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Market Awaits US Data and Leadership

Overview:  The dollar staged a major technical
reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs
report than expected, spurring…

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Overview:  The dollar staged a major technical reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs report than expected, spurring a large drop in US interest rates. And this is despite press reports that the participation rate in the survey is half of what was three years ago. We suspect the price action said as much about market positioning as it did about the data. The path to the US jobs data on Friday goes through tomorrow's personal consumption figures, which will speak to robust demand. Follow-through selling of the dollar has been limited in Asia and the European morning. US leadership (and data) are awaited. The euro and sterling are firm, but the other G10 currencies are mostly softer. German states CPI may point to smaller than expected slippage in the national figure (median forecast in Bloomberg's survey is for a 0.3% month-over-month increase, which would allow the year-over-year rate to ease to 6.3% from 6.5%). This and the small rise in Spain's CPI (2.4% vs. 2.1%) have increased the perceived odds of an ECB hike next month. Emerging market currencies are mixed. Hungary and Mexico lead the advancers, while the Turkish lira and South African rand pace the declining EM currencies.

Most of the large Asia Pacific bourses advanced. Reports that Chinese mortgage and deposit rates could be cut today initially helped lift Chinese stocks both on the mainland and in Hong Kong, but the buying dried up and the CSI 300 and Hang Seng finished slightly lower. Europe's Stoxx 600 is falling for the first time this week, giving back about 0.3% after rallying around 1.8% in the past two sessions. US index futures are trading with a bit softer after yesterday's strong advance. European bonds are selling up and benchmark 10-year yield are mostly 6-7 bp higher. Gilts are holding in a bit better, and the 10-year yield is up two basis points, in line with 10-year US Treasuries, which now yield about 4.14%. Despite the rise in rates and the lack of much follow-through dollar selling, gold is consolidating yesterday's $17 rally. It is in an exceptionally narrow $3 range near yesterday's high slightly above $1938. October WTI is firm, extending yesterday's gains toward $81.75. Another sharp drop in oil inventories was reported by API. If the 11.5 mln barrel drop is confirmed, US private oil stocks would be the lowest in a year.

Asia Pacific

Australia's CPI slowed more than expected in July. Price pressures eased to 4.9% year-over-year from 5.4% in June. The median forecast in Bloomberg's survey was for dip to 5.2%. Recall that Australia traditionally reports inflation on a quarterly basis, and only recently has made a monthly report. In Q2, Australia's quarterly CPI was at 6.2% down from 7.0% in Q1. The monthly calculation peaked last December at 8.4%. The monthly CPI was at 7.2% last July. Bullock takes over from Lowe toward the middle of September, after the next RBA meeting (September 5).

First thing tomorrow, China releases the August PMI. It would hardly be a surprise to see softer data. Chinese officials continue to drip new measures into the market but still are relying on soft-power guidance, like encouraging funds to buy for shares than they sell or refrain or reduce dollar purchases. More monetary and fiscal policy efforts are likely. Japan reports July retail sales. Recall that retail sales in June fell by 0.4%, but subsequently were revised to -0.6%. Retail sales fell by an average of 0.1% in Q2, the first quarterly decline since Q2 21. The Q2 GDP figures showed a 2.1% contraction in consumption, nearly offsetting the lion's share of the first quarter's 2.5% gain. With the help of increased inbound tourism, retail sales are expected (median forecast in Bloomberg's survey) rise by 0.8%.

There has been no follow-through selling of the US dollar against the yen, yuan, or Australian dollar today after yesterday's JOLTS-led sell-off. The dollar posted a key reversal against the yen, making a new high for the year and then reversing and settling well below Monday's low. It reached about JPY145.65 yesterday but rebounded to JPY146.55 today. It effectively has retraced about half of yesterday's decline. Initial resistance now is seen closer to JPY146.70-75. The Australian dollar rallied from $0.6400 to almost $0.6490 yesterday, slightly above last week's highs and settled above the 20-day moving average for the first time since July 27. It too has retraced nearly half of yesterday's gains (~$0.6445). Even though the softer CPI reinforces the idea that the RBA remains on hold next week, the Aussie looks poised to rechallenge yesterday's highs in North America. The cut in mortgage rates and deposit rates initially helped Chinese stocks, though the buying dried up, the yuan remains soft. The US dollar has largely been confined to yesterday's range (~CNY7.28-CNY7.2955). The PBOC set the dollar's reference rate at CNY7.1816, slightly weaker than yesterday's fix (CNY7.1851), but well below average projections in Bloomberg's survey (CNY7.2741).

Europe

The focus turns to eurozone inflation. Ahead of tomorrow's aggregate figure, Spain and German states have reported their August CPI. Spain's harmonized measure rose by 0.5%. At an annualized rate, Spain's CPI has risen by 4% in the three months through August. The year-over-year rate stands at 2.4%, up from 2.1% in July. The year's high was set in February at 6.0% and last year's high was 10.7% (July 2022). 

Germany states' CPI is a different story. They are mixed. Six states have reported, and four saw an increase in the year-over-year rate and two fell. The EU harmonized measure stood at 6.5% in July. The states' reports seem consistent with the national rate rising by 0.4%, which, given the base effect, would allow the year-over-year rate to ease to 6.4%. A 0.4% increase in August means that at an annualized rate, German CPI rose by about 5.2% in the past three months, down from 6% in the previous three months. The odds of an ECB rate hike have edged up to the highest in a week, around 53%. At the start of the week, the swaps market has slightly more than a 40% chance discounted. 

Yesterday's euro price action was the most impressive in more than a month. It staged an outside up day and settled above the high recorded while Fed Chair Powell was speaking at Jackson Hole at the end of last week (~$1.0840) to record a six-day closing high. There are options for about 1.3 bln euros at $1.09 that expire today. That is also where the 20-day moving average is found, and the euro has not closed above in a month. The euro found support near $1.0855. Sterling also posted a bullish outside up day yesterday. It did not close above the Powell-inspired high (~$1.2655) but did settle firmly, nonetheless. Sterling has edged a little higher today to reached $1.2670, after support ahead of $1.2600 held. Today's low is about $1.2620. Nearby resistance is seen in the $1.2675-$1.2700 area.

America

The unexpectedly weak JOLTS report saw the dollar and US rates reverse lower. Not only did the July reading come in well below expectation (8.827 mln vs. median forecast in Bloomberg's survey for 9.50 mln), but the June estimate of 9.582 mln was revised to 9.165 mln. The number of job openings is now the lowest since March 2021. Job openings have fallen every month this year but April. The "quits rate", the percentage of voluntary job leavers of total employment fell to 2.3%, the lowest since the start of 2021, which also speaks to the easing of labor market conditions and the sense that jobs are less ample. The US labor market remains in focus. The ADP private sector employment estimate is not a particularly reliable guide to the official data, the market still has responded dramatically to surprises. The ADP has consistently exaggerated the private sector jobs growth this year. The difference over the past three months has averaged 165k. 

The US also reports the advanced merchandise trade figures for July. It is expected to have widened for the first time in three months. In fact, given the strength of the dollar, and, especially, the growth differentials, that there has not been greater deterioration is surprising. In the H1 23, the advance merchandise trade deficit averaged $90.3 bln. In H1 22, the average was about $106.3 bln. With Q3 two-thirds over, revisions to Q2 GDP are more for economists than businesses or investors. Indeed, for thinking about Q3 GDP, the wholesale and retail inventories are more important. The former has been trending lower, only rising in February during H1 22. Retail inventories have been trending higher. Tomorrow's report on July consumer expenditures will be more important. At the same time, it illustrates why the GDP trackers need to be taken with the proverbial grain of salt this early in the data cycle.

The Canadian dollar was the worst performing G10 currency yesterday, gaining 0.3% against the US dollar. Still, the greenback recorded a bearish outside down day against the Canadian dollar. There has been no follow-through US dollar selling. It has recovered from about CAD1.3550, yesterday's low to almost CAD1.3580 today. Initial resistance is seen in the CAD1.3585-CAD1.3600. If the greenback put in a double top (last Friday and yesterday near CAD1.3640, the neckline is Monday's low around CAD1.3570. The measuring objective would also be around CAD1.3500. The US dollar was resilient against the Mexican peso yesterday, and rose to MXN16.8880, extending its recovery off Monday's August low (~MXN16.6950). The dollar's broadly heavy tone proved too much, and it returned to the MXN16.78 area. One might have expected the peso to react stronger to the drop in US rates and a sharp equity market rally. Nevertheless, the US dollar slipped slightly through yesterday's low to near MXN16.75 where bids were emerging in the European morning. Initial support is seen near Monday's low, while a move above MXN16.80 would suggest continued consolidation. 


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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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