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Dollar Steadies after Yesterday’s Surge, Oil Jumps Ahead of the Weekend while Yields Soften

Overview: The capital markets seemed to have an
exaggerated response to the US CPI, where the headline rate, flattered by the
rise in energy, rose by…

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Overview: The capital markets seemed to have an exaggerated response to the US CPI, where the headline rate, flattered by the rise in energy, rose by 0.1% in September than forecast. Rather than decline, the headline year-over-year rate was unchanged at 3.7%. The core rate was as expected slowing to 4.1% from 4.3%. Next week's US data, including retail sales, industrial production, existing home sales, and the index of leading economic indicators are expected to decline or weaken sequentially. There has been no follow-through dollar buying against the G10 currencies today with the notable exception of the New Zealand dollar, perhaps ahead this weekend's election. Among emerging markets, Asia Pacific currencies are mostly weaker, including the Chinese yuan, while central European currencies, the rand, and the Mexican peso are firmer.

Equities are under pressure today and even talk of a new Chinese fund to support stocks failed to stem the tide. Hong Kong shares and mainland shares that trade there tumbled more than 2% but none of the large bourses were spared the losses that mostly pared this week'[s gains. Mainland Chinese indices posted next declines this week. Europe's Stoxx 600 is off about 0.6%, which gives back more than the gains of the past two sessions, but on the week, it is up about 1.3% to snap a three-week drop. US index futures are posting small declines. The S&P 500 and NASDAQ snapped four-day advances yesterday. Benchmark 10-year yields are mostly 3-5 bp lower in Europe today and are off 4-9 bp this week. The 10-year US Treasury yield is off nearly seven basis points now and 17 bp this week, despite the sloppy auctions (tails at the coupon sales). Softer rates and a lower dollar are helping lift gold today after poor price action yesterday. With today's gains, gold is up almost 3% this week, its best showing in seven months. November WTI is up 3.7% after pulling back the last three sessions after Monday's surge in response to the weekend events. It settled near $82.80 last week and is straddling $86 now.

Asia Pacific

China reported September prices, trade, and lending figures today. Consumer prices were disappointing. Rather than rise to 0.2% as expected, they eased back to 0 (from 0.1% year-over-year in August). Food prices were the key drag, ahead national holidays. They fell by 3.2%, with pork prices are falling year-over-year and fresh fruit and vegetable prices slipping after rising in August. Non-food prices were firm, rising by 0.7% after a 0.5% increase in August, bolstered by higher energy prices/transportation. On a monthly basis, China's CPI rose by 0.2% after a 0.3% increase in August. Deflation is still evident in producer prices, but less so. Producer prices are off 2.5% in the 12 months through September after falling by 3.0% previously. It is the third consecutive month that the year-over-year rate rose after bottoming in June at -5.4%. Oil prices rose while the decline in coal prices slowed. The output price sub-index of the September PMI rose to its highest level in nearly a year-and-a-half. China reported a $77.7 bln trade surplus in September, after a $68.20 bln surplus in August. Exports were off 6.2% (year-over-year) after falling 8.8% in August. Imports were off 6.2%, following August's 7.3% decline. China's trade surplus is running near last year's levels. Consider that in the first nine months of 2023, the surplus averaged $70.1 bln a month. In the Jan-Sept 2022 period, the average monthly surplus was $70.2 bln. Lastly, China reported stronger than expected aggregate financing (CNY4.12 trillion). This was almost a third larger than August. Bank lending improved to CNY2.31 trillion from CNY1.36 trillion, which accounted for the bulk of the improvement, not the shadow banking sector.

In the first week of the second half of Japan's fiscal year, the notable portfolio flow was foreign buying of Japanese equities. The JPY1.44 trillion purchased was the most since April. Japanese investors sold JPY644 bln of foreign bonds. Earlier this week, with the current account data, Japan reported monthly portfolio flows. It confirmed the general thrust of the weekly MOF data. The conventional wisdom that the adjustment of the upper band of the 10-year JGB yield under Yield Curve Control would lead to Japanese investors selling foreign bonds and keeping their money at home. Of course, there are different market segments, which do not act uniformly. Japanese trust accounts (seen as agents of pension funds) were net sellers of foreign bonds in August, but overall, in the first two months after the 10-year JGB was doubled at the end of July, Japanese investors have bought JPY5.15 trillion (~$35.8 bln) of foreign bonds. The country breakdown is not available for September but in the August, details show that Japanese investors bought JPY1.75 trillion of foreign bonds, of which about JPY643 bln (~$4.6 bln) were US bonds. Japanese investors also were net buyers of German Bunds in August for the first time since March. They were net sellers of Canadian bonds for the fourth month in the past five and were sellers of Italian bonds for the first time in three months. The continue to buy Australian and UK bonds. Foreign investors were particularly active last month. They sold a record JPY5.48 trillion of Japanese stocks and JPY2.03 trillion of Japanese bonds.

The jump in US yields saw the dollar poke above JPY149.80 to reach its best level since it was briefly traded above JPY150 on October 3. The dollar's rise was sufficient to turn the five-day moving average (~JPY149.10) higher and avoid it crossing below the 20-day moving average (JPY148.80). The market is almost itching to clear JPY150 again. There are about $840 mln in options at JPY150 that expire today. Still, the greenback is in a narrow range of a about a quarter of a yen below JPY149.85. The Australian dollar walked up the staircase and took the elevator down. It took the Aussie six sessions to climb from about $0.6285 to $0.6445 and then proceeded to fall to near $0.6305 yesterday. It has held the low so far today. The nearly 1.6% decline yesterday was the largest since March. A break of the $0.6285 area leaves little in the way of last year's low set last October near $0.6170. Nearby resistance is seen $0.6330-40. Note that Australia holds a referendum sponsored by the government for Aboriginal and Torres Strait Islander advisory bond in parliament, which look is likely to be defeated, while in New Zealand, the national election looks likely to swing toward a center-right government. The Chinese yuan has edged lower but has mostly traded quietly. The dollar has been in range mostly between CNY7.2990 and CNY7.3090. The fix was set at CNY7.1775 (vs. average estimate in Bloomberg's survey for CNY7.3172.

Europe

Germany, France, and Spain, among the large eurozone members, had previously reported industrial output fell in August (-0.2%, -0.3%, and -0.8%, respectively). Italy was the only one of the Big Four to unexpectedly report a gain (0.2%). Today's surprise was that the aggregate industrial production (seasonally adjusted) showed a 0.6% month-over-month gains after the 1.1% decline in July was revised to -1.3%. The eurozone economy expanded by 0.1% in Q1 and Q2. It is expected to eke out a similar gain in Q3. Still, the ECB's forecast for this year's growth of 0.7%, which matches the new IMF forecast (previously 0.9%) seems slightly optimistic. The median forecast in Bloomberg's monthly survey sees 0.5% growth this year and 0.8% next. The IMF shaved next year's growth projection for the eurozone to 1.2% from 1.5%. The ECB says 1.0% and the median in Bloomberg's survey is for 0.8%. 

Poland goes to the polls Sunday and the Law and Justice Party (PiS) seeks a third term. It has led the country in an "illiberal" direction over the past eight years. It has clashed with the EU over encroachments of the judiciary and media. Campaigning ends tonight. The opposition, led by the Civic Coalition (KO) trails by about five percentage points in the average poll over past couple of weeks, but in a coalition with the Third Way and The Left parties, a majority looks possible. The PiS polls between around 33% and 36%. A victory for the opposition means an unwinding of various judicial reforms, which would free up billions of euros in EU recovery funds. Separately, Poland's central bank delivered a 75 bp rate cut in September and followed up with a 25 bp rate cut earlier this month. The base rate is now at 5.75%. September CPI was released earlier today. It stands at 8.2%, unchanged from August.

In one fell swoop, the euro retraced (61.8%) of the seven-day rally that had taken it from about $1.0450 to $1.0640. That retracement target was $1.0520 and there are a little more than 3 bln euros in options at $1.0515 that expire today. It is in a narrow range of almost $1.0530-60. A break below $1.05 could trigger more option-related selling. To stabilize the tone, the euro needs to reestablish a foothold above $1.0560, and ideally $1.0580. Sterling had rallied three cents since the low on October 3 near $1.2035. Yesterday's sell-off surpassed the (50%) retracement near $1.2185, recording a low slightly ahead of $1.2170. So far today, it has held $1.2175. The next retracement (61.8%) is around $1.2150. A close above $1.2220 would begin repairing the technical damage.

America

Headline US September CPI was unchanged at 3.7%. The market had expected a small decline after rising for the previous two months. On the month, it rose by 0.4%. The median forecast in Bloomberg's survey was for a 0.3% gain. Headline inflation rose at an annualized rate of 4.8% in Q3, after a 2.8% pace in Q2 and 4.0% in Q1. The core rate's 0.3% increase allowed the year-over-year rate to continue to slow (4.1% vs. 4.3%). At an annualized rate, the core rose by 3.2% in Q3 after rising 4.0% in Q2 and 5.2% in Q1. The headline rate was lifted by a 1.5% rise in energy prices. Core goods prices fell by 0.4, driven, as it were, by 2.5% decline in used car prices, which the industry reports suggest should be reversing. Excluding used cars, core goods prices are flattish in recent months. Core services rose by 0.6%, with rent and owner equivalent unexpectedly firm (0.49% and 0.56% respectively). But even the measure Fed Chair Powell has referred to several times, core services excluding rent and owners equivalent, rose by 0.6% last month. The dollar and US interest rates rose, but the Fed funds futures market near-term contracts were more subdued. The pricing implies about a 10% chance of a hike at the October 31-November 1 meeting, less than half of what it was a week ago, after the employment data. The chances of a hike before the end of the year stands at about 36%. It was closer to 48% at the end of last week.

The US quarterly refunding is behind us. Demand softened and all three note/bond auctions tailed, meaning that the high yield was above the yield that prevailed in the when-issued market. Demand from indirect bidders, which include foreign participants, softened, as did the bid-cover ratios, and primary dealers absorbed a greater share of all three note/bond auctions. Although it was not a great reception to the quarterly refunding, it was not the catastrophe that some are depicting. Consider the bid-cover of the three-year note sale. It was 2.56x vs. 2.75x in the last auction that was also $2 bln smaller. The bid-cover of the 10-year note was 2.50x, down from last month's sale of 2.52x. The 30-year bond sale produced a bid-cover of 2.35x compared with 2.46x at the last sale. There were also some mitigating factors, including the sharp decline in yields in recent days (the 10-year yield fell from 4.88% at the end of last week to almost 4.51% early yesterday) and the sale of the 30-year bond in an offered market after the CPI.

The US dollar surged in the first few days of October and reached CAD1.3785 on October 5. It fell to about CAD1.3570 on October 10. It consolidated on Wednesday and shot up to CAD1.3700 yesterday as the dollar was bid following the CPI. This met the (61.8%) retracement of the Oct 5-10 decline. It has held below CAD1.3700 today, but follow-through US dollar gains would target the CAD1.3785 area again. It has tested initial support near CAD1.3660. A break could trigger a move back to CAD1.3620. The greenback's performance against the peso follows a similar pattern, but the peso held up relatively better technically even though it fell slightly more than the Canadian dollar. The US dollar rose sharply in early October and peaked on October 6 near MXN18.4860. It fell to a low early yesterday near MXN17.7550 and came screaming back, to reach MXN18.0850. The (38.2%) retracement was about MXN18.0340 and the next one (50%) is at MXN18.12. Still, today, the greenback is holding below MXN18.00 and fell to about MXN17.86 before steadying.


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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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