Happy Thursday!

📝 Focus

• Alzheimer’s to be just a bad memory?

📊 In the Markets

• 0.50% Powell

• Intel Outside

• UK… how high, how deep?

📖 MoneyFitt Explains

🎓️ It's just a phase (new drug testing phase)

📝 Focus

Alzheimer’s to be just a bad memory?

Last week, due to the prevalence of Alzheimer’s amongst its elderly, China launched a three-year early intervention campaign for its citizens with dementia. This is especially urgent as its population is ageing exponentially, with a plummeting birth rate and increasing longevity. By 2035, an estimated 30% of its entire population will be aged 60 and over, raising the prospect of the country's "getting old before it gets rich." China has a high rate of Alzheimer’s at 788 per 100,000 people, compared to the worldwide average of 683. That comes to 13 million people, over a quarter of all cases globally, thanks to the sheer size of the population.

.....▷ Alzheimer’s disease is a brain disorder and the most common cause of dementia. The disorder slowly breaks down memory and cognitive skills and, in the worst phases, can leave sufferers dependent on 24-hour care. It predominantly affects the elderly, which means that ageing countries face an even greater burden due to their rising dependency ratios (the non-working as a percentage of the working population.) Currently, 57m people live with dementia (costing the global economy over $1.3 trillion), and Lancet Public Health expects that number to explode to 153m by 2050, with women disproportionately affected (not just from living longer.) Not surprisingly, a cure is a Holy Grail for drug companies and policymakers alike.

.....▷ The unnerving rise of Alzheimer’s has put research from many drugmakers under the spotlight. Japanese drugmaker Eisai and its US partner Biogen are focusing on drugs that work by removing a chemically "sticky" protein called amyloid-beta. The "amyloid hypothesis" is that this protein clumps together to form plaques that disrupt cell function, leading to Alzheimer’s. Encouragingly, there have been positive results in recent trials (often sending share prices soaring. e.g. Biogen’s soared nearly 40% in a day.) Most recently, the Eisai and Biogen drug, Lecanemab, has been granted accelerated approval by the US Food and Drug Administration (FDA), potentially offered at a hefty price tag of $26,000 per year. Side effects may be linked to microhemorrhages that have caused deaths during trials (which sent share prices plummeting.) Eli Lilly's Mounjaro (donanemab) works in a similar way, and trials show it slowed the progression of the disease by a startling 35% over an 18-month period.

.....▷ Since anti-amyloid therapies carry the risk of dangerous brain swelling, other companies have taken related but different approaches. Danish drugmaker Novo Nordisk is trying to tackle dementia based on its Ozempic and Wegovy diabetes and weight management drugs. These medications, much loved by celebs, contain semaglutide, which affects the GLP-1 hormone involved in regulating blood sugar and appetite, and may reduce levels of nervous system inflammation and slow the onset of Alzheimer’s. Its large and closely-watched phase 3 global study started in 2021 and concludes in 2025.

.....▷ The connection between the bacteria in the gut and dementia is also under investigation, with a new study showing that changes in the gut microbiome may be an early sign of Alzheimer’s disease, even years before the first symptoms of cognitive decline. (Perhaps this connection explains why obesity, high blood pressure and lack of exercise contribute the most to dementia risk.) Hopes for a breakthrough in finding a cure for this horrible disease remain high. Though affordable treatments may still be years away, this fast-moving space remains an important one to keep an eye on.

Writer: Alexis Kong, NUS Business School, 2024

📊 In the Markets

US stocks closed lower on Wednesday, led by big tech, semiconductors and Tesla... though Amazon was little changed, despite charges from the US Federal Trade Commission for “knowingly” deceiving millions of customers into signing up for its Prime service and “sabotaging” their cancellation efforts. More negative for the markets, Fed Chairman Jay Powell's semi-annual testimony before the House Financial Services Committee showed the central bank's resolve in defeating inflation. He said it would be "a pretty good guess" that two 0.25% rate hikes are likely if the economy continues on its current path of slowly declining inflation, modest growth and a strong labour market, as befits the Fed's dual mandate (see below.) In fact, he reiterated that the Fed's decision to hold interest rates steady last week was not a "pause" (it was a pause.) Powell will testify before the Senate Banking Committee on Thursday.

.....▷ Meanwhile, Chicago Fed President Austan Goolsbee said that the Fed actually was in a "wait and see" mode as further data come in. But a non-voting member of the FOMC this year, Atlanta Fed President Raphael Bostic, suggested the Fed may need to wait at least past its July meeting to decide on further rate increases since acting too fast could "needlessly drain" strength from the economy if inflation might continue falling with interest rates right where they are.

The Fed's Dual Mandate - a mini-explainer

- Unlike most independent central banks around the world, the Fed has a "dual mandate", meaning that not only does it have to keep inflation under control through all means necessary (target is 2%, not zero), it also has to seek "maximum sustainable employment"... not meaning zero unemployment, but a level that is neither a boom nor a bust rate of (un)employment.

- Most economists believe inflation and unemployment work in opposing directions in an economy. "The Phillips curve" is the classic economics model suggesting a sharp inflation-unemployment trade-off.

Intel Outside: Semiconductor chipmaker Intel dropped 6% after saying on a call that its manufacturing business will work like a separate unit within the firm and will begin to generate profits by making chips for other companies, including its competitors... but gave no clear timeline on when it will be scaling up and named no new external customers. The separation of the manufacturing arm from the rest of the firm is a key part of the turnaround strategy planned for the former industry leader. Internally, the chip design divisions will also have a customer-supplier relationship with the manufacturing business.

.....▷ That would make Intel the second largest "foundry" (i.e. a factory making chips on a contract basis for the companies who design them) with manufacturing revenue of over $20bn next year. The trouble is that it would only come to a quarter of the size of industry leader TSMC unless it can somehow acquire a huge number of its clients, leaving it potentially sub-scale in terms of manufacturing efficiency and the ability to invest billions year after year in the latest and greatest manufacturing capacity. There is some hope, though. Nvidia CEO Jensen Huang recently called TSMC "the best foundry in the world," but noted his company is "not married to any one foundry" and in March said Nvidia had spoken with Intel about foundry services.

.....▷ There was a time when Microsoft's Windows and Intel's CPU semiconductor chips ruled the world as "Wintel". (Now you can get 18 Intels for one Microsoft.) And back then, AMD CPUs were the cheap alternatives to Intel's and the company was a fraction of Intel's value. Both were integrated device manufacturers (IDMs), meaning that they'd design and make all their own chips. Since then, AMD spun off its manufacturing arm as Global Foundries and is now a quarter again as large as Intel by market capitalisation (number of shares X latest share price.) Add back Global Foundries and it's 50% bigger. AMD started off as GF's biggest client but soon migrated to using GF's giant competitor in the foundry space, TSMC. Will Intel's design teams do the same??

UK… how high, how deep? Inflation in May remained stuck at 8.7%, much worse than forecasts from The City's Finest of a dip to (a still very high) 8.4%, which means that the UK central bank, the Bank of England (BOE) is pretty much guaranteed at least a 0.25% interest rate hike after it meets on Thursday. Core inflation, excluding more volatile food and energy prices, told an even worse story, with prices rising in May to 7.1% (compared to May 2022) from a 6.8% rate in April and 6.2% in March.

.....▷ Even worse than that, the chances of a vicious cycle of rising wages leading to rising prices and back again are climbing day by day, with the latest annual regular wage growth of 7.2% far above the 3% level that the BOE thinks would be consistent with meeting its 2% inflation target. Much more pain ahead, it seems, for UK mortgage holders (particularly the millions whose 2-year low fixed rates expire this year.) How high will rates go, and how deep will the recession that follows be?