was the weakest currency in the index, falling by about 4.6% in July.   

The BWCI rose by 6.5% in the last nine months of 2020 after falling by 3.2% in Q1 20 as the pandemic struck and structural dollar shorts and safe-haven flows favored the dollar.  It fell by 1.5% in Q1 21 as if correcting the previous advance.  It rose by 1.1% in Q1.  More so than bilateral exchange rates, the BWCI gives the impression that broadly speaking the dollar's losses from last year are being consolidated more than reversed. 

Dollar:  The greenback's two-month uptrend stalled in the second half of July, sending the momentum traders and late longs to the sidelines. The dollar's pullback had already begun before the FOMC meeting at which the Fed lent support to priors about a tapering announcement in the coming months.  The next opportunity is in late August. The weaker dollar tone that we expect to carry into August could create the conditions that make a short-covering bounce ahead of the Jackson Hole symposium more likely.  Some assistance,  like the moratorium on evictions, ended on July 31, and others, like the federal emergency unemployment compensation (where states continue to participate), are finishing in early September. Meanwhile, the Biden administration appears to see some of its infrastructure initiative approved in a bipartisan way and the other part through a reconciliation mechanism that it can do if there is unanimous support from the Senate Democrats.  Inflation remains elevated, and Treasury Secretary Yellen and Federal Reserve Chair Powell warned it may remain so for several more months but still expect the pressure to subside.  The price components of the PMI have eased in the last two reports. There appears to have been some normalization in used car inventories that also reduce the pressure emanating from the one item alone that has accounted for about a third of the monthly increase of late.  

Euro:   The leg lower that began in late May from around $1.2265 extended more than we had expected and did not find support until it approached $1.1750 in the second half of July.  A trough appears to have been forged, and the euro finished near the month's highs.  Technical indicators favor a further recovery in August.  Overcoming the band of resistance in the $1.1950-$1.2000 shift the focus back to the highs.  The low for longer stance by the ECB may be bullish for European stocks and bonds.  The Dow Jones Stoxx 600 reached new record highs in late July.   Bond prices are near their highest levels since February-March.  The IMF raised its 2021 growth forecast for the euro area to 4.6%from the 4.3% projection in April and 4.3% next year from 3.8%.  The economy seemed to be accelerating in Q3, but the contagion and new social restrictions may slow the momentum.  Inflation is elevated about the ECB's new symmetrical 2% inflation target, but it pre-emptively indicated it would resist the temptation of prematurely tightening financial conditions.  The debate at the ECB does not seem about near-term policy as much as the commitment and thresholds for future action.  

 

(July 30,  indicative closing prices, previous in parentheses)

 

Spot: $1.1870 ($1.1860)

Median Bloomberg One-month Forecast $1.1885 ($1.1950) 

One-month forward  $1.1880 ($1.1865)    One-month implied vol  5.3%  (5.6%)    

 

 

Japanese Yen: The correlation of the exchange rate with the 10-year US yield is at its highest level in a little more than a year (~0.65, 60-day rolling correlation at the level of differences).  The correlation of equities (S&P 500) and the exchange rate is in the unusual situation of being inverse since early this year.  In early July, it was the most inverse (~-0.34) in nine years but recovered to finish the month almost flat. The yen rose by about 1.4% in July, offsetting the June decline of the same magnitude. Its 5.7% loss year-to-date is the most among the major currencies and the second weakest in the region after the Thai Baht's nearly 9% loss. The JPY110.60-JPY110.70 represents a near-term cap. The JPY109.00 area should offer support, and a break would target JPY108.25-JPY108.50.   The extension of social restrictions in the face of rising covid cases is delaying the anticipated second-half recovery.  The preliminary composite PMI fell to a six-month low in July of 47.7.  

 

Spot: JPY109.85 (JPY111.10)      

Median Bloomberg One-month Forecast JPY109.85 (JPY110.70)     

One-month forward JPY109.80 (JPY111.05)    One-month implied vol  5.4% (5.4%)  

 

 

British Pound:  Sterling reversed lower after recording a three-year high on June 1 near $1.4250 and did not look back.  It dipped briefly below $1.38 for the first time since mid-April on the back of the hawkish Fed on June 16 to finish July at new highs for the month and above the downtrend line off the early June highs.   A convincing move back above $1.40 would confirm a low is in place and a resumption of the bull move, for which we target $1.4350-$1.4375 in Q4.  The postponement of the economy-wide re-opening until the middle of July, and a central bank looking past the uptick in CPI above the 2% medium-term target, weighed on sentiment.  The central bank will update its economic forecasts in August, and both growth and inflation projections likely will be raised. The furlough program ends in September, and it may take a few months for a clear picture of the labor market to emerge.  Nevertheless, the market has begun pricing in a rate hike for H1 22.  

  

Spot: $1.3905 ($1.3830)   

Median Bloomberg One-month Forecast $1.3930 ($1.3930) 

One-month forward $1.3910 ($1.3835)   One-month implied vol 6.6% (6.5%)

  

 

Canadian Dollar:  The Canadian dollar reached its best level in six years in early June (~$0.8333 or CAD1.20) but has trended lower amid profit-taking and the broad gains in the US dollar.  The usual drivers of the exchange rate:  risk appetites, commodities, and rate differentials were not helpful guides recently.  Canada has become among the most vaccinated countries, and the central bank was sufficiently confident in the economic outlook to continue to slow its bond purchases at the July meeting despite losing full-time positions each month in Q2. Speculators in the futures market have slashed the net long position from nearly 50k contracts (each CAD100k) to less than 13k contracts in late July.  The downside correction in the Canadian dollar appears to have largely run its course, and we anticipate a better August after the heavier performance in July.  Our initial target is around CAD1.2250-CAD1.2300.  

 

Spot: CAD1.2475 (CAD 1.2400) 

Median Bloomberg One-month Forecast  CAD1.2435 (CAD1.2325)

One-month forward CAD1.2480 (CAD1.2405)    One-month implied vol  6.8%  (6.5%) 

 

 

Australian Dollar:  Since peaking in late February slightly above $0.8000, the Australian dollar has trended lower and by in late July briefly dipped below $0.7300, posting a nearly 9% loss over the past five months. The 50-day moving average ~$0.7570) fell below the 200-day moving average (~$0.7600) for the first time since June 2020, illustrating the downtrend after the strong recovery from the low near $0.5500 when the pandemic first stuck.  The combination of a low vaccination rate and the highly contagious Delta variant forced new extended lockdowns for Sydney and social restrictions that have sapped the economy's strength.  It will likely slow the central bank's exit from the extraordinary emergency measures.  Indeed, the Reserve Bank of Australia is likely to boost its weekly bond-buying from A$5 bln to at least A$6 bln.  A convincing break of $0.7300 could open the door for a return toward $0.7000, but we suspect the five-month downtrend is over and anticipate a recovery toward $0.7550 over the next several weeks.  

 

Spot:  $0.7345 ($0.7495)       

Median Bloomberg One-Month Forecast $0.7425 ($0.7610)     

One-month forward  $0.7350 ($0.7500)     One-month implied vol 8.9  (8.5%)   

 

 

Mexican Peso:  The dollar chopped higher against the peso in July and reached a high near MXN20.25 on July 21. It trended lower and, in late July, fell below the seven-week trendline support near MXN19.90.  After finishing June less than 0.1% weaker, the greenback lost about 0.4% against the peso in July, which was the fifth consecutive month without a gain.  The other notable LATAM currencies were the weakest three emerging market currencies (Chilean peso ~-4.1%, Colombian peso ~-4%, and the Brazilian real ~-3.8%).  If the upper end of the dollar's range has held,  a break of MXN19.80 may warn a test on the lower end of the range (~MXN19.50-MXN19.60).  The 5.75% year-over-year CPI for the first half of July and the highest core inflation for early July in more than 20-years keep expectations for another rate hike intact when Banxico meets on August 12.  The market has another hike priced in for the September 30 meeting as well.  The dispute with the US over measuring domestic content for auto production under USMCA could undermine Mexico's role in the continental division of labor, but instead, producers in Mexico may choose to pay the WTO auto tariff standard of 2.5%.  The IMF's latest economic forecasts revised the projection for Mexican growth this year to 6.3% from the April projection of 5%.  

 

Spot: MXN19.87 (MXN19.95)  

Median Bloomberg One-Month Forecast  MXN19.94 (MXN19.97)  

One-month forward  MXN19.95 (MXN20.02)     One-month implied vol 10.5% (10.7%)

  

 

Chinese Yuan: The dollar spent most of July within the trading range that had emerged in late June found roughly between CNY6.45 and CNY6.4950. The range was maintained even after the PBOC unexpectedly cut reserve requirements by 50 bp (announced July 9). However, Beijing's more aggressive enforcement of antitrust, discouragement IPOs abroad, making private education non-for-profit without foreign investment triggered sales of Chinese shares. It helped lift the dollar in late July to around CNY6.5150, its highest level in three months and just shy of the 200-day moving average.  The pursuit of domestic policy objectives appears to be putting at risk strategic goals.  A drying up of capital inflows from spooked foreign investors may have slow efforts to liberalize capital outflows that could eventually lead to making the yuan convertible.  At the same time, China's actions give a timely example of what holds the yuan back from a significant role in the world economy and why a technology solution (e.g., digital yuan) will not suffice.  As the dollar briefly traded above the upper end of its recent range in July, the risk is that it slips through the lower-end range, which could spur a move toward CNY6.40.  

 

Spot: CNY6.4615 (CNY6.4570)

Median Bloomberg One-month Forecast  CNY6.4555 (CNY6.4360) 

One-month forward CNY6.4780 (CNY6.4815)    One-month implied vol  4.0% (4.7%)

 

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Methods to Detect Viruses Get a Boost, Thanks to the COVID-19 Response

The COVID-19 pandemic has jumpstarted innovations in viral detection technologies from electrical-based assays to saliva sampling.
The post Methods to Detect Viruses Get a Boost, Thanks to the COVID-19 Response appeared first on GEN – Genetic Engineering.

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Scientific progress has kept an unprecedented pace over the last year and a half. This is perhaps most evident in the near-miraculous development of several highly effective COVID-19 vaccines in under a year. In addition, innovation in viral detection methods has been accelerated by the pandemic response.

Although the gold standard for COVID-19 diagnostic testing—the reverse-transcription polymerase chain reaction (RT-PCR) assay—is already mature and highly optimized, its ancillaries in viral testing are still subject to improvement. Moreover, several such ancillaries are relevant not only to RT-PCR, but also to alternative assay technologies, such as those relying on next-generation sequencing (NGS).

Efforts to improve COVID-19 testing include, but are not limited to, the following activities:

1. decreasing the time needed to run a test, thereby providing results more quickly;

2. increasing the number of samples that can be run at one time;

3. maintaining high levels of sensitivity and specificity while making tests quicker and higher in throughput;

4. democratizing and reducing the costs of testing;

5. enhancing ease of use to enable at-home tests; and

6. multiplexing to allow testing for COVID-19 and other respiratory pathogens simultaneously.

As much of the world enters a new phase of the pandemic, with the ebb and flow of case counts being influenced by factors such as vaccination rates and emerging variants, testing will continue to be a critical component of the public health response.

Swabs are out, saliva is in

Most people who have had a COVID-19 test are familiar with the watery-eye-inducing, nose-tickling, swab-swirling method of sample collection. But this method has serious limitations. For example, it typically requires that the nasal swab be performed by a trained person, it permits variability in the amount of sample that is collected, and it depends on an adequate supply of swabs. To avoid these limitations (and others), researchers have sought alternative sampling methods. Some researchers, such as Anne Wyllie, PhD, associate research scientist, Epidemiology of Microbial Diseases, Yale School of Public Health, see promise in saliva.

Anne Wyllie, PhD
Yale School of Public Health

Saliva is currently not a traditional sample type for clinical diagnoses, Wyllie notes, though it was frequently used in the early 1900s. “The advances that we have made through validation and optimization of saliva for SARS-CoV-2 detection,” she explains, “have highlighted the potential for alternative—and more tolerable—options than the traditional nasopharyngeal swab.”

But saliva samples cannot be simply swapped out for nasopharyngeal samples without other considerations. Saliva is a different sample than a swab, explains Wyllie. And the method used must be suitable for the sample. You wouldn’t apply a method that works for swabs to a urine, blood, or fecal sample and expect it to work, she notes.

Unfortunately, many labs apply a swab-based method to saliva samples. When the tests fail, the labs tend to blame the saliva sample. Wyllie asserts that instead of denigrating saliva testing, we “should be promoting the standardization of saliva testing.” Many methods have used saliva to advantage, and we need to start replicating those successes rather than allowing labs that don’t use saliva properly to fuel further doubt.

Many American labs are currently using saliva. Last year, Wyllie’s group, working with Nathan Grubaugh, PhD, associate professor at Yale School of Public Health, launched the SalivaDirect test. More recently, in April, New York’s Mount Sinai Health System announced the launch of the Mount Sinai COVID-19 PCR Saliva Testing program. In May, the Mount Sinai Health System and the Pershing Square Foundation announced the expansion of a saliva-based COVID-19 testing program in New York City public schools.

SalivaDirect, a COVID-19 diagnostic test developed by researchers at the Yale School of Public Health, processes saliva samples, which can be obtained less invasively than nasal swabs. Having received Emergency Use Authorization from the FDA in August, SalivaDirect has been adopted by some labs across the country. The efficacy of SalivaDirect was evaluated in the SWISH (Surveillance With Improved Screening and Health) study, which included NBA players and staff.

Some companies are trying to move saliva testing into the home. A startup called Vatic has put lateral flow technology at the center of its KnowNow antigen tests. Although the tests currently need to be administered by a trained healthcare professional, Vatic is exploring tests that could be performed in the home.

Will saliva testing be routine in the future? “I think it has amazing potential,” says Wyllie. It could change diagnostics in low-resource settings, she adds, and it could also provide a powerful screening tool for other diseases.

No PCR? No problem

Since the start of the pandemic, many labs have found a new utility for their previously developed technology in detecting viruses. For example, the lab led by Jussi Hepojoki, PhD, at the University of Helsinki built a COVID-19 test on a method the lab had previously developed, a method known as time-resolved Förster resonance energy transfer (TR-FRET). The method has been used for rapid homogeneous “mix and read” immunoassays to detect antibodies.

FRET occurs when two fluorophores (a donor and an acceptor) come in close proximity to each other. When that happens, the donor transfers energy to the acceptor, causing a photon to be emitted. In the COVID-19 assay, antibodies against the nucleoprotein (anti-NP) of the virus and antibodies against the spike protein of the SARS-CoV-2 virus, each labeled with a fluorophore, are mixed together with the clinical sample.

Data analyses provided by the Johns Hopkins Coronavirus Resource Center indicate that in the United States, the number of COVID-19 tests performed has varied tremendously over time. The decrease in the number of tests performed since January 2021 is likely due to the rise in vaccinations. However, because testing is of critical importance in stopping chains of transmission during a pandemic, the COVID-19 testing drop off may lead to a lack of critical information for epidemiologists and public health officials. [Johns Hopkins Coronavirus Resource Center]

The antigen-based test has been shown to detect SARS-CoV-2 rapidly—in 10 minutes—and is estimated to be capable of analyzing as many as 500 samples in an hour. This method appeared in the journal mBio, in an article titled, “A Generic, Scalable, and Rapid Time-Resolved Förster Resonance Energy Transfer-Based Assay for Antigen Detection—SARS-CoV-2 as a Proof of Concept.” The article’s authors note that although SARS-CoV-2 was used to demonstrate proof of concept for the test, the principle could be applicable to test across a wide variety of infectious and perhaps also noninfectious diseases.

Sequencing samples with standards

NGS-based testing has taken a back seat to the RT-PCR test for COVID-19 diagnostics. However, innovative sequencing-based methods show promise for future testing. Last October, researchers at UCLA and Octant brought the genomic toolbox to SARS-CoV-2 testing by introducing SwabSeq. Combining NGS of pooled samples with sample-specific barcoding and standards, the test has been shown to work on nasal and saliva samples—without the need for RNA extraction.

SwabSeq adds a synthetic RNA standard to every sample. The standard’s sequence is nearly identical to the target in the virus genome, but different enough that it can be distinguished by sequencing. The detection of SARS-CoV-2 is based on the ratio of sequencing reads of the virus to those of the standard. This process eliminates error: if there is synthetic RNA but no SARS-CoV-2 RNA, the COVID-19 test is deemed to have worked (and to have provided a negative result); if there is no synthetic RNA or SARS-CoV-2 RNA, the test is deemed to have failed.

With SwabSeq, it is possible to test thousands of samples in a single run. In July, SwabSeq’s high-throughput nature was described in Nature Biomedical Engineering, in a paper entitled, “Massively scaled-up testing for SARS-CoV-2 RNA via next-generation sequencing of pooled and barcoded nasal and saliva samples.” According to this paper, SwabSeq was used to perform 80,000 tests, with sensitivity and specificity comparable to (or better than) RT-PCR.

CRISPR gets electric

Researchers at the Wyss Institute at Harvard Medical School have innovated more than one way to detect COVID-19 over the past year. For example, a program to create wearable sensors, by embedding synthetic biology reactions into fabrics, produced a facemask that detects SARS-CoV-2 using CRISPR-based SHERLOCK (Specific High-Sensitivity Reporter unLOCKing) technology. The technology can work with any facemask to identify the virus in a person’s breath with high accuracy.

Pawan Jolly, PhD
Pawan Jolly, PhD
Wyss Institute

Another group at the Wyss is working to detect the virus using CRISPR—by converting the standard optical readout to an electrochemical one. This work is being done by Pawan Jolly, PhD, senior staff scientist I, in the lab of Don Ingber, MD, PhD, Wyss’s founding director, and Helena de Puig Guixe, PhD, a postdoctoral fellow in the lab of James J. Collins, PhD, founding core faculty at the Wyss Institute.

Before COVID-19, the team had developed the eRapid technology. At eRapid’s core is a fouling-resistant, affinity-based platform of multiplexed, electrochemical sensors. The proprietary coating is the key, Jolly tells GEN, because it enables detection in complex samples without any sample preparation. In general, the problem with electrochemical sensors is biofouling. If blood is being assayed, there are many molecules that nonspecifically bind to the surface, which makes detection challenging. The eRapid platform prevents the nonspecific binding.

Helena de Puig Guixe, PhD
Helena de Puig Guixe, PhD
Wyss Institute

Since COVID-19, they have been working to develop the eRapid technology to detect nucleic acids, like the genome of SARS-CoV-2. For that, they turned to CRISPR. But CRISPR detection assays are typically an optical readout, performed either by fluorescence or lateral flow assays. Jolly and de Puig Guixe are using electrical current instead. The advantages of a test with an electrochemical readout are that it is cheap and easily miniaturized, that it requires minimal instrumentation, that it is scalable and capable of multiplexing, and that it needs only small volumes.

The CRISPR-based COVID-19 diagnostic harnesses the Cas12a-based detection system, but instead of reading the reporter as a fluorophore, the reporter probe is modified with a tag that is electrochemically active. If the virus is present, the Cas12a enzyme cleaves the reporter, removing the electrochemically active tag, and no signal will be present. In this assay, the absence of reporter indicates the presence of the virus.

Researchers at the Wyss Institute are applying their previously developed electrochemical sensing technology, known as eRapid, to the COVID-19 pandemic. This work involves combining eRapid with a CRISPR-based method of detection. In addition, the eRapid technology is being developed for multiplexed COVID-19 biomarker detection through collaboration with GBS, a subsidiary of The iQ Group Global.

Jolly states that a benefit to this approach is its built-in validation. In other systems, the absence of virus is indicated by the absence of signal. But Jolly notes that a lack of signal could indicate that an assay has failed. The built-in validation in Wyss team’s system ensures that the assay is working because signal is seen even in the absence of the virus. This system has been validated for use on saliva samples for the detection of SARS-CoV-2—work that has been submitted for publication.

The faster the better

The pace of COVID-19 testing has improved over the past 18 months. At the beginning of the pandemic, it was not unusual to wait up to a week for results. More recently, the expected wait time has fallen to 24 hours. Some antigen tests can give a result in minutes. But a new test, developed at the University of Nevada, is even faster, giving a result in just 30 seconds.

The test uses a nanotube-based electrochemical biosensor and is based on technology that Mano Misra, PhD, professor in the Chemical and Materials Engineering Department, previously developed to detect tuberculosis. The biosensor, which incorporates cobalt-functionalized TiO2 nanotubes (Co-TNTs), detects the receptor binding domain of SARS-CoV-2’s spike protein. According to an article in the journal Sensors, the test consists of a one-step, ultra-fast procedure that can be run at low cost.

With recent news of the surges in cases caused by the Delta variant, the need for routine COVID-19 testing is certain to be a staple of public health for some time. The most advanced testing technologies in development are intended to counter the current pandemic. However, they may not be widely implemented before the pandemic wanes. Regardless, they may be ready by the time we face the rise of a new outbreak or pandemic. The ability to have fast and effective testing at the ready—as the first cases of a new infectious disease are reported—could be the difference between a small cluster of cases and a global pandemic.

The post Methods to Detect Viruses Get a Boost, Thanks to the COVID-19 Response appeared first on GEN - Genetic Engineering and Biotechnology News.

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