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Markets Remain on Edge

Overview:  The markets remain on edge. The press
reports US President Biden is planning an imminent trip to Israel while Iran
warns of "multiple fronts"…



Overview:  The markets remain on edge. The press reports US President Biden is planning an imminent trip to Israel while Iran warns of "multiple fronts" against Israel if the attacks on Gaza continued. The dollar, which was offered yesterday, is better bid today. Still, the capital markets are relatively quiet. Even the Swiss franc, which was the strongest G10 currency last week (~0.9%) is slightly heavier today. Among emerging market currencies, the Polish zloty continues to be underpinned by the weekend election results. The Mexican peso's 0.45% decline is the most among the emerging market currencies, giving back almost half of yesterday's gains. Gold is firm but within yesterday's ranges and holding below $1933 that was approached at the end of last week. 

Asia Pacific and European equities were lifted by the more than 1% rally of the S&P 500 and NASDAQ yesterday. All the large bourses in Asia Pacific but Taiwan rallied earlier today, led by the Nikkei's 1.2% gain. Europe's Stoxx 600 is slightly firmer, constrained perhaps by the modest losses being recorded by the US index futures. The rise in yields seen yesterday is continuing today. The 10-year JGB yield is up nearly three basis points to edged closer to 0.80%. European benchmark yields are mostly 1-2 bp higher, but Italy's 10-year yield is up nearly four basis points amid anxiety over its budget proposals. The 10-year Gilt yield is slightly softer following the weaker-than-expected employment report. The 10-year US Treasury yield is up four basis points to almost 4.75%. December WTI slipped briefly below yesterday's low near $85 but has since recovered back to the opening area near $85.70.

Asia Pacific

After reporting a 0.7% contraction in August industrial output yesterday, Japan said that its tertiary sector contracted by 0.3% in August. It has risen by a revised 1.1% (0.9% initially in July) and the median forecast in Bloomberg's survey looked for a 0.3% increase Japan’s economy, the third largest in the world is struggling, despite easy monetary and fiscal policies. Recall that it would have contracted in Q3 if it were not for tourism. Consumer spending and private investment contracted. In Q3, both appears to have stabilized, but weakness persist as seen in the industrial output figures. Exports also look weaker and imports, stronger. The median forecast in Bloomberg's monthly survey released last week sees a 0.3% contraction in Q3 GDP at an annualized rate (vs. -0.4% previously). Growth is expected to return in Q4 to 0.6% (0.5% previously). The Kishida government is cobbling together a supplemental budget and more details are likely coming from the extraordinary Diet session that begins at the end of the week.

The first thing tomorrow, China will report Q3 GDP and details from September. The median forecast in Bloomberg's survey sees the world's second-largest economy expanding by 0.9% quarter-over-quarter (0.8% in Q2). That would put the year-to-date, year-over-year pace at 5.0%. Still, the economy is struggling to maintain forward momentum and Beijing has promised more support. China's data is (purposefully?) challenging to read as it is not reported like other countries. It appears that the economic performance was little changed in September from August on a year-over-year basis. We note that the yuan's rolling 60-correlation with changes in the Japanese yen has eased over the past month to about 0.30 from 0.45 in the middle of last month. The rolling 30-day correlation is around 0.50 down from 0.70 in early September. According to Bard, the yuan and yen have moved in the same direction against the dollar 58 sessions in the past 100, down from 63 sessions in the previous 100. 

Despite the 14 bp jump in US 10-year yields between yesterday and today, the dollar is little changed against the yen, holding below last week's highs slightly below JPY149.85. It finished slightly lower yesterday and is slightly higher today. The relationship between the exchange rate and US yields has become more relaxed recently, and the safe-haven role (inverse correlation with the S&P 500) is also not statistically significant now. Looking at several other potential candidates, the (30-day) correlation with the Dollar Index, almost 0.50, is the strongest, suggest a broad dollar move is underway. The Australian dollar recovered smartly from the sell-off in the second half of last week. The Aussie peaked last Wednesday near $0.6445 and fell to almost $0.6285 ahead of the weekend. It recovered to meet the (38.2%) retracement (~$0.6345) yesterday and is the only G10 currency posting small gains against the US dollar today. It reached slightly through $0.6365 today in early Asia Pacific turnover. The (61.8%) retracement and the 20-day moving average are found around $0.6380-85. The greenback held yesterday's high against the Chinese yuan near CNY7.3155. Although it did not make a higher high today for the first time in five sessions, it did record a higher lower for the fifth consecutive session. The PBOC set the dollar's reference rate at CNY7.1796 (CNY7.1798 yesterday), well below the average in Bloomberg's survey of CNY7.3028 (CNY7.3095 yesterday). Reports indicate that last week, the PBOC ordered state-owned banks to rollover existing local government debt, lengthen maturities and lower rates, though not below government bond yields.


Sentiment in Germany remains fragile. The economy contracted in Q4 22 and Q1 23. It was stagnant in Q2 23 and appears to have contracted in Q3 and likely contracts this quarter as well. The ZEW survey showed that the current assessment continued to deteriorate. It fell to -79.9 from -79.4. It is the weakest since June 2020. It has not risen since April. The expectations component bottomed in September 2022 near -62 and reached a high in February slightly above 28. It has been negative since May and ticked up to a still negative -1.1 from -11.4 in September. While China is providing modest stimulus and Japan is preparing a supplemental budget and has maintained a negative overnight target rate, it is more difficult to see where stimulus comes from for Germany.

The UK jobs data were not inspiring. After falling for the past two months (~-4.5k), payrolls defied expectations for a small increase and instead fell by 11k. Average weekly earnings remain elevated at 8.1% over three-months through August compared with a year ago, down from 8.5% previously. Excluding bonuses, the average earnings were unchanged at 7.8%. Public sector pay was boosted (12.5%) by an agreement with health care workers and civil servants, which included a one-off payment. Private sector pay rose 7.1%, down from 7.7% in the previous three months. Of note, adjusted for CPI, earnings rose by 0.7% in the three months through August, up from 0.1% the three months through July. Vacancies fell by nearly 990k in the three months to September. Tomorrow, the UK reports September CPI. A 0.5% increase, which the median forecast in Bloomberg's survey anticipates would translate to a 1.6% annualized pace in Q3, down from an 8% pace in Q2. The Bank of England meets on November 2, the day after the FOMC meeting concludes. The swaps market has a little less than a 25% chance of a hike discounted, down from closer to 30% chance yesterday. and a little more than a 40% chance of an increase before the end of the year, down from about 50% yesterday. 

The euro fell by nearly 1.5 cents from last Thursday's high (~$1.0640) to the pre-weekend low ($1.0495). It rose above $1.0550 to meet the (38.2%) retracement objective. The euro made new highs late in the North American session of almost $1.0565, to approach the next retracement (50%) and the 20-day moving average seen around $1.0570. It is consolidating today in a narrow range in about a third of a cent above $1.0530. Note that there are nearly 900 mln euros in options at $1.05 that expire today and another set for 1.7 bln euros that expire there tomorrow. Sterling surpassed its (38.2%) retracement of its losses from the second half of last week that came in a little above $1.2220 yesterday. It also nicked the 20-day moving average that was closer to $1.2215. Sterling has held below $1.2220 today and was sold to $1.2150 before stabilizing. The intraday momentum indicators suggest a return to $1.2180-$1.2200 in the North American morning is favored.


Last week, the US high-frequency reports were mostly about prices--PPI, CPI, and the University of Michigan's consumer expectations. Attention shifts back to the real sector today with September retail sales, industrial production, and business inventories. After rising by 0.6% in August, the increase in retail sales is likely to be halved and even this is flattered by auto sales and gasoline, without which a 0.1% gain in expected. The average monthly gain in the first eight months of the year was 0.4% and, in the Jan-Aug 2022, retail sales rose by an average of 0.9% a month. Excluding autos, gasoline, building materials, and food services, retail sales is expected to be flat after a 0.1% increase in August. That would make it the weakest since the 0.8% decline in March. Remember, these are nominal numbers. Real consumption rose by 0.1% in August, matching the least since March. A pullback in the US consumer will likely see upward pressure on inventories initially. August business inventories are seen rising by 0.3%, which would not only be the most this year, but the rise would offset the small net decline through July. While this may aid Q3 growth, if the inventory growth is undesirable, as we suspect, it will be a drag later. Industrial output and manufacturing production is expected to have been flat in September, and if there is a surprise, it is more likely to be on the downside. 

Late in the session the August TIC data will be reported. Foreign investors have bought nearly a net $500 bln of US stocks and bonds through July. This is down from $876 bln in the first seven months of 2022. However, recall that in the first Jan-July period in 2019, foreigners were net sellers of a small amount ($3.5 bln) of US paper assets. That said, it does seem as if the demand for US Treasuries has shifted. Foreign governments and the Federal Reserve are buying fewer US government bonds. Hedge funds, asset managers (pension funds and mutual funds), and insurers appear to be more significant buyers of US Treasuries. Central banks use of the Federal Reserve’s custody facilities boosted their (Treasury and Agency holdings by about $5.6 bln in August. The custody holdings increased from $3.32 trillion at the end of last year to $3.44 trillion at the end of August. 

Canada's September CPI will help shape expectations for next week's Bank of Canada meeting. The risk of a hike, as reflected in the swaps market has risen to about 48% from around 25% a week ago. In fact, the four-day increase is the longest rising streak since May. Given the base effect a flat month-over-month CPI reading will leave the year-over-year rate unchanged at 4.0%. The low point, so far, was recorded in June at 2.8%. The underlying core measures may tick down slightly after edging higher in August. The market will be sensitive to any disappointment. Although the Bank of Canada's Q3 survey, reported yesterday, saw weaker sentiment, inflation expectations are slower to adjust. Many businesses think that persistently high inflation will curb their sales and investment plans over the next 12 months. Consumers also continue to see elevated prices pressures that undermine plans for durable goods purchases. August retail sales is due at the end of the week and a small decline in the headline and ex-auto measure is expected. Lastly, the StatsCan reports Canada's August portfolio flows today. Foreign investors were net sellers of about C$9 bln of Canadian securities in Q1 but returned to scoop up C$36.5 bln in Q2. Foreign investors bought C$11.6 bln of Canada's bonds and stocks in July.

The US dollar peaked last Thursday near CAD1.37 and fell to almost CAD1.3605 yesterday. It has come back firmer today to probe the CAD1.3645 area. A move above the CAD1.3665 area could signal test of last week's high. It needs to break below last week's low (~CAD1.3560-70) to extend the correction from the CAD1.3785 high set earlier this month. The Mexican peso feel by about 1.4% in the last two sessions last week and rallied back about 1.1% yesterday. The US dollar met the (61.8%) retracement of the two-day rally, falling to a low late in the session near MXN17.8725. Itis firmer today but holding below MXN18.00. Soft US economic data could see the greenback fall back below the 200-day moving average around MXN17.7650. The US dollar also approached last week low against the Brazilian real set last Thursday near BRL5.0290. The 20-day moving average is around BRL5.03 and the 200-day moving average is about BRL5.0150. A break of BRL4.98 would confirm a topping pattern and project back to the mid-September lows around BRL4.84.



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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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