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Position Squaring Ahead of US Data Helps the Dollar Recoup Some Recent Losses

Overview: Position-squaring ahead of today’s US
personal consumption data and perhaps tomorrow’s jobs report is giving the
dollar a firmer profile against…

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Overview: Position-squaring ahead of today's US personal consumption data and perhaps tomorrow's jobs report is giving the dollar a firmer profile against most G10 and emerging market currencies. The Scandis have been the hit hardest and are off 0.75%-0.85%. The euro and sterling about 0.35%-0.45% lower. The yen is the only G10 currency that is slightly firmer. The dollar-bloc is nursing small losses (0.10%-0.15%). Despite the firmer than expected preliminary August eurozone CPI, European 10-year yields are off 3-6 bp. The US 10-year Treasury yield is slightly below 4.10%, shaving about two basis points from yesterday's settlement. Two-year yields are down 4-9 bp in Europe, with the US two-year Treasury yield a little more than two basis points lower near 4.86%. Recall that the US two-year yield peaked on Monday around 5.10%. Softer yields but a firmer dollar is keeping gold activity subdued, and it is holding slightly below yesterday's high near $1949. 

Equities are trading mixed. Japan's stocks traded higher, as did Australia, but the other large bourses in the region fell. The Stoxx 600 in Europe is firmer and is recouping yesterday's minor loss (-0.15%) in full. The S&P 500 futures are flat, but the NASDAQ futures are a little softer. The large drop in US oil inventories reported yesterday and more speculation that Saudi Arabia may extend its extra unilateral cut through October are helping to extend oil's rally. October WTI is at a two-and-a-half week high, poking above $82. If sustained, it will be the sixth consecutive advance, the longest streak since January. It is up about 2.8% this week.

Asia Pacific

China's PMI was slightly better than expected, but not sufficiently to change assessments and China's CSI 300 fell in back-to-back sessions for the first time in two weeks. The recovery from the re-opening post zero-Covid has been a quickly faded. Many market participants want to give the world's second-largest economy last rites, as it were, blaming its ideology, which had generated more than an eight-fold increase in per capita GDP in a single generation and is largely, even if not solely responsible for reducing extreme global poverty in the past forty years. Development economists warn that with the urbanization of China, the focus for a further reduction in global poverty shifts to India, which does not have nearly as impressive of a track record. That means that the closing of the gap between the rich and poor globally will slow if not reverse. Still, the pace of deterioration of China's PMI appears to be slowing, with a small uptick in the manufacturing PMI (49.7 vs. 49.3) but a little slowing in the non-manufacturing PMI (51.0 vs. 51.5). The composite remained above 50 (51.3 vs 51.1), suggesting that some of talk about China in a recession (i.e., contracting) may be exaggerated. Separately, note that Nvidia reported that the US now requires it to seek prior permission to sell some advanced AI chips to to Middle East countries (it did not specify which) for fear that they are being sold to Chinese companies.

There were three data points to note from Japan. First, after falling by 0.6% in June, retail sales jumped 2.1% in July, nearly three times more than expected. Retail sales fell by an average of 0.1% in Q2 after averaging 1.1% in Q1. Recall, Japanese consumption contracted in Q2, despite the spring wage round that saw the largest increase in years, and 14% rally in stocks (which speaks to the wealth effect). Strength was seen in apparel and appliances. However, the upside surprise was matched by a downside surprise in the second data point. Industrial production plummeted 2.0% in July after rising by 2.4% in June. Manufacturing of machinery and electronic components were the weakest and offset the modest strength of the auto sector. Third, the Ministry of Finance reported last week's portfolio flows. Contrary to fears after the Yield-Curve Control policy was adjusted at the end of July, Japanese investors have been buyers of foreign bonds, not just last week, but over the four weeks since the decision was made. Over the four weeks, they have bought about JPY936 bln (~$6.5 bln). Japanese investors have been sellers of foreign equities and continued last week. For their part, foreign investors have been divesting of Japanese bonds and stocks. Over the four weeks, they have sold about JPY3.3 trillion (~$23 bln) of Japanese assets.

The dollar saw some limited follow-through selling yesterday after the dramatic key reversal on Tuesday. The session low was recorded after soft US data near JPY145.55. It recovered to around JPY146.30 in late dealings. It is in a narrow range of roughly JPY145.70 to JPY146.25 range today, with a slightly heavier bias. Options for nearly $1.5 bln expire at JPY146.50 today and $1.55 bln tomorrow at JPY146.40. The Australian dollar was bid to around $0.6520 amid the US dollar's broader sell-off yesterday, but drifted lower for most of the session, giving back a half-of-a-cent roughly. It tried again today to establish a foothold above $0.6500 and again has been rebuffed. Initial support is seen near yesterday's lows around $0.6450. Tomorrow there are nearly A$1.7 bln in expiring options in the $0.6520-5. The dollar continues to consolidate in a narrow range against the Chinese yuan. Today's low (~CNY7.2820) is the highest low in nearly two weeks. The high (~CNY7.2915) is the lowest high in a week. The dollar was fixed at CNY7.1811, slightly lower than yesterday (CNY7.1816). The average projection in Bloomberg's survey was CNY7.2776 (13 survey responses).

Europe

Inflation in the eurozone was firmer than expected, according to the preliminary estimate, bolstered by today's French report that showed a 1.1% rise in the month-over-month harmonized rate for a 5.7% year-over-year gain. The EMU aggregate reading showed the headline rate rose by 0.6% after falling by 0.1% in July. The year-over-year rate was unchanged at 5.3%, while the core rate slipped to 5.3% from 5.5%. The three-month annualized rate slowed to about 3.2% from 4.5% in the previous three months. The base effect indicates that there is likely to be substantial progress in September and October. In 2022, headline CPI rose by 1.2% and 1.5%, respectively. Making some conservative assumptions (0.4% a month increase in September and October), the year-over-year rate will fall below 3.5%. And that may be the best it gets for a few months. In November 2022 through January 2023, the monthly CPI fell, and this will make difficult to have much improvement in the 12-month rate. Separately, despite the stagnating economy, the unemployment rate in the eurozone remained for the fourth consecutive month (July) at the cyclical low of 6.4%. Last July, it was at 6.7%. At the end of 2019, the eurozone unemployment rate was 7.5%. 

The euro's recovery extended to $1.0945 yesterday, and the single currency settled above its 20-day moving average (~$1.0905) for the first time since late July. The $1.0960 area corresponds to the (38.2%) retracement of the sell-off since last month's high. There are options for about 880 mln euros at $1.0950 that expire today. The euro's recovery has coincided with a 25 bp narrowing of the US two-year premium over Germany. However, the euro has come back offered, in what appears to be some position squaring ahead of the US data. It is holding above yesterday's low (~$1.0855), and a break may be worth about a quarter-of-a-cent. Sterling also closed above its 20-day moving average (~$1.2700) for the first time this month. It reached nearly $1.2750 in the broad dollar sell-off after the soft data. After moving above $1.27, it held above it, but is also trading with a heavier bias today. Session lows, near $1.2675, was recorded in the European morning. Support is seen in the $1.2630-50 area. Tomorrow there are nearly GBP700 mln in options at $1.2800, the upper end of the previous trading range.

America

Although the weekly initial job claims are due, they ae overshadowed by tomorrow's BLS report and today's personal income and consumption report. For the second consecutive month, and the fourth month in the first seven, consumption is expected to outstrip income. The median forecast in Bloomberg's survey is for a 0.3% increase in personal income and a 0.7% rise in personal consumption. The rise in consumption speaks to the strong demand Fed Chair Powell referenced in last week's speech at Jackson Hole. 

Given the sensitivity to inflation, the PCE deflator is keenly followed. It is, after all, the measure of inflation that that the Fed targets. However, we argue that the CPI captures is essence, despite the different baskets and weightings. In H1, headline CPI rose at an annualized rate of about 3.4% and the PCE deflator rose at an annualized rate of roughly 3.2%. The core CPI rose at an annualized rate of 4.6% compared with the core PCE deflator's annualized increase in H1 of about 4.1%. The median forecast in Bloomberg's survey is for a 0.2% increase in both the headline and core PCE deflators, which would put the year-over-year increase at 3.3% and 4.2%, respectively, up from 3.0% and 4.1% in June. Going forward, consumption is expected to weaken over the remainder of the year as job growth slows, savings are drawn down, and student loan servicing resumes. In GDP terms, consumer spending rose 4.2% in Q1 and 1.7% Q2. It is seen slowing to 1.5% this quarter before settling in at around 0.5% for Q4 23 and Q1 24.

After last week's high (~CAD1.3640) held on Tuesday, the greenback reversed and fell to a low near CAD1.3515 yesterday. A break of the CAD1.3495-CAD1.3500 (two-week lows and the 20-day moving average) could signal a test on the CAD1.3450-60 area, which holds the (38.2%) retracement of this month's US dollar rally and the 200-day moving average. Canada's current account typically does not draw much interest, but the deficit looks set to have doubled in Q2 over Q3. If could point to a weaker Q2 GDP, which will be reported Friday. The US dollar may find initial resistance near CAD1.3565-75 today. Mexico's central bank boosted its GDP forecasts for this year (3.0% from 2.3%) and next (2.1% from 1.6%). Banxico acknowledged that exports to the US helps explain the resilience of the Mexican economy. The dollar softened against the peso but remained above Monday's low near MXN16.6945. It is in a narrow range today (~MXN16.7385-MXN16.7675). Resistance is seen near MXN16.80, and there are options for about $635 mln that expire today at MXN16.85. Looking further afield, not that there are options for $1.5 that expire next Tuesday at MXN16.70.

 

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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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