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Sterling Continues to be Pounded

Overview: Sterling’s pounding continued in Asia where it was driven to $1.0350, a new record low before stabilizing. UK rates also continued to rise…

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Overview: Sterling’s pounding continued in Asia where it was driven to $1.0350, a new record low before stabilizing. UK rates also continued to rise sharply after the new government promised more tax cuts next year. The right-wing victory in Italy was not surprising but it kept pressure on Italian bonds. China took more action to slow the yuan’s descent The dollar is broadly higher. All the G10 currencies and most emerging market currencies are lower. Risk appetites are practically non-existent today. Many of the largest Asian equity markets, excluding China, were off 1.5%-3% Europe’s Stoxx 600 is off around 0.8% to bring it to new lows for the year. US futures off almost 1% UK’s 10-year Gilt yield is soaring by more than 30 bp, while European benchmark yields are 9-16 bp higher, with Italy’s gains the most following the right-wing election victory. The 10-year US Treasury yield is near 3.78%. Gold slipped through $1627 to record new lows for the year today but has rebounded in the European morning to test previous support, now resistance near $1650. Concerns about demand saw December WTI fall to $76.75, new lows since January. Separately, retail gasoline prices have begun stabilizing after falling for most of Q3. They rose on Saturday for the fifth consecutive daily gain US natgas is off 2.3%, after falling 12% last week (fifth weekly loss) Europe’s benchmark is off 6.3%. It fell nearly 3.5% last week (fourth consecutive weekly decline). Iron ore fell by about 2.25% today It was practically flat last week. December copper is heavy after falling 3.7% before the weekend. It is near three-month lows. December wheat is nearly 1.4% lighter today It fell 3.3% before the weekend to trim last week’s gain to 2.4%. 

Asia Pacific

The Bank of Japan acted on two fronts last week. First, it intervened and bought yen for the first time since 1998. With the yen still confined to the range seen on the intervention day, Japanese officials see the action as successful. Second, rising global yield pressured Japanese government bonds, and the BOJ stepped in for the first time since June to buy 10-year JGBs in an unannounced operation. The BOJ has come to dominate the market that there were two days last week when the 10-year cash bond did not trade. The BOJ stepped in today and bought JPY550 bln (~$3.8 bln) of 5–10-year notes today. It is the third operation for more than the plan of JPY500 bln and it follows an unscheduled purchase of JPY150 bln in the middle of last week. Separately, due to a holiday at the end of last week, Japan's preliminary PMI was reported earlier today. The manufacturing PMI softened to 51.0 from 51.5, but the services PMI rose to 51.9 from 49.5. The saw the composite recover to 50.9 from 49.4, which was its lowest reading since February

Beijing took another step to ease the selling pressure on the yuan. It imposed a 20% reserve requirement on short yuan forward positions Previously there were no requirements. The measure goes into effect Wednesday. The reserve requirement had been eliminated in October 2020 as the yuan strengthened Recall on September 5, Beijing cut the reserve requirement on foreign currency deposits by 2% to 6%. The dollar is allowed to trade in a 2% band around the fix. Most of the time, the greenback trades well within it. However, in recent days, it has approached the limit. Speculation that it may widen the band seems to be confused .A wider band now would accelerate the dollar's rise

Today, the PBOC set the dollar's reference rate at CNY7.0298. The upper band, 2% higher, would give CNY7.17. Today's high has been about CNY7.1685. The offshore yuan (CNH) often respects the onshore band, but today the dollar traded through it to around CNH7.1735. The dollar gapped higher Friday's high was slightly below CNY7.13 Today's lows were near CNY7.1360. The dollar remains in the intervention day range against the Japanese yen (~JPY140.35-JPY145.90. However, it did reach its best level since then and set a high near JPY144.25. Support now is seen in the JPY143.00-25 area. After the weak close before the weekend, the Australian dollar was sold further today, reaching $0.6485, a new two-and-a-half year low. The (61.8%) retracement objective of the rally since the March 2020 low (~$0.5510) comes in near $0.6465, which we have suggested as near-term target. Resistance now is seen around $0.6550. Lastly, we note that South Korean officials have stepped up their rhetoric, expressing displeasure with the won's weakness. There had been some idea that it was defending the KRW1400 level, around where it is stalling in the middle of the month. However, it closed above in the last two sessions last week, and gapped higher today, reaching KRW1435

Europe

Sterling slumped to $1.0350 in early Asian turnover as the market continued to react to the government's "mini-budget". The government seems undaunted by the criticism of economists and investors Chancellor of the Exchequer Kwarteng signaled more tax cuts were planned for next year. The main focus of the criticisms, leaving aside the regressive nature of many of the initiatives, has been on the risk to the twin deficits To attract funds, prices are being marked down, which is to say higher yields and weaker sterling. There is also the fear that the government's plans will be inflationary. The 10-year breakeven is around 4.30%, up from less than 4.10% a week ago. The market is rife with speculation of an emergency Bank of England meeting this week that would ostensibly hike rates. The swaps market is pricing in 110 bp increase in the policy rate by early November The BOE meets on November 3. This is up from around 75 bp after last week's BOE meeting. The 10-year yield was near 3.50% after the BOE meeting and surged to 3.85% before the weekend and traded to almost 4.20% today before steadying

As widely expected, a right-wing coalition won handily in Italy. It will take a little time to sort things out President Mattarella is expected to recognize the election results and allow the Brothers of Italy to put together the new government. Ministerial appointments are focus Still, it does not look as if the right secured a sufficient majority to enact constitutional reforms. The 10-year Italian bond yield has jumped about 15 bp to 4.47% and the premium over Germany has risen around six basis points on top of the 11 before the weekend to approach 240 bp, the upper end of this year's range. The two-year premium near 116 bp. That is roughly a 20 bp increase over the past two sessions

The German IFO survey worsened in September. The current assessment fell to 94.5 from 97.5. The expectations component stumbled to 75.2 from 80.5. The in the early days of the pandemic was a little below 72.0. This left the overall assessment of the business climate at 84.3, down from 88.6, where it had been in July and August. The pandemic low was 86.8. Germany is on the verge of a contraction that will likely carry into at least the first part of next year. 

The euro fell to about $0.9550 in Asia and quickly bounced back to $0.9650. It is little changed on the day in late morning turnover in Europe as it hovers a little below $0.9700. The upside may be limited in North America as the intraday momentum indicator is getting stretched. The session high was recorded in early Asian turnover near $0.9710. It may take a move above $0.9750 to stabilize the tone. The lower Bollinger Band (two standard deviation below the 20-day moving average) is around $0.9730. Sterling was pounded to $1.0350 in early Asian turnover and has gradually climbed back to approach $1.08. That effort has also stretched the intraday momentum indicators, even though sterling remains well below its lower Bollinger Band (~$1.0965). The three-standard deviation (from the 20-day moving average) is near $1.0740

America

Since the FOMC meeting, the market shifted toward a later (Q2 23) and higher (4.50%-5.0%) peak in the Fed funds rate. This shift is not smooth (non-linear) and has injected volatility as the adjustment is made. Meanwhile, a fiscal drama playing out could lead to a shutdown of the Federal government. To ensure passage of the Inflation Protection Act, Senate leader Schumer cut a deal with Manchin to include his bill that changes the approval process for government energy projects in a "must-pass bill."  Schumer chose the continuing resolution bill that needs to be approved this week to keep the government funded. Most Republicans and at least a few Democrats are opposed to Manchin's bill and have threatened to vote against the continuing resolution bill

As the Fed pursues its most aggressive tightening since Volcker and the dollar soars, the fancies of many otherwise grounded observers turn to the possibility of a Plaza-like accord. A similar, or at least parallel argument is that the tightening of the US monetary policy in response to the highest inflation in a generation is a "reverse currency war". While exchange rates, of course, can impact domestic price pressures, the rise in energy and food prices is playing a more significant role. Making the dollar the key driver in the narrative does not do justice to other drivers, including terms-of-trade shock, which helps explain the general outperformance of Latam currencies. 

The major industrialized countries, and yes, despite the trash talk of the UK being an emerging (or submerging, as the FT saw fit to quote Summers' schadenfreude on the front page over the weekend) it is still in this group, did not intervene during the Great Financial Crisis and the Pandemic. The thinking has evolved from defining the problem in terms of price to one of access (hence the swap lines). While Treasury Secretary Yellen does not repeat what had once been the strong dollar mantra, the policy is alive and well and the Fed. There can be no Plaza-like agreement to drive the dollar lower because it is a channel through which financial conditions are tightening. Contrary to allusions to the US "responsibility" for countries that borrow dollars, the Federal Reserve is not the world's central bank. Pursuing a purposeful weaker dollar would contradict the Fed's monetary policy.

There are US economic data every day this week, and with the FOMC meeting behind us, the Federal Reserve officials also are speaking every day. Today's data, the Chicago Fed's national activity index and the Dallas Fed's manufacturing survey are not typically market movers. Tomorrow features durable goods orders, house prices and the Conference Board's measure of consumer confidence. Among Fed officials, Collings, Bostic, Logan, and Mester speak. Tomorrow, Powell (on a panel on digital currencies) speaks, as will Evans, Bullard, Kashkari, and Daly The data highlight in Canada is the July GDP on Thursday. A small contraction is expected Mexico reports its economic surveys today, employment and trade figures will be released before Thursday's central bank meeting, where a 75 bp hike (to 9.25%) is widely expected. Brazil reports its July current account today and inflation readings, but the focus is on the first round of the presidential election October 2. A run-off is expected, and it will be held on October 30

The Canadian dollar remains under pressure. It fell 2.4% last week, its largest weekly loss in three months. The US dollar so far today has reached slightly below CAD1.3640 The (61.8%) retracement of the greenback's decline from the 2020 high (~CAD1.4670) is found near CAD1.3650. A move above there were initially target the CAD1.3700-20 area, but the risk extends toward CAD1.40. The continued losses in US equities are a considerable drag. The Mexican peso succumbed to the dollar's strength in the last two sessions. The dollar has rallied from around MXN19.9060 to MXN20.2620 before the weekend and today has stretched of almost MXN20.37. The greenback has not been this high since August 8 Near-term potential extended toward MXN20.42-MXN20.45

 

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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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