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Neither the Threat of Intervention Nor a Possible US Government Shutdown is Derailing the Greenback

Overview: The US dollar is stabilizing a bit but
only after extending its gains initially It reached almost JPY149.20, while the
euro slipped to $1.0570…

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Overview: The US dollar is stabilizing a bit but only after extending its gains initially It reached almost JPY149.20, while the euro slipped to $1.0570 before recovering to straddle $1.06 in the European morning. Sterling sank a little through $1.2170 but stabilized to return to almost $1.2200. The Australian dollar tested last week's low slightly below $0.6390 before resurfacing above $0.6400. The US dollar toyed with CAD1.3500, where there is a large option expiry today. Emerging market currencies are mostly lower, but the Hungarian forint (overnight deposit to converge with base rate today at 13%) and the Chinese yuan are notable exceptions.

The equity rout continues. Several large bourses in the Asia Pacific region, including the Nikkei, Hang Seng, Taiex, and Kospi are off more than 1%. Europe's Stoxx 600 is off for the fourth consecutive session. US index futures are extending yesterday's sell-off. Benchmark 10-year yields are mixed. Yields in the US, UK, Germany, and France are slightly lower, while the peripheral European yields are higher, led by a three-basis point increase in Italy and Greece. The 10-year US Treasury yield is near 4.50%. In addition to $60 bln cash management bill, the US Treasury is also selling $48 bln two-year notes. At the previous auction, the high yield for the two-year was 5.02%. It is now near 5.12%. Gold tested $1909 today, having been turned back from $1950 last week. This month's low is near $1901. November WTI slipped to an eight-day low near $88.20. It peaked a week ago near $92.45. It is recovering in the European morning and looks poised to returned to the $89.50-$90.00 area. 

Asia Pacific 

Bank of Japan Governor Ueda and Deputy Governor Uchida indicated yesterday that uncertainties around wage growth and inflation mean that it is not clear that inflation has reached 2% on a sustainable basis. They continue to preach patience. Ueda apparently sees no contradiction between toward his two claims: 1) "The BOJ won't conduct policy to directly influence foreign exchange rates," and 2) "It's desirable it moves in a stable manner and reflects economic fundamentals."  It is difficult to argue that the exchange rate is not reflecting fundamental factors. The US 10-year premium over Japan is at a new high for the year near 382 bp. Last year's peak in late October was a little below 400 bp. That said, the gross short speculative position in the IMM futures is around 147.3k contracts (JPY12.5 mln yen per contract, or almost $84k), which is larger than last September-October, when Japan intervened materially to sell dollars and buy yen. Still, one-week implied volatility fell below 6.6% yesterday, its lowest level since Q1 22 but has come back a little firmer today, slightly above 8%. 

The Thai Baht has eclipsed the yen as the weakest currency in the Asia Pacific region here in September. It is off 3.7% compared with the yen's 2.3% decline. The new government's efforts to support the economy and in particular measures to ease the cost-of-living squeeze contributed to the sell-off of Thai bonds, which dragged the baht down. Domestic consumption and the improved outlook for tourism (visa requirements for visitors from China and Kazakhstan for five months have been waived starting yesterday). The central bank meets first thing Wednesday and the officials previously warned that higher food and energy prices may require higher rates. A quarter-point hike to 2.50% is expected. Earlier this month, Thailand report August CPI rose faster than expected (0.55% month-over-month for a 0.88% year-over-year rate, up from 0.38% in July.

The market pushed the dollar to almost JPY149.20 today as the broader gains and jump in US rates is seen dampening the likelihood of imminent intervention. It remains in a narrow range and has not traded below JPY148.70. The JPY150 level may hold some psychological significance but last year's multiyear high was set closer to JPY152.00. Moreover, the fact that Japan's policy rate remains at minus 0.1% means that Japan gets little sympathy from other G7 members. The Australian dollar has been capped near $0.6450 for the past three sessions. The Aussies traded slightly below $0.6390. It looks poised to retest the year's low set earlier this month near $0.6355. The measuring objective of the double top from June and July (~$0.6900) is $0.6300. This still seems to be a reasonable target. The secondary low after the multiyear low last October (~$0.6170) was about $0.6270. Meanwhile, speculators in the futures market have accumulated what appears to be a record-large, short Australian dollar position (~97k contracts). Yesterday, the Chinese yuan fell to its lowest level in two weeks and today is its consolidating in a narrow range. The dollar has traded between roughly CNY7.3020 and CNY7.3120. At best, Chinese officials can moderate the pace of the yuan's decline but given the dollar's strength, the policy divergence, and the ongoing property developer woes, which seem to be eclipsing official economic and financial measures. The PBOC set the dollar's reference rate at CNY7.1727, the same as yesterday (average forecast in Bloomberg's survey was CNY7.3133). The top of the 2% band is about CNY7.3160. The dollar briefly traded above the onshore band against the offshore yuan (reached almost CNH7.3170). 

Europe

The eurozone's August M3 month supply is due tomorrow and is expected to have contracted by 1% year-over-year, the second consecutive decline. The last time M3 was contracting on a year-over-year basis was in 2010, but this decline is steeper. Note that US M2 money supply is also contracting year-over-year. In July, it was down 3.7% year-over-year. The highlight of the week is the preliminary September CPI on Thursday. A 0.5% increase translates into a 3.6% annualized increase in Q3, the same as in Q2 and down from 6% in Q1. Due to the base effect, the year-over-year rate is seen falling to 4.5% from 5.2% and another sharp decline is expected next month as well. Last September, eurozone consumer prices surged by 1.2% and in October, by 1.5%. With conservative assumptions, the eurozone headline CPI can fall toward 3.5% by the end of next month. Core inflation is expected to fall from 5.3% in August to 4.8% in September. Slower inflation will reinforce the belief, reflected in the swaps market, that the ECB's tightening cycle is over.

With a 10-week losing streak in tow, the euro slide continues. Indeed, the euro has not settled higher for a single session since last Monday. It settled every day last week below $1.07 and broke below $1.06 yesterday, which should now act as resistance (may be up to $1.0615). The euro met the (38.2%) retracement of the rally from the multiyear low last September (~$0.9535). The next retracement (50%) is near $1.04. Note that for the third consecutive session, the euro closed above its upper Bollinger Band against the Swiss franc (~CHF0.9655). It is trading near a two-month high after the Swiss National Bank surprised many by standing pat last week. We do not expect the move to be sustained and are awaiting a reversal in the price action. Sterling does not have the euro's 10-week slide, but it trades poorly, just the same. It extended its push lower yesterday by trading below $1.22 for the first time in six months but settled slightly above. Today, its losses have been extended slightly below $1.2170. There is little standing in the way of a move toward $1.2075, the (38.2%) retracement of its rally from the record low last September and the $1.20 area, which is measuring objective of the head and shoulder pattern carved in June through August. Initial resistance now maybe near $1.2225. Lastly note that Hungary is expected to cut is overnight deposit rate today to bring into to the base rate of 13%, which signals the end of its emergency measures implemented in 2022 to stabilize the forint. Ahead of the rate decision, the forint has steadied after falling for the past six sessions against the euro. 

America

US high-frequency data reports today include house prices (narrowly mixed), new home sales (softer after a 4.4% increase in July), and the Conference Board's September consumer confidence (slightly softer). The Philadelphia Fed's non-manufacturing survey, the Dallas Fed's services survey, and the Richmond Fed's survey round out today's report. While there may be some headline risk, these reports are unlikely to change views on the US economy. US yields and the dollar remain firm. Some observers have expressed concerns about the demand for US debt, and the US Treasury is raising $158 bln in coupons this week and even more in bills. Yet, the concern seems misplaced or exaggerated. Recent bill and coupon demand has been strong, and the bid-cover has been robust. Even last week's 20-year bond sale, which is not the more popular tenor, was over-subscribe 2.7x.

Meanwhile, the US still appears headed for partial government shutdown. There are some efforts, of course, to avert it, but they lack sufficient support. A House proposal of a stop-gap measure cuts spending by more than 25%, which is unacceptable to the Senate. A bipartisan bill in the Senate will not get the support of much of the Freedom Caucus in the House. Four appropriations bills are making progress:  State, Agriculture, Homeland, and Defense.

The Canadian dollar continues to consolidate. The greenback held below CAD1.3500, where options for $1.2 bln expire today. It is the only G10 currency that has appreciated (~0.15%) against the greenback this month. It has been aided by the swing in expectations with the swap market discounting about a little more than an 85% chance of a hike in Q4. Initial support is now seen in the CAD1.3435-50. The risk-off mood taking a toll on the Mexican peso. Its 1% decline yesterday was second only the Colombian peso among emerging market currencies. It is off another 0.3% today. The greenback's gains met the (61.8%) retracement of the dollar from the month's high (~MXN17.7080) to last week's brief slippage below MXN17.00. The dollar poked above MXN17.45 yesterday, and approached MXN17.5670 today, where sellers emerged to push it back to almost MXN17.37. Still, the shake out does not appear over. Nearby resistance is seen in the MXN17.60 area. The dollar quickly filled the opening downside gap against the Brazilian real yesterday (the pre-weekend high was slightly below BRL4.9380) and then advanced to nearly BRL4.97. It has not closed above BRL5.0 since for almost four months. Above there, the 200-day moving average is near BRL5.0265, and the dollar has not traded above it since late March. 


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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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