Archives May 2020

Haunted By Austerity, Least-Indebted EU State Goes Big on Virus By Bloomberg

© Reuters. Haunted By Austerity, Least-Indebted EU State Goes Big on Virus

(Bloomberg) — Memories of harsh austerity in the wake of the global financial crisis are motivating Estonia to end what’s been the continent’s greatest aversion to borrowing.

The Baltic region became the poster child for the kind of public spending and wage cuts that later ravaged nations like Greece. Estonia remains the European Union’s least-indebted member-state — without a single government bond.

The Covid-19 pandemic is changing that, with a 10-year debt sale of at least 1 billion euros ($1.1 billion) due in the coming weeks. Another of a similar size is planned for the fall and a third is possible next year, with maturities of up to 15 years under discussion, according to Finance Minister Martin Helme. Money will be channeled into investment to boost economic growth.

“In the previous crisis, there were policy mistakes that deepened our recession,” he said in an interview in Tallinn. “This total austerity that was imposed very strictly then made the situation worse and we have to take a different approach.”

As well as contributing to the steepest recession in Estonia’s history, the post-2008 policies prompted an exodus of workers from the Baltic region to Europe’s west, where salaries are higher. Austerity — which reached 9% of gross domestic product in 2009 — also stoked resentment at home that facilitated the rise of right-wing parties like Helme’s EKRE, a junior partner in Estonia’s one-year-old government.

After adopting the euro in 2011, Estonia has increasingly debated whether it should borrow more for investment, with such calls intensifying after the European Central Bank first embarked on quantitative easing. Defenders of the country’s austere stance say the policies were justified to successfully join the euro region and boost exports, while it would have been tricky to borrow in Estonia’s old currency.

Helme said the pandemic made a bond sale “unavoidable” in the face of economic-rescue costs and lost tax revenue. But the change also reflects a view that this is the only way to close the wealth gap with richer neighbors more quickly.

“If other countries have over decades accelerated their economic growth this way, among other things by bringing investments forward through borrowing, I think we shouldn’t be ruling out this option due to some inflexible ideological denial,” Helme said.

©2020 Bloomberg L.P.

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Stock-market futures knocked around as U.S. cities rocked by protests amid pandemic

U.S. stock-index futures bounced around in thin trading early Monday morning, amid violent protests that reverberated throughout the country.

The clashes between police and protesters come while the U.S., and much of the world, is in the throes of the coronavirus pandemic that has rocked the domestic economy to its core.

What are stock benchmarks doing?

Futures for the Dow Jones Industrial Average


were little changed at 25,370, off 8 points, or less than 0.1%. Those for the S&P 500 index


were 4.25 points, or 0.1%, lower at 3,037.75, while Nasdaq-100 futures


were trading 11 points lower at 9.549, a decline of 0.1%.

On Friday, the Dow

booked a weekly gain of 3.8%, while the S&P 500

finished 3% higher and the Nasdaq Composite Index

ended the period 1.8% higher. In May, the Dow logged a 4.3% gain, the S&P 500 climbed 4.5%, while the Nasdaq marked a 6.8% return on the month.

What’s driving the market?

A series of protests erupted across major cities from Los Angeles to New York after George Floyd, a black man, died last Monday following a confrontation with police in Minneapolis in which one officer, Derek Chauvin, was captured on video driving his knee onto Floyd’s neck until the handcuffed man lost consciousness and later died.

Angry clashes between civilians and law enforcement, including fires near the White House, aren’t expected to have long-term economic implications, but the protests come as many retailers and businesses are still swooning from the pandemic and were caught up in looting and vandalism that ensued during the weekend demonstrations.

“The direct economic impact of the protests is small, at least so far,” Mark Zandi, chief economist of Moody’s Analytics, told MarketWatch. However, he said that the near-term damage to the psyche of consumers and the business community may be more substantial.

“Just when people were starting to come out of the proverbial bunkers, the protests may be too much for them, and they will go back in,” he said. “The protests are also symptomatic of just how deep the economic problems and racial tensions go in our country,” the economist said.

Experts also worry that the throngs of people gathering may also result in a jump in cases of COVID-19, just as public health officials hoped they were getting a handle on the viral outbreak.

“It’s a triple whammy of protests, plus raging pandemic, plus economic instability. Those three things together make for a perfect storm of viral transmission,” Peter Chin-Hong, an infectious disease specialist at the University of California, San Francisco, was quoted as telling the Wall Street Journal.

However, the market may take heart in the fact that states continue to unlock their economies from measures implemented to stem the spread of the deadly disease. All 50 states are under some stage of reopening from forced shutdowns due to the pandemic.

Meanwhile, President Donald Trump’s actions against China were viewed as less confrontational than had been expected. The president on Friday announced a number of measures to censure China’s crackdown on Hong Kong’s independence, including plans to withdraw funding from the World Health Organization, but he fell short of withdrawing from a phase-one trade agreement or issuing sanctions directly against China.

Upbeat economic data from China may also bolster the market’s mood. The Caixin China manufacturing index was at 50.7 for May, compared with an April reading of 49.4. A reading of 50 or better indicates improving conditions, while those below that level signal contraction.

The data suggests that China, where the novel strain of coronavirus originated in Wuhan, may be showing signs of improving.

Looking ahead, investors will be watching for domestic economic data, including Markit manufacturing PMIs for May due at 9:45 a.m. Eastern, and the more closely followed manufacturing index at 10 a.m. from the Institute of Supply Management. A reading of construction spending for April also is due at the same time.

Which stocks are in focus?

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Frequency Therapeutics: FX-322 Top Line Data From Exploratory Study Proves Promising (NASDAQ:FREQ)

Frequency Therapeutics (FREQ), which is a biotechnology company that focuses on harnessing the body’s innate biology to repair or reverse damage caused by a broad range of degenerative diseases, most recently reported its first-quarter results and provided top line data from its exploratory study. The top line data confirmed that FX-322 was delivered to the intended target within the cochlea with drug levels that could be directly measured, while it was also predicted to result in therapeutic activity. This can be seen as promising initial results from the company’s exploratory study conducted in Germany. This means that one of the key elements in FX-322 development has been met, which is the effective delivery to the target tissue, as outlined in the company’s May update presentation. I remain bullish on the prospects of FX-322 and how transformative it can be for both hearing loss and for Frequency Therapeutics as an entity.

The company CEO and co-founder David Lucchino highlighted the importance of this milestone in the Q4 report:

“The cochlea is one of the most privileged and difficult-to-reach sites in the body. Quantifying drug concentrations of a potential restorative medicine in the cochlea represents an important advance in inner-ear drug discovery,”

Mr. Lucchino continued:

“This advance furthers Frequency’s leadership in hearing regeneration and our enthusiasm for the potential of FX-322 to benefit the millions of individuals suffering from sensorineural hearing loss.”

Carl Lebel, chief development officer, also highlighted the significance of these findings:

“When we consider these new findings, together with the hearing signal observed in our earlier Phase 1/2 study, we believe we have developed the first known evidence of a pharmacokinetic/pharmacodynamic effect of a potential hearing restoration therapeutic.”

It is clear to see that FX-322 has continued to deliver so far in its relative tests; Phase 1/2 study and then the new findings, leading to increased optimism from the board. The current Phase 2a study objective is to further establish the hearing signal that was observed in the Phase 1/2 study, where this statistical signal was observed in a biological system that usually once it starts to degenerate, it never improves.

The market

FX-322 aims to tackle sensorineural hearing loss (through activating progenitor cells in the ear which in turn regenerate damaged auditory cells and repair hearing loss). This is the most common form of hearing loss and offers an opportunity to treat a substantial patient population within the United States. There are currently around 40 million patients that experience sensorineural hearing loss in the US, and that number is expected to grow by 20% by 2030

Source: Frequency Therapeutics May Presentation

FX-322 has the ability to treat both patients with and without hearing aids, allowing Frequency Therapeutics to offer FX-322 to the broader hearing loss market.

The development of drugs to treat SNHL has proven very challenging, and if Frequency Therapeutics could provide a breakthrough in this market, the upside would be large, with the company looking to provide the first-in-class regenerative treatment to restore hearing. Frequency Therapeutics currently has the US rights retained for FX-322. There are currently no approved therapeutic options for sensorineural hearing loss.

The hearing aid market is large and continues to grow within the US, with a recent report by Acumen Research and Consulting forecasting that the total market size is expected to reach $13.54 billion by 2026, with FX-322 potentially having the ability to address this market with a new solution.

Astellas collaboration and financial position

As is crucial for a biotechnology company that is still in the clinical stage with no revenues in the near term coming from FX-322, the liquidity and cash position are crucial, and following a recent IPO combined with the Astellas (OTCPK:ALPMF) collaboration, this puts Frequency Therapeutics in a strong financial position. Astellas is regarded as a world leader in regenerative medicine and the second-largest pharmaceutical company in Japan.

Although Frequency Therapeutics has stated that its ambitious developments will require significant capital for development, the current funding is enough to secure the company’s immediate near-term opportunities and should see it funded into 2022. The collaboration with Astellas provided $80 million in upfront funding, with other payments leading up to another $545 million in the future if certain milestones have been met. Some of these were outlined in the company’s May 2020 presentation:

Development milestone payments to Frequency of $65.0 million and $25.0 million upon the first dosing of a patient in a Phase 2b clinical trial for SNHL in Europe and Asia, respectively.

$100.0 million and $40.0 million upon the first dosing of a patient in a Phase 3 clinical trial for SNHL in Europe and Asia, respectively.

The company’s cash position at the end of the first quarter 2020 remained strong at $206 million, which was around $11 million lower than on December 31, 2019 and reinforced its presumption that cash would take them into 2022. However, if the trials are successful ex-US, then the company’s cash position could be bolstered if milestones are met under the Astellas agreement, which could provide extra funding to potentially take it further than 2022. I do not believe that equityholders should be concerned about near-term significant dilution, as by mid-2022, Frequency Therapeutics could have the ability to be a completely different outfit following the Phase 2 trials. Costs have slowly been ramping up as the company’s Phase 2a trial continues, particularly relating to external development costs and increased personal costs as its research & development organisation grows.

Expansion potential and other regenerative therapies

David Lucchino recently outlined at the Cowen and Company’s 40th annual health conference that Frequency Therapeutics, although currently “80 per cent focused” on regenerative hearing, still has other opportunities as well, such as a Multiple Sclerosis discovery programme where Frequency is advancing to an IND filing by the end of 2021 – there are currently no drugs to heal post-attack effects.

Mr Lucchino also highlighted other opportunities for expansion:

We see many additional opportunities across multiple degenerative diseases and we also have a smart and savvy IP portfolio that we are folding together as we think about the overall opportunity in the broader market”

He went on to talk about long-term value potential:

We see opportunity in multiple ways to create shareholder value as we build this company out for long term success and value proposition.

It is clear that the company is primarily focused on FX-322, and that if that falls short, it can have material effect on shareholder value. However, if it is successful, the board has in place a strong expansion plan of potential new regenerative treatments that can be developed over time, with FX-322 potentially proving to be the start of a portfolio of regenerative treatments.

COVID-19 impact

As a biotech firm, the impact of the coronavirus is far less damning to Frequency Therapeutics than to other industries and sectors across the market. Frequency did highlight the effect the virus has had on its operations in the Q1 2020 results, and that the majority of its employees are working from home. However, in Massachusetts, biotechnology firms are exempted from lockdown orders, and so, all key experiments have been transferred to the company’s Woburn, MA, offices, which means that progress can still continue to be made across the business. It’s clear that the board has acted well to mitigate the effects of the virus.

In terms of the clinical study impact, principal investigators have reported that patients currently enrolled in the study remain enrolled, though a number of the study sites have halted enrolment, and as of May 14, continue to do so. I don’t believe this will have material effects on Frequency Therapeutics’ business apart from costs potentially associated with delays to the time taken to conclude Phase 2a trials.


Frequency Therapeutics continues to remain a high-risk, high-reward play, with the results expected in H2 2020 after being given fast track by the FDA back in October 2019 (with a potential delay to that in regard to the coronavirus), share price movement will primarily be based on sentiment up until those results are released. However, the recent pullback from the peak of $27 might create a buying opportunity at these levels. Currently, revenue in relation to Astellas collaboration is limiting losses to a certain extent and allowing the company to maintain strong liquidity, while the collaboration has the ability to continue bolster the balance sheet into the future as well.

The viability of Frequency Therapeutics as an investment still remains event-driven on the results of its FX-322 trial. This is the company’s leading drug, and although it is developing a Multiple Sclerosis treatment, it is still in the discovery phase. A lot is riding on whether FX-322 is successful. If it is so, the upside is very large from current levels. I remain bullish on a risk versus reward basis. If FX-322 delivers, we could be looking at a multi-billion dollar company, as it taps into a multi-billion dollar market with a revolutionary treatment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Asian Stocks Up After China’s Economy Returning to Expansion By

© Reuters.

By Gina Lee – Asian stocks were up on Monday morning with China releasing data indicating that its economy moved from contraction into expansion in May.

China’s National Bureau of Statics reported an ’s Index of 50.6 on Sunday, above the 50-level indicating an expansion.

The for May corroborated the expansion, with a reading of 50.7.

China’s was up 1.65% by 10:57 PM ET (3:57 AM GMT). The gained 2.42%.

Meanwhile, Hong Kong’s jumped 3.38%, even as investors digested U.S. Donald Trump’s response on Friday to China’s approval of national security laws for the city the day before.

Trump did not provide specific measures in the response, and some investors remained hopeful that the tensions between the two countries would have minimal impact.

“The impact is likely to be limited and more symbolic while the financial sector is unlikely to be affected. We are not too surprised by the move and don’t expect the Hong Kong financial markets to be either,” Sean Darby, Jefferies (NYSE:) global equity strategist, said in a research note.

But other investors were concerned that the rising tensions could have larger and more adverse consequences.

“Admittedly, Trump’s presser on action against China for implementing the Hong Kong Security Bill, which the White House has alleged strips Hong Kong of any autonomy, proved to be more bark than bite. With specific and verifiable measures against China appearing to be weak, markets may draw hollow consolation that the U.S. is treading carefully; especially given risks of unintended economic consequences of far more damage being caused to Hong Kong and non-negligible harm to US economic interests,” Vishnu Varathan, Miuzho Bank’s head of economics and strategy, said in a note.

Japan’s rose 1.17%. South Korea’s was up 1.45%, even with the country reporting that fell 23.7% year-on-year.

The rose a modest 0.93%. Reserve Bank of Australia Governor Philip Lowe is expected to announce that both the cash rate and three-year bond yield target will remain unchanged at 0.25% on Tuesday, with investors also looking to economic data to be released a day later to show whether the country is on the way to recovery from the economic impacts of COVID-19.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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A Potential Game-Changer? The Details Behind The EU’s Proposed Recovery Plan

On the latest edition of Market Week in Review, Quantitative Investment Strategist Dr. Kara Ng and Julie Zhang, director, North America sales enablement, provided an update on the latest policy responses to the coronavirus pandemic. They also discussed the outlook for the U.S. labor market as well as renewed tensions between China and the U.S.

European Union unveils plans for massive recovery package

Reiterating that the road to a global economic recovery depends on three factors – the spread of the coronavirus, the amount of economic damage caused by government containment measures and the effectiveness of the global policy response – Ng noted that the economic devastation inflicted by measures to slow the spread of the virus has been unprecedented. Importantly, though, the magnitude of the worldwide policy response has also been unprecedented in scope, she said. The latest example of this occurred May 27, when Japan announced an additional $1.1 trillion stimulus package, Ng noted. “When added on to the country’s relief measures from March, Japan’s total stimulus package now amounts to roughly 40% of its annual GDP (gross domestic product),” she stated.

The European Union also made headlines the same day, Ng said, with its proposal of a €750 billion recovery plan. “Two-thirds of this package would consist of grants, and one-third would consist of loans,” she stated, adding that the size of the package amounts to 6% of eurozone annual GDP. Ng characterized the package as a potential game-changer, if approved, noting that it would represent risk-sharing across the eurozone via the issuance of what would be known as Eurobonds.

Eurobonds, she explained, would be government bonds issued by the European Union, rather than by individual eurozone countries. Eurobonds were first proposed in 2011, amid the European debt crisis, but never came to fruition, Ng said.

“There is some opposition to this recovery plan, especially from some of the more frugal member-states of the EU, so discussions around the plan will be an important watchpoint moving forward as Europe attempts to stabilize its economy,” she stated.

Pace of U.S. unemployment claims slows

Turning to the U.S., Ng said there is tentative evidence that the U.S. labor market has bottomed out. New jobless claims, while still at extraordinarily high levels, have been falling for the past eight weeks, she noted. In addition, the number of continuing jobless claims -representative of individuals who are already receiving unemployment benefits – dropped for the first time since widespread containment measures were imposed in mid-March. “This is a sign that some workers are returning to their jobs as lockdown restrictions ease,” Ng stated.

The May jobs report, which will be released June 5, will provide further clarity on the state of the U.S. jobs market, she said. “April’s report showed that only 10% of laid-off workers expected their job loss to be permanent. Keeping an eye on whether this number changes in the May report will be important,” Ng remarked.

She explained that in a frictionless world, a pause in economic activity due to containment measures would result in only temporary, rather than permanent, job losses. Unfortunately, the real world doesn’t work that way, Ng said, due to the secondary effects of these measures. “For instance, consumer confidence may fall, which could result in less demand for goods and services. This, in turn, could cause businesses to make permanent reductions to their labor force-and a souring job market could then further derail consumer confidence and spending,” she explained.

In other words, Ng said, the negative confidence spiral brought on by economic disruption could turn a temporary shock into a sustained one – with major implications for the economy, corporate profits, markets and investor portfolios.

Hong Kong national security law sparks renewed tensions between China, U.S.

Shifting to China, Ng noted that after the successful signing of a Phase 1 trade deal between the U.S. and China in January, tensions between the world’s two largest economies are on the rise again. This time, one of the key issues centers around China’s plan to impose a national security law on Hong Kong. The proposal, recently approved by the Chinese government, served as a trigger for the U.S. government’s May 27 declaration that it no longer considers Hong Kong autonomous from China.

“This declaration means that the special trade exemptions the U.S. has carved out for the city of Hong Kong may go away. In addition, the U.S. could also introduce punitive measures against China,” Ng explained. The renewed tensions between China and the U.S. could potentially escalate into another trade war, she said, which would be disruptive for global supply chains, investment spending and business confidence.

“With things already on shaky ground due to the coronavirus pandemic, a re-escalation in trade tensions could be a fatal blow to the global economy,” she concluded.


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