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Risk Appetites Return to Start the New Week

Overview: China and Hong Kong re-opened after the Friday and holiday and equities rallied strongly. Japan, Taiwan, and South Korea advanced as well. However,…



Overview: China and Hong Kong re-opened after the Friday and holiday and equities rallied strongly. Japan, Taiwan, and South Korea advanced as well. However, India and Australia equities fell. Europe’s Stoxx 600 is up around 0.9% to recoup its pre-weekend loss and more. US futures are broadly higher. Benchmark 10-year yields are mostly firmer. The US 10-year yield is up about three basis points to 2.96%. European core yields are firmer but the yields in the periphery are lagging amid speculation that the ECB will announce a new facility to support them if needed. The 10-year UK Gilt yield is up nearly five basis points to 2.20%, a new three-month high. The dollar is trading lower against all the major currencies. Sterling is the strongest with almost a 0.6% gain. The yen and Swiss franc are the weakest, rising about 0.1%. Emerging market currencies are also mostly higher today. The main exceptions are a few Asian currencies and the Turkish lira. Turning to commodities, gold steadied after the pre-weekend reversal. It found support a little below $1850. July WTI reached almost $121 for easing back below $120. US natgas has jumped 4.3% today and Europe’s benchmark is up marginally. With China re-opening, iron ore prices extended their three-day rally into today with a 1% gain. It is trading at its best level in a month. Copper extended its reversal. At the end of last week, it reached 457.70 before reversing to close a little below 446.00. It fell to 440.60 today before stabilizing. July wheat has rallied 4.7% today after falling 10% last week.

Asia Pacific

China's May services Caixin PMI rose to 41.4 from 36.2, disappointing expectations for a larger rise. The composite rose for the first time this year (from 37.2 to 42.2). With the lockdown lifted in Shanghai and restrictions easing in Beijing (public transportation resume today), and the investigation into Didi completed (mobile app may appear in store again later this week), the world's second-largest economy appears to have turned the corner.

While BOJ Governor Kuroda has persuasively argued that the rise in Japan's CPI, with the core reaching the target will not spur a change in monetary policy, fiscal policy in play. Prime Minister Kishida offers a "new form of capitalism."  It seems like it is the traditional LDP-economics of easy monetary and fiscal policies with an emphasis on greater economic equality. To be sure this is not a warmed-over socialism. Kishida thinks it can be done through growth efforts, including mid-career educations (retraining and acquisition of new skills). At the same time, he wants to promote an equity culture and is working on efforts to encourage households to participate in the returns to capital. Household financial assets were estimated to be worth around JPY2 quadrillion at the end of last year, or about $15.5 trillion. Over half is invested in low yielding savings accounts. Last year's supplemental budget had a commitment to record a primary budget surplus (excludes debt servicing costs) by the end of the fiscal year ending in March 2026. This year budget dropped the reference. Still, there is no sign that Japan's fiscal stance is an important market consideration. The 30-year bond yield is slightly above 1%. It set a six-year high in late March near 1.10%. Japan's 10-year breakeven poked above 1.0% in early May for the first time in seven years. It rose 11 basis points last week, the first increase in four weeks.

The RBA meets the first thing tomorrow in Canberra. The swaps market has almost 30 bp of tightening discounted. Economists, in Bloomberg's latest survey, look for a bit more, 40 bp. Since the end of April, the Australian dollar appreciated by about two cents, but the speculators in the futures market have boosted their net short position to almost 48.7k contracts (each contract is for A$100k) five weeks in a row through last Tuesday (May 31) and for a cumulative 20k contracts during the run. As we noted in the weekly commentary on prices, the Australian dollar's bounce faltered after retracing a little more than half of the decline from April's high (~$0.7660) to the mid-May low (~$0.6830). Australia's new Treasurer, Chalmers, warned that he may revise sharply higher this year's inflation forecast next week, and plans on publishing a new budget in early Q4.

The dollar held JPY131 and is consolidating in about a half a yen below there. Support is seen in the JPY130.40 area, which has been the low since the better-than-expected US jobs data before the weekend. The greenback may be bolstered if the 10-year yield resurfaces above 3%. After reversing lower after the US jobs data, the Australian dollar fell further today to a slightly below $0.7190 before finding a solid bid. Its recovered began in the middle of the Asia Pacific sessions and carrying into the European morning, where it approached $0.7230. Recall, the pre-weekend high was near $0.7285. China's mainland markets were closed last Friday, and the offshore yuan was virtually unchanged. The dollar gapped lower today and fell to CNY6.6415, its lowest level in a month. A small gap remains (~CNY6.6568-CNY6.6595). The PBOC set the dollar's reference rate at CNY6.6691 compared to the median (Bloomberg) projection of CNY6.6708.


The euro bottomed against the dollar on May 13 (~$1.0350). The same day, the swaps market slipped to price in 60 bp of ECB rate increases through October. It has been trending higher and rose 13 bp last week to a little more than 100 bp. A similar force has seen the US two-year premium over Germany narrow by 50 bp over the past two months to approach 200 bp. To put this in some context, consider that the US premium peaked in the last cycle near 350 bp (November 2018) and around 220 bp at the end 2019. It bottomed ahead of 75 bp during the acute phase of the pandemic. Speculators in the futures market were long from early January through early May when the net position switched briefly to favor the shorts. However, in last four CFTC reporting periods, the bulls stepped in and have been net buyers of euros for the past four weeks. At almost 52.3k contracts (125k euros per contract) the net long position is the largest in two-and-a-half months. The median forecast in Bloomberg's survey shows a near-term flat view ($1.0705 in three months), but a bullish outlook after. The median for year-end is $1.0850 and $1.1050 for the middle of next year. The year-end forecast (median) is $1.1500.

Sterling is the strongest of the major currencies today, nearly recouping in full the roughly 0.7% pre-weekend decline. The gains appear to come as Prime Minister Johnson is expected to win the vote of confidence, which will take place later today. The vote of confidence requires at least 54 MPs to call for Johnson's resignation, but it appears the Prime Minister still enjoys the support of a majority of Tories in Parliament and the leading contenders in the government, including Sunak and Truss say they support Johnson. Surviving a vote of confidence today protects the PM from another such vote for a year. However, recall that Johnson's predecessor May survived a vote of confidence but resigned shortly after. Assuming Johnson survives today, the next challenge is the June 23 two special elections to replace two Tory officials that resigned amid separate sex scandals. Labour looks set to re-take its traditional stronghold in Wakefield, while the Lib-Dems may take the Tiverton and Honiton district from the Tories.

The euro is trading inside the pre-weekend trading range (~$1.0705-$1.0765). The single currency is near the middle of the $1.07-$1.08 range protects by expiring options of a little more than 1.4 bln euros each side today. The risk of a hawkish hold by the ECB later this week may underpin the euro. Sterling's advance from the sub-$1.22 low in mid-May ran out of steam last week near $1.2660. It fell back two cents and has been confined to last Tuesday's range ($1.2460-$1.2655). The intraday momentum got stretched as sterling approached $1.2580 in the European morning. The consolidative tone looks likely to persist a bit long.


There are several reasons why gasoline prices are high and the size of last year's stimulus or the easy monetary policy are not among the major drivers. One factor that does not appear fully appreciated is the loss of around 1 mln barrels a day in refining capacity. Some was shuttered. Some was converted to biofuels. Another factor that has not received much attention is the strong gasoline exports, the most in a few years. Mexico's demand has been strong. Brazil and Argentine demand for distillates have been robust as in the face domestic shortages. Europe is shipping gasoline to the US East Coast, which may be cheaper that from the Gulf due to the Jones Act. OPEC+ agreed last week to boost output by 648k barrels a day next month. It had problems fulfilling their previous quotas. An unscientific survey found a range of 132k to 350k barrels a day are expected to be provided. It was not seen as sufficient to ease the shortage with given the EU sanctions, the re-opening of China, and the seasonal demand in the US. The potential game changer is Iran. However, talks for the US to re-enter and for Iran to move back in accordance stalled in March. Some have raised the possibility that the US does not enforce the sanctions. However, the latest confrontation was late month when the US confiscated Iranian oil on a Russian-operated ship near Greece and Iran retaliated by seizing two Greek ships. News that Saudi Arabia was boosting next month's premium for Asian customers $2.10 a barrel to $6.50 on top of its benchmark was more than expected and helped lift July WTI to a new high of almost $121 a barrel today before pulling back toward $119.

The US jobs data did not sway economic views. The 390k increase in nonfarm payrolls was a little stronger than expected, especially after the ISM and ADP reports. It was the least number of jobs created in a year and was consistent with other high-frequency data points suggesting that the world's largest economy has lost momentum. However, the report was seen as sufficiently strong to keep the Fed on course. In fact, the implied yield of the December Fed funds rose every session last week for a cumulative 17 bp increase (to 2.70%). The Federal Reserve has committed to lifting the target rate by 50 bp at the next two meetings. Although some officials have been reluctant to venture what will happen at the September meeting, the market has increased the chances of another 50 bp hike. The Fed's quiet period ahead of the June 14-15 FOMC meeting has begun.

Today's is a subdued start to the week's data releases. Tomorrow sees the US trade balance and consumer credit. The trade deficit may be less of a drag on Q2 GDP than it was in Q1. American's have sustained consumption partly by drawing down savings, using credit cards (record increase in revolving credit in March) and monetizing the rise in house prices, through equity withdrawal refinancing. The highlight of the week is the May CPI figures on Friday. Little change is expected. Canada also reports trade figures tomorrow, but the highlight is the employment report at the end of the week. Employment is expected to rise by about 25k after a 15k increase in April. Mexico reports May CPI on Thursday. The year-over-year pace may steady around 7.6% and the core around 7.2%. Brazil's IPCA inflation measure is due the same day, and it is expected to moderate. April retail sales will be reported the following day and are expected to have edged higher. Chile has raised rates every other month this year but after hiking by 125 bp last month, many expect it to move again tomorrow. The overnight target rate stands at 8.25%. May CPI is due Wednesday and is expected to have risen by 1.1% for an 11.4% year-over-year rate (from 10.5%). Peru's central bank meets Thursday and is expected to hike rates 50 bp for 10th consecutive meeting. The tightening cycle began last August with a 25 bp move. The reference rate stands at 5.0% now with Lima inflation running near 8%.

The US dollar settled last week on the session highs a little shy of CAD1.26. It briefly poked above there today before sliding back to almost CAD1.2555, just above the pre-weekend low (~CAD1.2550). Little technical support is seen ahead of CAD1.2500, where a $600 mln option expires today. The greenback looks more likely to return to the CAD1.2580-CAD1.2600 area. The Mexican peso is bid, and the US dollar is slipping through the low from the end of last week (~MXN19.50). The two-year low was set last Monday near MXN19.4135. Here too, the North American market may be more favorable disposed to the greenback. Initial resistance now is seen near MXN19.55.


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NYC biotech LB Pharmaceuticals eyes $75M for new take on decades-old schizophrenia drug

As Karuna Therapeutics wraps up its FDA approval request for what could be the first new type of schizophrenia drug in decades, another East Coast biotech…



As Karuna Therapeutics wraps up its FDA approval request for what could be the first new type of schizophrenia drug in decades, another East Coast biotech is raising $75 million to test an adjusted version of a decades-old medicine for the disorder next year.

LB Pharmaceuticals has secured about $35 million so far and expects another $40 million in the round, according to an SEC filing on Thursday. Per the financial document, its board includes directors associated with Vida Ventures, Pontifax, Deep Track Capital and TCGX, a crossover firm that has invested in multiple nine-figure biotech financings in recent months, including Carmot Therapeutics, Alkeus and Upstream Bio.

LB declined to comment.

The New York City biotech plans to run a Phase II trial of a chemically differentiated form of amisulpride, a D2 and D3 antagonist that has been available in Europe and more than 50 countries for decades, according to an investor deck from June. Sanofi marketed it as Solian, which generated €135 million in sales in 2002 for the French Big Pharma. It’s since become available as a generic.

LB’s board includes Piero Poli, CEO of Swiss drugmaker Rivopharm, which produces generic amisulpride. In February 2020, Acacia Pharma secured FDA approval for an IV formulation of amisulpride in certain postoperative patients with nausea, marketing it as Barhemsys.

With its methylated version of amisulpride, LB says its oral asset LB-102 has the potential to be more effective at lower doses by improving blood-brain barrier permeability, per the investor deck. Its new chemical structure gives LB-102 IP protection until “at least 2037.” LB has positioned the drug as a blockbuster treatment that could generate $1 billion or more in annual sales, pointing to antipsychotic prescriptions in the EU with an average price of $2,000 per month.

The drug is set to go into Phase II testing in adults with acute schizophrenia in the first quarter of next year, per the June document.

The company expects to enroll about 350 people at 25 sites, testing whether three doses of the drug are better than placebo based on the commonly used schizophrenia clinical trial measure known as PANSS, or Positive and Negative Syndrome Scale. Karuna’s M1/M4-preferring muscarinic agonist KarXT has passed two Phase III trials that use that measure, leading to massive financing hauls for the biotech and Cerevel Therapeutics. Boston-based Karuna plans to submit its approval request to the FDA this quarter. Meanwhile, Sumitomo and Otsuka’s ulotaront failed a Phase III on the PANSS test two months ago.

LB expects the study to focus on in-patients for four weeks. Pending the mid-stage results, the company would likely then take LB-102 into multiple Phase III trials in 2025, with plans to submit an NDA in 2028, per the June presentation. The company sees schizophrenia as the first step, with potential for studies in depression, bipolar depression and other indications.

Zachary Prensky

The drug developer is led by a former family office manager, CEO Zachary Prensky. LB’s medical chief is Anna Eramo, who previously ran clinical and medical affairs at Lundbeck’s US operations and worked on the development of Rexulti, approved for schizophrenia and other indications. Science chief Andrew Vaino and chief financial officer Marc Panoff were previous executives at Retrophin.

Prensky co-founded LB with Vincent Grattan, a pharmacist who came across amisulpride in the 2000s while working on medication managements in multiple prisons. “As many are aware, correctional facilities are de facto mental health hospitals, and I wanted to make sure we were stocking the most reliable medications,” he told Psychiatric News in 2021.

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Dana-Farber, Brigham breakup could lead to a ripple effect for CGT clinical trials for cancer

Dana-Farber Cancer Institute announced on Sept. 14 that it is securing a new joint venture with Beth Israel Deaconess Medical Center, marking a breakup…



Dana-Farber Cancer Institute announced on Sept. 14 that it is securing a new joint venture with Beth Israel Deaconess Medical Center, marking a breakup of its decadeslong adult cancer care partnership with Brigham and Women’s Hospital.

The news shocked Brigham, which had been negotiating a partnership extension with Dana-Farber for the past 15 months, according to the Boston Globe.

There are around 20 ongoing cell therapy clinical trials under the Dana-Farber Brigham Cancer Center, which comprises 12 treatment centers with experts from Dana-Farber and Brigham working together. Brigham also has its own gene and cell therapy institute and a lab dedicated to next-generation, genetically-modified CAR-T cell therapies for cancer.

With the Dana-Farber contract set to end in 2028, concerns have been raised about the impact on current cell and gene therapy (CGT) studies and ones that are scheduled to start, due to the complex nature of the treatments involved.

Jason Foster

Manufacturing CGTs is a skill- and labor-intensive process. Ori Biotech CEO Jason Foster told Endpoints News that hospitals and research centers often work together to make them on-site for clinical trials, with highly skilled experts from the specialty centers playing a key role. UK-based Ori develops technologies that automates CGT manufacturing.

At Dana-Farber Brigham Cancer Center’s cellular therapies program, cells are processed at an outside commercial facility or at the Connell and O’Reilly Families Cell Manipulation Core Facility.

When such partnerships come to an end, “that kind of [specialist] knowledge loss is something that will impact both the trajectory of [CGT] trials, but also the time it takes to get these products to patients,” Foster added.

These potential negative impacts on trials would only compound preexisting barriers to access to CGTs, including high costs and lengthy manufacturing processes. Estimates suggest that 25% of patients die while waiting for CAR-T treatments, according to ASCO Post.

Lee Buckler

Lee Buckler, senior vice president of advanced therapies at Blood Centers of America, told Endpoints in an email that collaboration between research institutes and healthcare providers was of significant — if not critical — value to the testing of CGTs.

A Brigham spokesperson said that the hospital is one of the largest recipients of NIH funding and does not expect any changes to trials already under agreement, adding it would continue to be a leader in the CGT space. “We are also planning for a new, state of the art Brigham facility which will include the medical oncology specialty,” the spokesperson said.

Dana-Farber did not respond to Endpoints before deadline.

Problems with CGT trials could be both the cause and the effect of partnership breakdowns. Buckler said that general hospitals are often reluctant to facilitate the kinds of clinical trial protocols associated with innovative CGTs, which may drive research centers to align with partners more willing to prioritize them.

Under the new partnership with Beth Israel, Dana-Farber plans to create a free-standing state-of-the-art cancer hospital, which it said would have the flexibility to “incorporate the innovations and technology in cancer care that Dana-Farber’s and BIDMC’s researchers and clinicians are developing every day.”

Vered Caplan

But a dedicated cancer hospital is not necessarily better at carrying out CGT trials than a general hospital with a tightly-integrated cancer specialty.

“I’ve seen general hospitals with tremendous capabilities and specific hospitals with tremendous capabilities — it really depends on the particular hospital,” Orgenesis CEO Vered Caplan told Endpoints in an interview. Germantown, MD-headquartered Orgenesis rolls out CGT mobile processing units and labs for cancer treatment to hospitals.

Regardless, the breakup means Dana-Farber must convince patients that its program with Beth Israel will provide at least the same quality care as the Brigham partnership, while Brigham must rebuild its specialist capabilities without Dana-Farber expertise.

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Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

By all accounts, Zelensky came away from his Washington visit with…



Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

By all accounts, Zelensky came away from his Washington visit with nothing new. Biden did announce a fresh $325 million aid package for Ukraine from already committed funds, but the hoped-for long range missile approval never came (however, more cluster bombs are being sent). And as we detailed Thursday, House Republican leadership once again failed to move forward on a mere procedural vote for the Pentagon funding bill, due in large part to GOP members rejecting Biden's proposed $24 billion more in Ukraine aid.

Thursday's package announced by Biden, as Zelensky visited the White House and Capitol Hill, was run-of-the-mill and entirely to be expected. "Today I approved the next tranche of U.S. security assistance to Ukraine including more artillery, more ammunition, more anti-tank weapons and next week, the first U.S. Abrams tanks will be delivered to Ukraine," Biden said.

As for the earlier in the day (Thurs.) meeting with Congressional leaders, House Speaker Kevin McCarthy explained when asked why the Ukrainian leader's request to address Congress was denied, "Zelensky asked for a joint session, we just didn't have time. He's already given a joint session."


Instead in a closed-door meeting, Zelensky later acknowledged he discussed with lawmakers "the battlefield situation and priority defense needs."

But if there is any level of consolation for Kiev, it's seen in the Pentagon announcement which came late in the day Thursday. Facing potential US government shutdown on Oct.1st, given at this point Congress is not expected to pass the 12 appropriations bills needed to fund government operations before next fiscal year, the Pentagon has said it will exempt its operations supporting Ukraine from a shutdown. 

The military typically suspends any activities not deemed vital to national security during government shutdowns, thus the DoD is in effect saying Ukraine aid remains "vital to national security". 

"Operation Atlantic Resolve is an excepted activity under a government lapse in appropriations," Pentagon spokesman Chris Sherwood told Politico, in reference to the operational name still used for actions supporting Kiev.

But Politico points out a potential shutdown would still negatively impact US support to Ukraine:

Sherwood noted that while DOD’s activities related to Ukraine will continue, furloughs and other activities halted under the shutdown could still have a negative impact.

"Training would happen, but depending on whether or not there were certain personnel that were not able to report for duty, for example, that could have an impact," said Pentagon spokesperson Brig. Gen. Patrick Ryder on Thursday.

This Pentagon exemption to keep Ukraine-related support active during a government shutdown seems to be the only significant thing Zelensky came away with. 

It appears to have been the main object of discussion when Zelensky met with Secretary of Defense Lloyd Austin in Washington during the trip. The Pentagon said this was "to reaffirm the steadfast US support for Ukraine."

Meanwhile, Bloomberg takes note of Zelensky "showing the strain" amid increasing divisions among allies:

The Ukrainian president allowed a dispute with one of his biggest allies to spin out of control at the United Nations General Assembly this week, and that’s just a hint of the tensions building behind the scenes.

Zelenskiy has been leading his country through Russia’s brutal assault for 19 months, all the time fighting on another front to wring the weapons and finance he needs from his US and European supporters. Now he suspects that President Joe Biden’s commitment is wavering and other leaders may be taking their cue from the US, according to a person who met with him recently.

He grew very emotional at times during that discussion, the person said, and was scathing in his criticism of nations that he said weren’t delivering weapons quickly enough.

Washington's lackluster greeting of Zelensky this week (compared to how he was received in December 2022) came simultaneous to Poland declaring it will no longer arm Ukraine, amid a fierce diplomatic spat over blockage of Ukraine grain imports by Warsaw, to protect Polish farmers.

The Economist is also taking note of the significant mood shift among Western allies...

A "long war" indeed... given a G7 leader from a European country has told reporters this week that the West is prepared for a years-long war, something likely to last some six or seven years, according to the quote.

"A senior official from one European G-7 country said the war may last as much as six or seven more years and that allies need to plan financially to continue support for Kyiv for such a long conflict," Bloomberg wrote.

Tyler Durden Fri, 09/22/2023 - 10:15

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