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In Uncoordinated Steps, Japan and China Help Slow Greenback’s Rally

Overview: The Bank of Japan Governor Ueda hinted the
world’s third-largest economy may exit negative interest rates before the end
of the year. This sparked…

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Overview: The Bank of Japan Governor Ueda hinted the world's third-largest economy may exit negative interest rates before the end of the year. This sparked the strongest gain in the yen in a couple of months and lifted the 10-year yield to nearly 0.70%. In an uncoordinated fashion, Chinese officials stepped their rhetoric and indicated that corporate orders to sell $50 mln or more will need authorization. This helped arrest the yuan's slide. The Australian dollar is up the among the G10 currencies and is often particularly sensitive to Chinese developments. All the major currencies are firmer against the dollar today. The same is true for emerging market currencies, where only the Indian rupee, Philippine peso, and Turkish lira, are nursing minor losses.

Outside of Japan, Hong Kong, and Taiwan, the largest bourses in the Asia Pacific rose today. The MSCI Asia Pacific Index is snapping a four-day fall. Europe's Stoxx 600 ended a seven-day slide before the weekend and is extending its gains by about 0.5% today. US index futures are trading higher after they also settled higher before the weekend. Benchmark 10-year yields are mostly 2-3 basis points higher, which put the 10-year US Treasury a little below 4.30%. Gilts are under-performing, and the 10-year yield is up nearly five basis points. A weaker dollar but firmer interest rates has allowed limited gains in gold. A base has been formed in recent sessions around $1915-$1917. It briefly traded above $1930. This month's high was set slightly above $1950. October WTI continues to consolidate. It remains in last Tuesday's range (~$85-$88).

Asia Pacific

We may never know why China's Xi did not attend the G20 meeting. Several reasons have been suggested. Some argued that on the heels of the BRICS summit, it was a snub at the G20, but sending a premier, for the first time in 11 gathering, and actively participating in the shaping of the final statement, much to the US chagrin, does not exactly seem an insult. Others framed it as a snub of India's Modi, but, of course, Modi was at the BRICS summit too. There have been reports that Xi faced domestic pressure from the elites and in recent weeks, several of Xi's appointments have disappeared or been replaced, though Chinese politics often are inscrutable from the outside. Others have noted Xi's graying hair and raised questions of his health. In any event, the G20 summit is seen as a success despite Xi and Putin's absence, and a joint statement was agreed upon. It managed to sidestep some controversy by forging unanimous support around the UN principles of territorial integrity and opposition to the use of force. The statement declared that countries that use or threaten to use nuclear weapons are "inadmissible", which seemed like a thinly veiled knock-on Russia. That said, compromises included a milder reference to the "war in Ukraine" rather than the "war on Ukraine, " was somewhat less ambitious on de-carbonization. Also, since by 2026, all the members would have held the rotating presidency, the cycle begins a new with the US in 2026. China objected but seemingly relented.

Much of the focus on the Bank of Japan's monetary policy has been on the Yield-Curve Control. The BOJ doubled the cap on the 10-year bond to 0.50% at the end of last year and doubled it again to 1% in late July. We have noted that rather than sell foreign bonds, Japanese investors have been replacing the one sold last year. Getting away from YCC and looking at the very long-end of the sovereign curve, the 30-year yield has risen by about six basis points this year. The 40-year bond yield has fallen by less than five basis points, and that is after rising more than 40 bp since the end of June. While expectations for a change at the September 22 BOJ meeting are low, a year-end meeting may be a different story. BOJ Governor Ueda suggested that by then a decision about the need for negative policy rate (currently -0.10%) could be made. He seemed to suggest a new phase of monetary policy. The Yield-Curve Control adjustment was aimed to "change the balance between the effects and side effects" of monetary easing measures. Now, the focus is on "a quiet exit, " seeking to minimize the market impact. 

After settling last week on its high for year, closing slightly north of JPY147.80, the greenback opened sharply lower (~JPY147.05) in response to Ueda's comments. Friday's low was near JPY146.60 and the dollar took it out, dipping briefly below JPY146.00, a six-day low. The JPY145.75 area corresponds to a (61.8%) retracement of this month's gains. Since the low was recorded, the dollar has bounced to about JPY146.50. The 20-day moving average is near JPY146.30, and the dollar has not closed below it since late July. The Australian dollar settled near its lows before the weekend, little changed on the session, near $0.6375. It opened around $0.6410 and slipped back a little below $0.6380 before surging to almost $0.6445. It has steadied shy of resistance in the $0.6465 area. The intraday momentum in indicators have already turned down. A close below $0.6420 would be disappointing. Chinese lending last month surged after being depressed in July. Aggregate financing rose to CNY3.12 trillion from CNY528.2 bln, well above the projected CNY2.69 trillion. While bank loans rose (CNY1.36 trillion from CNY346 bln), the jump in lending was driven by non-banks. However, the yuan's sharp recovery sparked by the tightening of controls as the PBOC reportedly will require permission to buy $50 mln or more. The PBOC also issued a statement threatening action to counter one-sided moves and claimed that speculation needed to be extinguished. According to media reports, state-owned banks were dollar-sellers today, but it is not clear if they were acting on their own account, executing customer business, or acting on behalf of officials. The PBOC set the dollar's reference rate at CNY7.2148 compared with the average estimate in Blomberg's survey for CNY7.3391. That would cap the dollar to trade at CNY7.3590. Against the offshore yuan, where the onshore band is mostly honored, the dollar traded as high as CNH7.3635. The dollar fell to almost CNY7.27 before stabilizing and returning to almost CNY7.30.

Europe

Greece's 10-year bond yields about 3.95%, more than 30 bp below the 10-year US Treasury. The yield has fallen by more than 55 bp this year while the German yield has risen by around five basis points. DBRS, one of the four rating agencies recognized by the ECB, upgraded Greece's debt rating late last week to investment grade (BBB). The ECB takes the highest rating among the four companies, and DBRS's move means that Greek bonds will no longer be subject to the higher haircut (larger discount) in the ECB's refinance operations. Moody's will announce the results of its review at the end of the week. Its Ba3 (= BB-) seems out of line. It has a positive outlook. S&P's BB+ rating will be review next month, while Fitch (BB+) will announce the result of its review on December 1. Separately, Fitch lifted its outlook for Turkey from negative to stable.

The euro opened firmer but remains well within the pre-weekend range. Before the weekend, it had been squeezed higher in late European activity but ran out of steam a little ahead of the resistance we identified near $1.0750. Today's high has been above $1.0740. Last week's low was about $1.0685. There are options for nearly 1.25 bln euro at $1.0665 that expire tomorrow. The net speculative long euro position in the futures market was cut for the sixth week in the past seven, but this has more to do with new shorts being established rather than longs being cut. In fact, the bulls have added to the gross long euro position for three of the past four weeks for a cumulative add of about 8k contracts. Over the past four reporting weeks, the gross short position has risen by over 21k contracts. Sterling is holding above low set at the end of last week ($1.2445-50). It reached $1.2515 before the weekend and reached $1.2530 today, a three-day high. A move above the $1.2560 area may be needed to suggest anything more than some sideways consolidation. The net speculative sterling position in the futures market is little changed over the past several weeks. In the week ending August 1, the net long position was about 49.6k contracts. At the end of the week to September 5, it stood at 46.4k contracts. The gross longs are virtually unchanged, and the gross shorts have risen a little.

America

The de-dollarization and the de-globalization memes have sucked most of the oxygen from other broad discussions and obscures key geopolitical developments. On the sidelines of the G20 meeting, the US, India, Middle East, and the EU signed a deal to build a network of rails and sea routes: The India-Middle East-Europe Economic Corridor. It will integrate ports and rail from India to Europe, through the UAE, Saudi Arabia, Jordan, and Israel. The project is ambitious and will develop energy infrastructure, facilitate the production and transport of green hydrogen, and includes a new undersea cable boosting telecom and data transfers. Separately, the EU and US are also supporting a new initiative in Africa, the "Lobito Corridor," a trans-African project to boost transport connections between the Democratic Republic of Congo, Zambia, to the Lobito Port in Angola.

Seemingly, less appreciated, a US initiative with Iran appears to be yielding favorable results. The most Iranian oil in five years is hitting the market and might be another reason the Saudis and Russian's extended their oil cuts. The US has relaxed the enforcement of sanctions. Iran appears to be slowing the production of weapons grade uranium, which was the conclusion of the UN watchdog's report, as well as some other measures to build trust. There has been secret diplomacy between Washington and Tehran, which involved so prisoner releases and freeing up frozen funds. Lastly, the US and India re-affirmed the agreement for the "maintenance and repair of forward-deployed US Navy assets and other aircraft and vessels."  This follows recent commercial agreements such as GE's partnership with an Indian aeronautics company to make jet engines in India and Micron's deal to build a $2.75 bln semiconductor fabrication and testing plant in India.

Canada August employment and wage data keeps the Bank of Canada in the picture and the swaps market reflected a slightly greater chance of a hike in one of the last two meetings of the year. While the rise in wages caught the attention of many observers, the rise of total hours (0.5%), the most in six months, suggests a rebound in economic momentum. The greenback has pushed through the pre-weekend low near CAD1.3600, where options for around $665 mln expire today. A break of the CAD1.3570 area, and ideally a close below it, would boost confidence a near-term high may be in place. The dollar has rose nearly 2.9% against the Mexican peso last week after a 2% gain the previous week. The high last week was near MXN17.7080. The low since the high was about MXN17.4235. Since we do not think the macro drivers have changed, we look for the price action itself to boost the chances that the short squeeze has run its course. So far today, the peso is sidelined. The dollar is in a narrow MXN17.4965-MXN17.5940 range, well inside the range seen in recent days. A close below MXN17.3950 would be a preliminary sign that the dollar's recovery is ending. 


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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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