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Investors look to U.S. inflation measures, eye bond gyrations as taper looms

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November 2, 2021

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – Investors are watching everything from bond volatility to inflation measures as they try to gauge how an expected unwind of the U.S. Federal Reserve’s easy money policies will reverberate throughout markets.

Most market participants believe the Fed will announce the timing of the tapering of its $120 billion per month U.S. government-backed bond buying program at the conclusion of its November meeting on Wednesday.

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(GRAPHIC: Fed’s balance sheet – https://fingfx.thomsonreuters.com/gfx/mkt/zdvxorlyrpx/Pasted%20image%201635797906162.png)

The central bank has gone out of its way to prepare investors for the start of a taper and so far avoided the sort of gyrations that hit markets in 2013, after then-Fed chief Ben Bernanke alluded to the policymaker’s thinking on plans for pulling back its monetary support in an appearance before lawmakers. Bond yields rocketed higher and stock prices dropped during the so-called “taper tantrum” that year. Yields drifted lower while stocks rose, however, as the Fed gradually unwound its $85 billion in government bond buying in 2014.

Shifting expectations of how aggressively the Fed will need to move this time around in order to tamp down surging inflation have already caused ructions in the rates on shorter-dated Treasury securities, even as stocks have marched to fresh highs.

“You can’t anticipate what it means when a central bank is suddenly no longer buying a $120 billion in securities each month,” said Bryce Doty, senior portfolio manager at Sit Investment Associates. “But once it actually stops, there is an impact.”

Here are various metrics investors are watching.

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(GRAPHIC: Breakeven inflation rates – https://fingfx.thomsonreuters.com/gfx/mkt/znpnezydkvl/Pasted%20image%201635798624668.png)

INFLATION

The 10-year breakeven rate – which shows inflation expectations by measuring the yield spread between 10-year Treasury Inflation Protected Securities, or TIPS, and 10-year Treasury notes – stands near multi-year highs, suggesting investors increasingly believe the current bout of inflation may last longer than previously anticipated.

Signs that the central bank is backpedaling on its view of inflation as transitory could ramp up expectations for how quickly policymakers raise rates.

“We are concerned that the central bank could make a policy error and raise rates sooner than they should,” said Tom Martin, senior portfolio manager at Globalt Investments.

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The Fed’s most recent “dot plot” depicting policymakers’ rate-hike expectations show about half seeing the Fed lifting rates by the end of next year, with the other half expecting liftoff by the end of 2023.

(GRAPHIC: S&P dividend yield vs 10-year U.S. Treasuries – https://fingfx.thomsonreuters.com/gfx/mkt/myvmngdmmpr/Pasted%20image%201635796129587.png)

DIVIDEND YIELD

The gap between yields offered by the benchmark 10-year Treasury note and the dividend yield on the S&P 500 recently opened to its widest since May 2019, potentially dimming the allure of some stocks to income-seeking investors.

The yield on 10-year Treasury bonds is already up about 67 basis points from this year’s low and may rise further as investors factor in interest rate increases from the Fed.

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“It really means that interest rates are going to be teed up in the future for increases and that is going to have an effect on stock prices,” Stephen Tally, chief operating officer at Leo Wealth said.

(GRAPHIC: Bonds on the move – https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgxrmgpb/Pasted%20image%201635796495338.png)

VOLATILITY

Near-zero interest rates and massive monthly bond buying helped soothe nerves and dampen volatility as global markets grappled with the pandemic.

Some of that volatility is now creeping back in as investors adjust their positioning for a Fed taper and eventual rate increases. In bond markets, investors’ expectations for Treasury market gyrations as measured by the ICE BofAML U.S. Bond Market Option Volatility Estimate Index stand near post pandemic highs.

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Ebbing central bank support and the prospect of policy tightening “puts more importance on effectively every major economic data point that comes out,” said Chuck Tomes, associate portfolio manager at Manulife Asset Management in Boston.

(GRAPHIC: Rising reverse repo – https://graphics.reuters.com/USA-FED/znpnezrrmvl/chart.png)

REPO FACILITY

Some investors will be watching the usage of the Fed’s overnight reverse repurchase agreement facility as a proxy for how less accommodative monetary policy is affecting liquidity in the market.

The facility lets counterparties like money-market funds place cash with the central bank. The volume of the Fed’s overnight reverse repurchase agreement facility recently hit a record $1.6 trillion.

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The robust volume suggests markets are flush with cash and less vulnerable to dislocations. Signs that liquidity is on a downtrend as the Fed withdraws support could bode ill for riskier assets, analysts said.

“I consider the repo facility the canary in the coalmine,” said Bryce Doty of Sit Investment Associates.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Marguerita Choy)

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Amazon asks India antitrust body to revoke Reliance-Future deal approval

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November 28, 2021

By Aditya Kalra and Abhirup Roy

NEW DELHI (Reuters) – Amazon has asked India’s antitrust regulator to revoke its approval for Future Retail’s $3.4 billion sale of retail assets to Reliance, saying it was “illegally obtained”, violating an order suspending the deal, a letter seen by Reuters shows.

The approval for the deal was a “nullity in the eyes of law” as an arbitrator’s order was still in force, according to the letter sent by Amazon.com Inc to the Competition Commission of India (CCI) last week.

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The battle between two of the world’s richest men, Amazon founder Jeff Bezos and Reliance Industries Ltd boss Mukesh Ambani, marks a contest for preeminence in India’s booming, nearly trillion-dollar retail market.

The winner in the fight for Future Retail Ltd, India’s second-largest retailer and Amazon’s estranged local partner, will get pole position in the race to meet the daily needs of more than a billion people.

The CCI, Amazon, Future Group and Reliance did not respond to requests for comment.

Future has said the arbitrator’s suspension order was invalid but Indian courts have declined to overturn it.

If the regulator agrees with the previously unreported letter, it would be a major setback for oil-to-telecom conglomerate Reliance.

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Amazon won an injunction against the deal from a Singapore arbitrator last year, alleging Future had violated contracts that prevented it from selling the assets to entities including Reliance.

But the CCI later cleared the deal.

Future misled the CCI and continued to seek approval for the deal, Amazon said in the letter dated Wednesday, calling the injunction a “brazen attempt to subvert the rule of law”.

Amazon asked for a personal hearing from the CCI to make its case.

The letter comes as Amazon is also battling allegations that it misrepresented facts and concealed information while seeking antitrust clearance for a 2019 deal with Future Group.

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Amazon has so far successfully used this deal’s contracts to block Future’s deal with Reliance.

(Reporting by Aditya Kalra and Abhirup Roy in New Delhi; Additional reporting by Zeba Siddiqui; Editing by William Mallard)

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Exclusive-Visa complains to U.S. govt about India backing for local rival RuPay

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November 28, 2021

By Aditya Kalra

NEW DELHI (Reuters) – Visa Inc has complained to the U.S. government that India’s “informal and formal” promotion of domestic payments rival RuPay hurts the U.S. giant in a key market, memos seen by Reuters show.

In public Visa has downplayed concerns about the rise of RuPay, which has been supported by public lobbying from Prime Minister Narendra Modi that has included likening the use of local cards to national service.

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But U.S. government memos show Visa raised concerns about a “level playing field” in India during an Aug. 9 meeting between U.S. Trade Representative (USTR) Katherine Tai and company executives, including CEO Alfred Kelly.

Mastercard Inc has raised similar concerns privately with the USTR. Reuters reported in 2018 that the company had lodged a protest https://reut.rs/3cQA2La with the USTR that Modi was using nationalism to promote the local network.

“Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India” (NPCI), the non-profit that runs RuPay, “over other domestic and foreign electronic payments companies,” said a USTR memo prepared for Tai ahead of the meeting.

Visa, USTR, Modi’s office and the NPCI did not respond to requests for comment.

Modi has promoted homegrown RuPay for years, posing a challenge to Visa and Mastercard in the fast-growing payments market. RuPay accounted for 63% of India’s 952 million debit and credit cards as of November 2020, according to the most recent regulatory data on the company, up from just 15% in 2017.

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Publicly, Kelly said in May that for years there was “a lot of concern” that the likes of RuPay could be “potentially problematic” for Visa, but he stressed that his company remained India’s market leader.

“That’s going to be something we’re going to continually deal with and have dealt with for years. So there’s nothing new there,” he told an industry event.

‘NOT SO SUBTLE PRESSURE’

Modi, in a 2018 speech, portrayed the use of RuPay as patriotic, saying that since “everyone cannot go to the border to protect the country, we can use RuPay card to serve the nation.”

When Visa raised its concerns during the USTR gathering on Aug. 9, it cited the Indian leader’s “speech where he basically called on India to use RuPay as a show of service to the country,” according to an email U.S. officials exchanged on the meeting’s readout.

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Finance Minister Nirmala Sitharaman said last year that “RuPay is the only card” banks should promote. The government has also promoted a RuPay-based card for public transportation payments.

While RuPay dominates the number of cards in India, most transactions still go through Visa and Mastercard as most RuPay cards were simply issued by banks under Modi’s financial inclusion programme, industry sources say.

Visa told the U.S. government it was concerned India’s “push to use transit cards linked to RuPay” and “the not so subtle pressure on banks to issue” RuPay cards, the USTR email showed.

Mastercard and Visa count India as a key growth market, but have been jolted by a 2018 central bank directive for them to store payments data “only in India” for “unfettered supervisory access”.

Mastercard faces an indefinite ban on issuing new cards in India after the central bank said it was not complying with the 2018 rules. A USTR official privately called the Mastercard ban “draconian”, Reuters reported in September.

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(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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