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Futures Extend Gains, Escape Technical Bear Market After China Hints At Massive Stimulus

Futures Extend Gains, Escape Technical Bear Market After China Hints At Massive Stimulus

US equity futures rose for a 3rd day, rising above…



Futures Extend Gains, Escape Technical Bear Market After China Hints At Massive Stimulus

US equity futures rose for a 3rd day, rising above the -20% clutches of a technical bear market, and validating the best period of the year for risk assets...

... as investor fears about surging inflation were assuaged by the cooling of the oil rally and comments from the Federal Reserve about taking a tougher stance to cool price increases. Nasdaq 100 futures rose 0.4% by 730 a.m. ET, while S&P 500 contracts added 0.3%. Both indexes finished Wednesday’s session higher following the minutes from the Fed’s latest policy meeting, which showed officials considered raising interest rates for longer to tame runaway inflation.

Global stocks also rose as did bond yields, adding to cheapening pressure on Treasuries after a Bloomberg report that China is weighing a $220 billion stimulus plan. Europe's Estoxx50 gained 1.7%; Asia stocks closed higher led by Nikkei’s 1.5% rise as a revenue surge by Samsung assuaged fears about weakening consumer demand and soaring material costs. That sparked a rally in chipmakers, helping MSCI Inc.’s Asia-Pacific share index add more than 1%. The British pound gained after sources report PM Boris Johnson plans to resign.

Among notable premarket movers, Freeport-McMoRan Inc. advanced 4.3%. Copper rebounded from a five-day selloff in London, heading for the biggest gain since September 2018. Shares of US semiconductor companies rose in premarket trading on Thursday after Samsung Electronics reported a better-than-anticipated 21% jump in revenue. Bed Bath & Beyond shares jumped 9% after the home furnishings retailer’s interim chief executive officer and a pair of directors bought shares in the firm. GameStop shares surged 9.8% in premarket trading on Thursday after the video game retailer announced a four-for-one stock split in the form of a dividend. Other notable premarket movers:

  • US biotech stocks, especially those involved in developing cancer-related treatments, could be active following a Wall Street Journal report that Merck and Co. (MRK US) is said to be in advanced talks to buy Seagen (SGEN US) for above $200 a share. Watch shares in Iovance Biotherapeutics (IOVA US), Mirati Therapeutics (MRTX US), Arcus Biosciences (RCUS US), ALX Oncology (ALXO US), Cullinan Oncology (CGEM US). Seagen rises 5.4% in premarket trading; Merck slides 1%
  • Watch Endeavor Group (EDR US) and Lamar Advertising (LAMR US) shares as they were upgraded to buy from neutral at Citi, which in note says that even with new lower estimates, both stocks have attractive risk/reward at current levels.
  • Keep an eye on Consolidated Communications Holdings (CNSL US) as it was cut to sell at Citi, with the bank citing outperformance compared to some wireline pure-play peers, which leaves the stock trading on a “meaningful” valuation premium.

Fears of a recession have haunted US stocks this year, sending S&P 500 Index into a bear market, although as of this morning futures are once again out of the -20% drawdown. And with the FOMC minutes indicating the Fed remains on hiking autopilot for now, investors are now looking to the second-quarter earnings season to gauge whether the company profits are holding up against the surge in prices and supply constraints.

“Global equities bounce as pressure points such as rates, oil and the dollar begin to ease,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “Momentum has swung higher, with tech-heavy benchmarks outperforming after Samsung’s revenue was better than feared.”

European equities trade well. Euro Stoxx 50 rises as much as 1.9%, completely erasing Tuesday’s rout. Miners, autos and energy names outperform within the Stoxx 600 which rose 1.4%, while UK mid-cap shares slightly increased gains following a report that Boris Johnson plans to resign as prime minister.  Miners outperformed the rising Stoxx Europe 600 index amid a rebound in metals and iron ore on news China is mulling $200 billion stimulus package to boost economy, while iron ore and metals rebound after recent declines; energy stocks also outpace broader market gains this morning after losing almost 8% over the last two sessions. Iron ore in Singapore and copper in London rose about 2%, recovering some ground after recent declines. Citigroup expects iron ore to outperform base metals amid China policy easing, while UBS downgraded its 2022-2023 estimate for the raw material, pointing to a demand slowdown. The Stoxx Energy sub- index rises 2.2% as oil edged higher with investors weighing concerns about a potential global slowdown against signs of still-tight physical markets. Carmakers posted some of the biggest gains in the benchmark Stoxx 600 index, which gained for a second day. Here are the most notable European movers:

  • Tenaris shares advance as much as 8.8% as Jefferies analysts upgraded the stock to buy, noting that they prefer Oil Country
  • Tubular Goods exposure among steel sector. Analysts upgrade OCTG steel price forecasts, while cutting stainless and carbon prices.
  • Drax jumps as much as 7.2% following an update that saw the power company forecast adjusted Ebitda for 2022 that’s above analyst expectations and an agreement to support the security of UK electricity supplies during the winter.
  • Nordex shares gain as much as 7.6% after reporting stronger than expected 2Q order volumes. Jefferies expects an acceleration of order volumes for the remainder of the year, mainly driven by additional onshore installations in the European market.
  • Storytel shares soar as much as 15% after the Swedish audiobook company released a 2Q streaming update that DNB’s analyst calls a “step in the right direction.”
  • Semiconductor equipment makers lead a rally in European chip stocks after Samsung posted preliminary 2Q sales that were slightly above expectations, easing fears that global chip demand might have already started tapering off. ASML rises as much as 4.9%, ASM International +5%, BE Semi +5%
  • Persimmon drops as much as 6.7% after it reported revenue for the first half that missed the average analyst estimate. Citi said home completions missed its estimate amid planning delays and labor shortages.
  • Chr. Hansen falls as much as 11% after narrowing its topline growth guidance. Based on quarter’s performance, company narrows organic revenue growth target for 2021/22 to 8-10%, from previous outlook of 7-11%.
  • SAS saw its share price fall 5% on Thursday as the airline revealed a drop in bookings toward the end of June due to notice of a pilot strike that became a reality on July 4.
  • SUSE shares slide as much as 11% before paring losses, after the software firm cuts its growth target for the annual contract value in the emerging segment. Jefferies says the 2Q results are in-line with expectations, but the outlook references macro impacts

Earlier in the session, Asian stocks rose, recovering most of their losses from yesterday, as semiconductor shares rallied and investors assessed the outlook for oil prices. The MSCI Asia Pacific Index climbed as much as 1.3%, hauled up by chip shares after Samsung Electronics reported a better-than-expected jump in revenue in the latest quarter. A gauge of chip stocks soared nearly 4%, on track for its best day since March.  The surge in tech shares helped benchmarks in Taiwan and South Korea lead gains in the region. Meanwhile, Hong Kong shares reversed losses as an easing of travel curbs in the city overshadowed broader concerns about a resurgence of Covid outbreaks in China.  Traders in Asia also took some solace in lower oil prices with the West Texas Intermediate futures trading below $100 a barrel, supporting the outlook for earnings in the oil-importing region. “We are seeing short squeezes in tech,” said Jessica Amir, a strategist at Saxo Capital Markets. Meanwhile, there’s optimism that a retreat in oil prices will allow people to spend less at the pump and more on retail goods, she said.  Still, higher input costs and worries about a global slowdown have pushed Asia’s stock benchmark down more than 18% this year, with traders debating over the scope of future US interest-rate hikes and the outlook for inflation. The record of the Fed’s June meeting showed the potential for even more restrictive policy to curb inflation. “The market correction over 1H2022 has improved the valuation proposition of equities, and the key going forward is for companies to better manage their profit margins,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, wrote in a note. “Value and quality should remain in favor until there is a clear peak in interest rates.”

Japanese stocks gained amid lower commodity prices, which could ease inflationary pressures moving forward and potentially lead to a softer stance from the Federal Reserve. The Topix Index rose 1.4% to 1,882.33 as of market close Tokyo time, while the Nikkei advanced 1.5% to 26,490.53. Sony Group Corp. contributed the most to the Topix Index gain, increasing 3.7%. Out of 2,170 shares in the index, 1,550 rose and 526 fell, while 94 were unchanged. “The situation has changed since the June FOMC meeting. With weaker economic indicators and the price of crude oil falling below $100 per barrel, some believe that perhaps the hawkish stance may not be as strong as it was in June at this point,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

Australia's S&P/ASX 200 index rose 0.8% to close 6,648.00, boosted by banks and rebounding mining shares as iron ore prices rose. The index was still trading near a seven-month low.  Australia’s trade surplus skyrocketed to a record high in May, driven by stronger prices of its key export - coal -while imports surged too in a sign of solid domestic demand.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,112.16.

In FX, Bloomberg dollar spot index falls 0.3%. JPY and CHF are the weakest performers in G-10 FX, AUD and NZD outperform. Cable pops higher, stalling just shy of a 1.20-handle after news of PM Johnson’s resignation. The dollar fell versus most of its Group-of-10 currency peers as risk assets advanced. Antipodean currencies led gains while the Swiss franc and the yen underperformed. The euro fluctuated around $1.02. The pound rose by as much as 0.6% to $1.1999 on UK Prime Minister Boris Johnson’s plans to resign, following an unprecedented wave of resignations from his government over the past two days. He will stay on as caretaker prime minister until October, with a new Conservative leader set to be installed in time for the party’s annual conference. Gilts fell, led by shorter maturities. The Aussie and kiwi strengthened in risk-on price action as rising stocks and a weaker US dollar fuel a position squeeze. Aussie was also boosted by a report showing the trade surplus widened to a record high in May.

In rates, Treasuries were cheaper across the curve, extending Wednesday’s aggressive bear-flattening move following release of FOMC meeting minutes. 10Y TSYs traded  around 2.93% after rising 12bp in Wednesday’s selloff; 10-year bund yields are higher by 8.6bp, gilts by 3.9bp. US curve spreads are within a basis point of Wednesday’s close, which for inverted 2s10s was -7.6bp, approaching YTD low. The IG dollar issuance slate remains empty so far; just two names priced $4.2b Wednesday, paying more than 20bps in concessions on demand just shy of 3 times covered. Bunds extended their bear flattening move as haven buying waned and money markets raised wagers on the pace of ECB tightening. Short-dated German bonds lead a pronounced sell off with 2y yields rising over 13bps near 0.53%. Gilts follow with both curves bear-flattening. Peripheral bonds are mixed: tighter to core at the short end, wider in long-dates. Red pack euribor futures drop 18-19 ticks as money markets raise wagers on the pace of ECB tightening.

In commodities, WTI trades within Wednesday’s range, adding 1% to trade near $99.48. Base metals trade in the green; LME copper and tin rise over 4%. Spot gold rises roughly $6 to trade near $1,745/oz.

Looking at the day ahead now, data releases include the US trade balance for May and the weekly initial jobless claims, as well as German industrial production for May. Meanwhile from central banks, we’ll get the ECB’s minutes from their June meeting, and hear from the Fed’s Waller and Bullard, the ECB’s Lane, Stournaras, Centeno and Herodotou, and the BoE’s Mann and Pill.

Market Snapshot

  • S&P 500 futures up 0.4% to 3,864.25
  • STOXX Europe 600 up 1.4% to 413.23
  • German 10Y yield little changed at 1.29%
  • Euro up 0.3% to $1.0209
  • Brent Futures little changed at $100.77/bbl
  • MXAP up 1.1% to 157.65
  • MXAPJ up 1.1% to 521.21
  • Nikkei up 1.5% to 26,490.53
  • Topix up 1.4% to 1,882.33
  • Hang Seng Index up 0.3% to 21,643.58
  • Shanghai Composite up 0.3% to 3,364.40
  • Sensex up 0.7% to 54,101.85
  • Australia S&P/ASX 200 up 0.8% to 6,647.96
  • Kospi up 1.8% to 2,334.27
  • Gold spot up 0.2% to $1,741.73
  • U.S. Dollar Index down 0.22% to 106.86

Top Overnight News from Bloomberg

  • Gone are the days when investors would be buying cheap euro options on a relative basis ahead of this month’s meetings by the European Central Bank and the Federal Reserve. The relative premium to own exposure is now near 200 basis points on both the two-week tenor, that captures the ECB decision, and the three- week tenor, that envelopes the Fed meeting
  • The French government’s new round of measures to combat surging inflation will cost about 20 billion euros ($20.4 billion), according to Finance Minister Bruno Le Maire
  • The Bank of Japan is likely to consider revising its inflation and growth forecasts later this month as a weaker yen and cost-push inflation force more companies to pass on higher costs to consumers, according to people familiar with the matter
  • Treasury yields surged after minutes of the most recent Federal Reserve meeting underscored commitment to tighten aggressively to keep inflation from becoming entrenched
  • European electricity prices broke new records Thursday as gas futures soared, further squeezing households and businesses across the continent and forcing politicians to find ways to ease the pain of relentless cost increases
  • Hungary’s biggest interest rate increase since 2008 failed to stem the forint’s plunge as policy makers sought to support the weakest currency in emerging markets

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mostly positive but with gains capped following the choppy performance on Wall St and after an uneventful FOMC Minutes which noted participants judged a rate increase of 50bps or 75bps would likely be appropriate at the July meeting. ASX 200 was kept afloat alongside strength in the mining and materials sectors, as well as encouraging trade data. Nikkei 225 was underpinned amid reports the BoJ was said to be completely committed to its easing policy. Hang Seng and Shanghai Comp. were mixed with Hong Kong pressured by tech weakness, while the mainland was initially subdued after the PBoC drained liquidity and with Beijing to impose China’s first-ever COVID-19 vaccine mandate, although Chinese bourses then pared losses as markets also digested MOFCOM's announcement to rollout measures to support auto consumption.

Top Asian News

  • China Builder CIFI Says No Perp-Bond Talks as USD Notes Tumble
  • China Official Reserves Drop to Lowest Since June 2020
  • China’s Cabinet Urges Greater Cybersecurity After Data Leak
  • Tokyo Reports 8,529 New Covid Cases, Most Since April

European bourses are firmer across the board, Euro Stoxx 50 +1.7%, in a continuation of the constructive APAC handover though action remains choppy. Stateside, futures are firmer across the board but the magnitudes more contained that European peers after yesterday's choppy action; note, relatively brief upside was sparked on China stimulus reports, via BBG. Within Europe, sectors feature noted outperformance in Basic Resources and Autos while some of the more defensively-inclined components are in the red.

Top European News

  • UK PM Johnson is to resign today (expected around 12:00-13:00BST/07:00-08:00ET), according to multiple reports. As it stands, it appears that Johnson wants to remain in place as a caretaker until a new Conservative Party leader can be assigned, which is likely to occur around the autumn given the impending summer recess. However, MPs are seemingly divided on whether they want to allow Johnson to remain, with some calling for the immediate appointment of an alternative caretaker such as current Deputy PM Raab.
  • Hungarian PM Orban's Chief of Staff says discussions with the EU have progressed re. funds, adopted the Commission's stance on four issues. Accepted the proposal that funds must be spent on energy independence, via Reuters.
  • Pound Rises on Report UK Prime Minster Johnson Plans to Resign
  • Sanctions Act as ‘Weapons of Mass Destruction,’ Says Melnichenko
  • France’s Public Finances Are a Risk for Euro Zone, Auditor Says

Central Banks

  • ECB's Enria (supervisory board) says conservative capital trajectories should be utilized by banks when announcing distribution plans; from the point of view of capital adequacy, we are asking individual banks to review their capital trajectories.
  • BoJ is expected to increase its FY22 inflation forecast marginally to slightly above 2% from 1.9% in its quarterly outlook due on July 21st, according to Reuters sources. Expected to lower economic growth forecast (currently 2.9%). BoJ will likely maintain ultra-low interest rates and dovish policy bias.


  • Pound perks up as UK PM prepares to stand down in face of mass ministerial and party mutiny, Cable back over 1.2000 vs low 1.1900 base, EUR/GBP closer to 0.8500 than 0.8550.
  • Aussie rebounds with risk sentiment and on back of record trade surplus, AUD/USD approaching 0.6850 from recent lows near 0.6760.
  • Greenback fades after forging further gains in advance of hawkish line from Fed minutes, DXY pivoting 107.000 within range below 107.270 high on Wednesday.
  • Loonie regroups with WTI ahead of Canadian trade and Ivey PMIs as USD/CAD probes 1.3000 from 1.3050+, Euro regains sight of 1.0200 level amidst retreat in EGBs pre-ECB minutes.
  • Yen slips on rate dynamics and digests source reports suggesting BoJ may tweak inflation forecast a fraction above 2% and trim growth projection in quarterly outlook next week, USD/JPY rebounds towards 136.00 from around 135.55.
  • Forint gets fleeting fillip from 200bp 1-week depo rate hike by NBH, while Zloty awaits 75bp tightening move from NBP; EUR/HUF tops 415.00, while EUR/PLN holds near 4.7850.

Fixed Income

  • Bonds back under pressure as risk sentiment continues to improve and most Central Banks remain hawkish
  • Bunds reverse from 151.65 to 150.15 before finding underlying bids, Gilts from 115.60 to 114.66 and the 10 year T-note from 119-05 to 115-15
  • Curves flatter or more inverted after FOMC minutes flag potential for even more restrictive policy


  • WTI and Brent are modestly bid benefiting from stimulus reports and the relative reprieve in the USD's recent ascension; benchmarks firmer by USD ~0.80/bbl.
  • US Private Inventory Data: Crude +3.8mln (exp. -1.0mln), Cushing +0.5mln, Gasoline -1.8mln (exp. -0.5mln), Distillate -0.6mln (exp. +1.1mln)
  • Dutch Minister says gas storage is 58% full, therefore the 80% winter target is achievable. Groningen gas field could be tapped in a emergency scenario
  • BofA says copper prices could slip below USD 6,000/tonne in the coming months. Click here for the full list of price forecasts from BofA.
  • Spot gold is, in a similar vein to crude, modestly supported on the USD breather, and steady between touted resistance/support at USD 1750.70/oz and USD 1735-37/oz respectively.

US Event Calendar

  • 07:30: June Challenger Job Cuts YoY, prior -15.8%
  • 08:30: June Continuing Claims, est. 1.33m, prior 1.33m
  • 08:30: July Initial Jobless Claims, est. 230,000, prior 231,000
  • 08:30: May Trade Balance, est. -$84.7b, prior -$87.1b

Central Banks

  • 13:00: Fed’s Bullard to Discuss US Economy and Monetary Policy
  • 13:00: Fed’s Waller Interviewed During NABE Event

DB's Jim Reid concludes the overnight wrap

If you're in any doubt about inflation I must say I was bowled over with shock at how much the tooth fairy left Maisie overnight as the first baby tooth in our household fell out yesterday. My wife told me over dinner that the tooth fairy was going to come tonight and I asked her what the going rate was? I mentioned 20p or maybe a bit more as it's the first one. My wife replied that the tooth fairy and her had agreed ten pounds. I nearly choked on my dinner and made it quite clear that this was a dangerous precedent to set one tooth into a three child settlement period. Inflation expectations can get ingrained this way. However this is one way of solving the intergenerational wealth divide I suppose.

If you’re looking for positives in a world as wobbly as my daughter's front teeth, in spite of all the bleak newsflow this week, the S&P 500 (+0.36% last night) has been up for three days in a row. However sentiment is bad enough that you'd be forgiven for not noticing. Indeed fears of a recession continue to abound in markets, with yesterday seeing another round of commodity price declines (outside of Euro Gas and electricity), further inversions of the Treasury yield curve, rising US yields with 2yr yields up an astonishing +24.5bps from the European afternoon lows, and continued concerns about a European energy crisis that left the Euro at its weakest level against the US Dollar since 2002. Some stronger US data was the bright spot that may have helped equities but it's been a bit of a random walk of late as weaker data has also recently helped equities by reining in Fed expectations. So tough markets to find a consistent narrative in at the moment. Makes calling the market reaction to payrolls tomorrow hard.

Looking at some of these moves and stories in more detail, commodities across the board were one of the biggest losers yesterday (ex EU gas and electricity), with the prospect of a global slowdown or recession sending Brent crude oil prices (-2.02%) beneath $100/bbl intraday for the first time since April, with only a partial recovery to $101.23/bbl this morning. When it came to metals, copper slid another -1.95%, taking the industrial bellwether down to a 19-month low (-29.54% from the peak 16 weeks ago), whilst even the classic safe haven of gold (-1.47%) hit a 9-month low. I mentioned in my chart of the day how the extent of the commodity declines we’re seeing right now have only been rivalled at three other points since the 1930s, which are during the initial Covid shock, the GFC, and the German invasion of France in 1940, which brings home just how infrequent declines of this sort are. As usual however, one exception to that pattern were European natural gas futures, which edged up another +3.59% to a post-March high of €171 per megawatt-hour. Meanwhile German electricity prices have surged, with 1-month forward power baseload prices increasing +7.38% to €371, their highest since the start of Russia’s invasion of Ukraine, which risks hurting the all-important German manufacturing sector.

Treasury yields sold off and the yield curve flattened, driven by strong data and a still resolutely hawkish Fed per the June meeting minutes. 2yr yields climbed +18.3bps (24.5bps off the lows), marking their largest daily increase since the WSJ article hinting the Fed was ‘considering’ a +75bp hike, and bringing 2yr yields back above 3%. Further out the curve, 10yr yields increased +12.3bps to 2.93%, led by real yields gaining +12.6bps. The renewed bout of flattening left 2s10s -7.6bps inverted, the most since early April. So a big day in US bonds. As we go to press, yields on the 10yr USTs (-1.1 bps) have slipped to 2.92% in Asia trading, although the 2s10s has steepened slightly back to a still-inverted -5.0bps.

Looking at the drivers, on the data side the ISM services index for June came in above expectations at 55.3 (vs. 54.0 expected), whilst the final composite PMI for June was revised up to 52.3 (vs. flash 51.2). And the JOLTS data on job openings showed a labour market that was still historically tight in May, albeit a bit less tight than it had been, with the number of openings coming down for a second consecutive month for the first time since the pandemic began, at 11.254m in May (vs. 11.0m expected).

The June Fed Minutes added to the narrative, where policymakers steadfastly communicated their desire to tighten policy to fight inflation. As with any minutes release, the comments are at risk of being stale, but it was illuminating that policymakers appeared to be in agreement that policy needed to get into restrictive territory, and that the risks were tilted toward losing control of inflation and having expectations un-anchor. Indeed, something relevant to recent market pricing that’s become more dovish since the June meeting, it said “many participants judged that a significant risk now facing the Committee was that elevated inflation could become entrenched if the public began to question the resolve of the Committee”. When all was said and done, Fed futures pricing by December 2022 increased +9.7bps to 3.37%.

On that theme of central banks, gilts underperformed their counterparts elsewhere in Europe, with the 10yr yield up +4.4bps after there were further signals that the BoE were considering a 50bps hike at their next meeting. Chief economist Pill said that their vow to “act forcefully” in their June statement “reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle, while simultaneously emphasizing the conditionality of any such change in pace on the flow of new data and analysis”. However, sovereign bonds had a better performance elsewhere in Europe, with yields on 10yr bunds (-1.2bps) and OATs (-2.3bps) both moving lower. This was largely before the bulk of the US bond sell off.

Despite the accumulation of bad news, equities appeared to continue marching to the beat of their own drum. The S&P 500 staged another impressive late-day rally which left the index up +0.36%, after spending the morning in the red. Contrary to Tuesday, where only three sectors were in the green, only three sectors were in the red yesterday, so a much more broad-based rally. Tech names performed about in line, with the NASDAQ up +0.35%. Meanwhile the tails of the market underperformed, with the mega-cap FANG+ flat, and the small-cap Russell 2000 down -0.79%. European equities gained, with the STOXX 600 up +1.66%, although most of the increase came at the open to catch up with Tuesday’s late Wall Street rally. Significantly however, we saw the Euro weaken a further -0.82% against the US dollar to take it to its weakest level since 2002, at just $1.0182. My colleague George Saravelos evaluated how much lower the Euro could depreciate against the US dollar depending on which of four heuristics you believe. As a spoiler, yes, parity is in play, but do check out the full piece, here.

Those modest gains in the US stocks are echoing in majority of the Asian markets in early trade. The Kospi (+1.87%) is outperforming across the region, supported by a rise in Samsung Electronics after the company indicated in its earnings guidance that its operating profit likely rose to 14.1 trillion won ($10.8 billion) in 2Q22, up from 12.57 trillion won a year ago. Meanwhile, the Nikkei (+0.73%), Shanghai Composite (+0.51%), and the CSI (+0.56%) all are trading in positive territory, recovering some of their losses in the previous session. Elsewhere, the S&P/ASX 200 (+0.41%) is moving higher as Australia’s trade surplus hit a record high, although the exception to this positive trend has been the Hang Seng (-0.43%). Outside of Asia, DM stock futures are pointing to a steady start with contracts on the S&P 500 (+0.12%), NASDAQ 100 (+0.15%) and DAX (+0.87%) all rising.

Finally in terms of UK politics, PM Johnson lives to fight another day in the face of an unprecedented pace of resignations from his government and substantial pressure to quit. Since the resignations of Health Secretary Javid and Chancellor Sunak on Tuesday evening, more than 40 MPs have resigned as ministers or aides from the government, with Welsh Secretary Simon Hart becoming the third minister at cabinet level to resign. Otherwise, Attorney General Suella Braverman said publicly that Johnson should step down and that she’d stand in a leadership election, although she remains in post for now, whilst Levelling Up Secretary Michael Gove was sacked from the cabinet last night. In terms of next steps with increasing numbers of MPs calling for his removal, there are elections to the 1922 Committee of Conservative MPs next week, and if enough anti-Johnson MPs are elected to that, they are seeking to change the rules so that another confidence vote in Johnson can be held imminently (rather than waiting for a year since the last challenge as under the existing rules).

To the day ahead now, and data releases include the US trade balance for May and the weekly initial jobless claims, as well as German industrial production for May. Meanwhile from central banks, we’ll get the ECB’s minutes from their June meeting, and hear from the Fed’s Waller and Bullard, the ECB’s Lane, Stournaras, Centeno and Herodotou, and the BoE’s Mann and Pill.

Tyler Durden Thu, 07/07/2022 - 08:07

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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…



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….



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. 

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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.



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. 


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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