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Greenback Remains Bid and the Market has not Given Up on JPY150

Overview:  The greenback did not strengthen yesterday
in Asian and European turnover despite the deteriorating conditions in the
Middle East, but it…

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Overview:  The greenback did not strengthen yesterday in Asian and European turnover despite the deteriorating conditions in the Middle East, but it did rally as North American participants entered the fray. Indeed, the Dollar Index rose from a marginal new four-day low to a marginally new four-day high. The safe haven bid seen in gold and oil, was reflected in the foreign exchange market by the strength of the Swiss franc, the only G10 currency to appreciate against the US dollar, and the Japanese yen, which lost the least among the others. The dollar is mostly firmer today, though it is in a narrow range against the Japanese yen holding slightly below JPY150. The Australian and New Zealand dollars are leading the losses, following disappointing Australian jobs data and the broad risk-off mood. Among emerging market currencies, the South African rand and Mexican peso are the heaviest.

Equities and bonds remain under pressure. China and Hong Kong markets tumbled more than 2% while other large bourses in the region were off by more than 1%. Europe's Stoxx 600 is off for the third consecutive session and weakness in the US index futures suggest the same fate is in store for American markets. The BOJ upgraded its assessment of six of nine regions in its quarterly report released earlier today and yields on the 10-year JGB reached a new high near 0.83%. European benchmark yields are mostly 1-2 bp higher, though the 10-year Gilt yield has risen by five basis points. The 10-year US Treasury yield is risen another five basis points to near 4.97%. If sustained, this would be the fourth consecutive daily increase for a cumulative gain 35 bp this week. Geopolitical tensions override a stronger dollar and higher interest rates to underpin gold, which reached almost $1963 yesterday, just shy of a (61.8%) retracement of the losses since the high for the year was set in May near $2063. It is consolidating quietly so far today almost $5 on either side of $1950. December WTI is pulling back after stalling near $88.60 yesterday and it is traded near $85.60 in the European morning. Recall that last week it settled at $86.35 and was a little below $84 on October 6 before the Hamas attack.

Asia Pacific

Japan's exports rose last month on a year-over-year basis for the first time in three months. The 4.3% increase led by auto, and medical supplies. The decline in imports that began in April moderated in September, generating a small surplus of about JPY62.5 bln. The deficit in September 2022 of JPY2.1 trillion. Through September, Japan's trade deficit was about JPY7.9 trillion compared with about a JPY14.3 trillion deficit in the first nine months of last year. Separately, the weekly Ministry of Finance portfolio flows showed foreign investors to re-investing in Japanese assets. They bought JPY1.26 bln of Japanese stocks and nearly JPY950 bln of Japanese bonds. Meanwhile, Japanese investors continued to buy foreign bonds (~JPY800 bln) and equities (~JPY180 bln).

Australia reported disappointing September jobs data. Overall job growth of 6.7k was about a third of expectations, and it lost nearly 40k full-time positions, the most since October 2021. Full-time position grew by an average of about 23k in the first eight months of the year and about 51k in the January-August 2022 period. In the last three months, the number of full-time jobs has fallen by about 53k. The drop in the participation rate to 66.7% from 67.0% helps explain the decline in the unemployment rate to 3.6% from 3.7%. Although the Australian dollar was sold on the news, the futures market showed a small increase in the odds of a hike at the November 7 central bank meeting to about 31% up from less than 25% yesterday and about 7% at the end of last week.

The dollar drew slightly closer to JPY150. To de-mystify the level, the market needs to move back and forth across it. The rise in long-term US rates, as the BOJ tried to slow the increase in JGBs yields by purchasing them in an unscheduled operation provides cover. The bar for intervention in the domestic bond market is lower than for the foreign exchange market. Pressure is not just building on dollar-yen rate but also euro-yen. The convergence of the five- and 50-day moving averages slightly below JPY158 illustrate the effect of the ostensible dollar cap at JPY150. There are around $900 mln in options that expire there today and another $1.1 bln expire next Tuesday. Still, given cat-and-mouse game, we look for the break of JPY150 outside of Tokyo hours. The selling pressure in North America yesterday saw the Australian dollar fall through Tuesday's lows after having seen follow-through buying in the local session yesterday. Although an outside day was recorded, the Aussie settled barely above Tuesday's low. Still, follow-through selling today saw the $0.6300 level frayed. Little stands in the way of a return to year's low set earlier this month near $0.6285. Last October, it bottomed around $0.6170. The greenback crept higher against the Chinese yuan and is approaching CNY7.32. If sustained, this would be the fourth consecutive dollar advance, and since returning from the holiday last Monday, the yuan has risen in two of the nine sessions. The PBOC set the dollar's reference rate at CNY7.1795, the same as yesterday. The average in Bloomberg's survey was for CNY7.3176, up from CNY7.3085 yesterday. Lastly, note that Indonesia hiked its seven-day reverse repo rate by 25 bp to 6.0%. Most had expected to it standpat as it has done since delivering the last hike in January. The rupiah fell by about 0.5%. 

Europe

On a seasonally adjusted basis, the eurozone's August trade surplus rose to almost 12 bln euros from 3.5 bln in July. Today, the current account surplus was reported, and it was 27.7 bln. In August 2022, a 34.9 bln current account deficit was reported, which was the largest shortfall since monetary union. The surplus peak this year was in June near 35.8 bln euros, which was the largest since February 2021.

Tomorrow, the UK will report retail sales volume, which is expected to have fallen by 0.4%. It would be the second monthly fall in Q3, the first time that has happened this year. Still, UK retail sales are holding up better than last year, rising slightly (~0.2%) this year through August after falling by an average of 2.1% a month in the first eight months of 2022. So far this week, the UK reported a small decline in average wage pressure and firmer than expected CPI. Still, the odds of a rate hike at the next BOE meeting on November 2 has eased to about 20% from slightly above 28% at the end of last week. Pricing in the swap market for the last meeting of year in December is practically flat, implying a little less than a 50% chance of a hike. 

The euro was tagged for about half-of-a-cent in the North American session, taking the single currency slightly through $1.0525. It has held the low today. Perhaps, the North American participants saw that neither Asia nor Europe were able to extend the euro's gains scored in North America on Tuesday despite the strong retail sales report. Today's high has been slightly below $1.0550 and it needs to resurface above $1.06 or remain vulnerable to a pull lower. A break of last Friday's low near $1.0495 re-targets the low for the year set on October 3, just below $1.0450. Sterling was turned back from forays above $1.2200 (where GBP1.6 bln in options expire today) and returned to the lower end of its recent range in the $1.2125-35 area. It settled poorly and follow-through selling has seen it slip to $1.2090. A convincing break signals a test on the October 4 low near $1.2035. Ahead of it, the lower Bollinger Band is near $1.2060.

America

Today's US data may be a bit anti-climactic after the retail sales, industrial production, and housing starts reported so far this week. The high-frequency data includes weekly jobless claims, the October Philadelphia Fed survey, existing home sales and the index of leading economic indicators. The reports are not typically market movers. The takeaway from the recent string of data is that US economic activity was particularly robust in Q3. The Atlanta Fed's track is at 5.4% and many banks revised up their Q3 GDP forecasts as well. Still, ahead of Federal Reserve Chair Powell's talk at the NY Economic Club later today, the market has about a 6% chance of a November hike and a little more than a 40% chance of a hike before the end of the year (last meeting is December 13). A week ago, the implied odds were about 8% and around 32% respectively. 

Canada's industrial product and raw material price indices are not the stuff that typically moves the exchange rate or interest rate expectations. Tomorrow's retail sales report (expected to fall by 0.1% after a 0.3% gain in July) is the last data point ahead of the Bank of Canada meeting on October 25. The softer than expected CPI readings reported on Tuesday dampened the odds of a hike from about a 38% chance at the end of last week to about 15% chance now. The swap market has also downgraded the odds of a hike before the end of the year to about 37% from slightly more than 60% at the end of last week. Mexico also reports August retail sales tomorrow. They have risen on average 0.4% in the first seven months of the year, down from 0.7% average in the same period in 2022. 

The risk-off mood leaves the Canadian dollar vulnerable, and the US dollar settled above CAD1.37, which blocked the upside in recent days. It also corresponds with the (61.8%) retracement of the leg down since the seven-month highs seen earlier in October near CAD1.3785. Little seems to stand in a way of a re-challenge the high. It has stalled in Asia and European turnover today around CAD1.3740. The greenback jumped from around MXN18.00 to nearly MXN18.31 in the North American morning yesterday and consolidated in the upper half of the range in the afternoon. The risk-off mood and the liquidity the peso offers contributes to the periodic bursts of selling pressure. Still, the peso was the worst performing emerging market currency yesterday, falling about 1.25%. It reached almost MXN18.40 in the European morning. The high from earlier this month was a little below MXN18.49. A move above MXN18.50 could target the MXN18.75 area next. 


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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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