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China’s Measures Begin to Find Traction, US Employment Report on Tap

Overview: Beijing’s seemingly steady stream of
measures to support the economy and steady the yuan are beginning to produce
the desired effect. The yuan…

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Overview: Beijing's seemingly steady stream of measures to support the economy and steady the yuan are beginning to produce the desired effect. The yuan is snapping a four-week decline and the CSI 300 halted a three-week drop. Some economists estimate that the bevy of measures may be worth as much as 1% for GDP. The dollar is narrowly mixed ahead of the US employment data, which is expected to see the pace of job growth slow to around 170k. Of note, the Mexican peso extended yesterday's losses following news that the central bank was winding down its forward hedge program. After the peso dropped 1.75% yesterday, it is off another 0.7% today. 

The MSCI Asia Pacific Index rose for the fifth consecutive session today and the Stoxx 600 gain (~0.4%) is recouping the losses of the past two sessions. US index futures are posting small gains. European benchmark 10-year yields are up 2-3 bp to trim this week's decline to 7-8 bp. The 10-year US Treasury yield is little changed near 4.11%. It is off about nine basis points this week. Gold is trading quietly and remains within Wednesday's range (~$1935-$1949). It is up around $29 this week or 1.5%. Oil is extending its rally after OPEC+ indicated plans to extend export cuts through October. October WTI is trading at new highs for the year near $84.55. It is up about 5.9% this week, making it the biggest weekly gain since March.

Asia Pacific

After hinting as much in recent days, Beijing announced that as of September 25, existing mortgage rates for first homes will be reduced. Officials also announced that the minimum down payment for first-time home buyers of 20% and a 30% for second-time buyers. The moves are designed to lend support to the residential real estate market and boost consumption. Estimates suggest that existing mortgages can fall 80-100 bp. The announcement saw a surge of yuan buying, sending the dollar below its 20-day moving average (~CNY7.26) for the first time since August 4 and to its lowest level since mid-August. Follow-through dollar selling today pushed it to CNY7.24 before rebounding. Preparing for a cut in mortgage rates, large commercial banks cut deposit rates. Separately, the Caixin manufacturing PMI was reported. Unlike the "official" one, the Caixin measure rose to 51.0 from 49.2. That is the highest since February. Lastly, press reports suggest that China's Xi does not plan to attend the G20 summit next weekend that India is hosting. It would be the first G20 meeting that Xi does not attend since becoming China's president in 2013. Observers are wrestling with the motivation. Is it in defense of the BRICS? Is it a snub of Modi?

Japan and Australia saw the final August manufacturing PMI. The initial gain in Japan's PMI was revised away and the final reading showed it was unchanged at 49.6 (flash 49.7). The push above 50 in May seemed to be a fluke and barring that, Japan's manufacturing PMI has been below 50 since last October. If it were not for net exports (which includes tourism), Japan's economy would have contracted in Q2. The weakness in July's industrial output (-2.0%) and drop in housing starts (-4.1%) point to a tough start for Q3, though July retail sales jumped (2.1%, matching the best since June 2020). The final reading of Australia's manufacturing PMI went in the other direction. The slippage to 49.4 from 49.6 that was initially report was revised away. It too was unchanged at 49.6. Australia's Q2 GDP will be reported the day after next week's RBA meeting (September 5). No change in policy is expected at Governor Lowe's last meeting. The Australian economy is forecast to have expanded by 0.4% in Q2 after a 0.2% expansion in Q1.

The dollar extended the retreat after staging a key downside reversal on Tuesday and set a new low for the week near JPY145.25 earlier today. The dollar frayed the 20-day moving average (~JPY145.35) for the first time since July 31. Still, last week's low around JPY144.90 remains intact. A break could signal a move toward the JPY143.80-JPY144.00 area. The momentum indicators have turned lower and did not confirm the new high set earlier this week, leaving a bearish divergence in their wake. The Australian dollar consolidated yesterday in about a quarter-cent range on either side of $0.6480. After being turned back from $0.6500, it was sold to about $0.6445 today in late Asian turnover. It recovered to $0.6480 in the European morning. Nearby resistance is seen in the $0.6520-25 area, where options for about A$1.85 bln expire today. The momentum indicators are moving higher and barring a fresh sell-off, the five-day moving average is crossing above the 20-day moving average first time since late July. In addition to the measures to support the residential property market, Chinese officials also announced a cut in required reserves for foreign currency deposits (to 4% from 6%). The PBOC again set the dollar's reference rate below the previous session and well below expectations. The fix was set at CNY7.1811 and the average in the Bloomberg survey (after the high and low are excluded, leaving eight responses) was CNY7.2880. However, in subsequent trading, the dollar recovered from CNY7.24 to CNY7.2660. The 20-day moving average is near CNY7.2650, and dollar has not closed below it since August 3.

Europe

The eurozone's preliminary August manufacturing PMI was revised from 43.7 to 43.52, but importantly, preserving the first uptick since January. It was at 42.7 in July. Germany's stands at 39.1, unchanged from the preliminary reading and slightly better than July's 38.8. It is also the first gain since January but is seems too small to be meaningful. France's flash estimate of 46.4 was revised to 46.0. It was 45.1 in July. It matches the best reading since March, but it is still in contraction territory. The last time it was above 50 was August 2022. Italy's manufacturing PMI rose for the second consecutive month in August, but at 45.4, the slump continues. Like Italy, Spain's manufacturing PMI was above 50 in Q1, but has slumped since then. Spain's manufacturing PMI fell to 46.5 from 47.8 in July. It was at 46.4 at the end of last year. The market is going into the weekend having downgraded the probability that the ECB cuts rates at this month's meetings. On Wednesday, there was almost a 55% chance discounted in the swaps market. It was halved yesterday and is near 22% today. 

While the eurozone manufacturing PMI seems to be stabilizing albeit at weak levels, the UK's manufacturing PMI has yet to bottom. The final August reading was 43.0 compared with the preliminary estimate of 42.5 after July's 45.3. The last time it rose was in February and the last time it was above 50 was in July 2022. Meanwhile, expectations for the BOE meeting (September 21) have come in a complete circle. In early August, the swaps market did not fully discount a 25 bp hike. Then, after firm wage data and sticky core inflation, the market sentiment swung toward a little better than a 1-in-3 chance of a 50 bp move. Cooler heads prevailed and the market returned to a quarter point hike but the swing in sentiment continued. While a quarter-point hike is still the odds-on favorite scenario, the swaps market no longer has it fully discounted (~90%). Separately, Nationwide house price index fell by 0.8% in August, twice the projected decline. The 5.3% year-over-year decline is the largest since 2009.

With yesterday's losses, the euro retraced (61.8%) of the rally from the Powell-induced lows last Friday. The losses were extended to about $1.0830 today but it has stabilized in the European morning. Last Friday's low was near $1.0765. Since it broke below $1.0860 yesterday, it has not been above it. There are 1.42 bln euros in expiring options at $1.08. S till, the daily momentum indicators are beginning to turn higher. For its part, sterling gave back nearly half of its gains from last Friday's lows as it approached $1.2650 yesterday. It slipped a little further today (~$1.2650) but held above the (61.8%) retracement is closer to $1.2625. It is trading near session highs late in the European morning around $1.2680-90. The week's high was set on Wednesday near $1.2745. 

America

After weaker than expected JOLTS (July) and ADP (private sector employment in August), attention turns to the BLS August employment report. The issue is not if the US labor market is easing, but the pace of it. Our bias is for weaker jobs growth than the median (Bloomberg survey) of 170k. Many still put much stock in the ADP private sector estimate, but it has been habitually stronger than the BLS estimate, with an average of 165k in the three months through July. While the average illustrates our point, the variance has been dramatic. ADP doubled down and revised up its July estimate to 371k from 324k. The BLS estimate that 172k private sector jobs were created in July, pending today's revisions. That tentatively points to a 199k gap. In June, ADP estimated 455k private sector jobs were grown. The BLS say 128k. In May, the ADP estimate was only 12k on top of the BLS estimate. Other elements of the employment report may be benign. The unemployment rate is not expected to change from 3.5%. Hourly earnings are seen rising by 0.3%, which would allow the year-over-year rate to tick down to 4.3% from 4.4%. The participation rate is expected to remain at 62.6%, where it has been since March. Last August, the participation rate was 62.3%.

Canada reports the June and Q2 GDP figures today. The median forecast in Bloomberg's survey looks for a 0.2% contraction in June, which StatsCan has warned of based on preliminary data. It would be the first monthly contraction this year. Growth in Q2 is seen slowing to 1.2% (annualized) from 3.1% in Q1. Recall that the Canadian economy shrank slightly in Q4 22, encouraging the Bank of Canada to pause it monetary tightening earlier this year. Then, the economy proved more resilient in Q1 and hence the later resumption of the tightening cycle. The Bank of Canada meets on September 6. The market has downgraded the changes of a rate hike to less than 16%, down from nearly 25% at the end of last week, and 33% a month ago. The odds in the swaps market have gently fallen for the past four sessions coming into today. The US dollar reversed lower on Wednesday after retesting the CAD1.3640 area. Continued follow-through selling took it below CAD1.3500 today for the first time in about two weeks. In so doing, the 20-day moving average was violated for the first time since August 1. The next target is near CAD1.3450-60, and a break would boost confidence that a high is in place.

The Mexican peso tumbled about 1.8% in response to news that the central bank will cut its currency hedge (currency swaps) facility by 50% starting this month. The nine- and 12-month terms will be allowed to expire, while the six-month facility will be reduced to one-month and the renewal will be 50%. The program was launched in 2017 and boosted during Covid. The exact amount of short dollar positions that will expire each month is not clear, but overall, the outstanding position was about $7.5 bln. The first instinct was to buy pesos as it approached a two-week low. The US dollar rose from around MXN16.80 before the announcement to slightly above MXN17.1060. After the high was seen, the dollar held above MXN16.87 and made another run at the highs but ran out of time steam near MXN17.0650 and settled near MXN17.0380. Today, the squeeze has continued, and the dollar approached MXN17.20, the highest level since August 17. A trendline connecting the May high (~MXN17.9980) and the early August high (~MXN17.4260-80) comes in today near MXN17.2250. A push above there could target the August high. 


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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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