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Fed’s Powell and ECB’s Lagarde to markets: Hold your rate hike horses

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November 4, 2021

By Dan Burns

(Reuters) – A rush of expectations that tightening signals by central banks in Canada and Australia would nudge the world’s biggest monetary policy actors to accelerate their own timelines for rate hikes ran into a wall of sorts on Wednesday, with the Federal Reserve and European Central Bank saying not so fast.

Rate futures and bond markets on both sides of the Atlantic had been repricing for an earlier rate-hike lift-off by the Fed and ECB over the last month in the face of an inflation environment that is not heeding to policymakers’ “transitory” mantra.

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The moves went into overdrive starting a week ago when first the Bank of Canada surprised markets with hawkish signals about its outlook and then this week the Reserve Bank of Australia suggested interest rate increases were on the way, even though the RBA took a more cautious approach on the timing of hikes.

In the Fed’s case alone, futures pricing had advanced since Oct 1 from firm expectations for the Fed to lift rates just once by the end of 2022 from the near-zero level they’ve been at for nearly 19 months to 50-50 odds of three quarter-point hikes by year end as of Tuesday.

Enough is enough, ECB President Christine Lagarde signaled in no uncertain terms on Wednesday, hours before her U.S. counterpart, Fed Chair Jerome Powell, was set to unveil his bank’s first baby step toward a post-pandemic policy stance.

“In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise,” she told an event in Lisbon.

“Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year.”

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Investors, until now cool to Lagarde’s previous soft-sell pushback on the matter, heeded, and pricing for the ECB’s next move, a 10 basis point increase, was pushed back from next October to December 2022.

For his part, Powell reinforced what Fed officials maintain is a clear distinction between the long-anticipated “tapering” of the Fed’s $120 billion a month of bond purchases to zero by mid-2022 – announced as expected on Wednesday – and future rate hikes. His remarks at his post-meeting news conference signaled the Fed would stay patient – and wait for more job growth – before raising interest rates.

“Ideally, we would see further development of the labor market in a context where there isn’t another COVID spike. And then we would be able to see a lot. To see how does (labor) participation react in the post-COVID world,” he said.

“We don’t think it is time yet to raise interest rates. There is still ground to cover to reach maximum employment,” Powell said, adding that he thought that goal could perhaps be met late next year.

His and Lagarde’s comments would seem to herald a recommitment by the world’s top two central banks to policy frameworks both have laid out in the last year.

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In the Fed’s case it tilts policymakers toward a greater tolerance for inflation – currently running at roughly twice its targeted 2% annual pace – in the hope of not choking off a fuller job market recovery: The U.S. economy, despite its rapid rebound this year, remains roughly 5 million jobs short of the total employment level the month before COVID-19 triggered a short but sharp recession.

While U.S. rate futures markets still assign a strong probability the Fed will raise rates for the first time at its meeting next June – the same month the taper appears slated to end – pricing for a string of once-a-quarter increases after that have backed off notably.

“While not an ultra-dovish meeting, the result was still a far cry from some of the more stunning hawkish surprises seen last week, from the likes of the Bank of Canada … and the RBA,” analysts at Natwest Markets wrote after the Fed decision and Powell’s press conference.

The show may not yet be over, however, with the Bank of England set to meet on Thursday with the outcome seen as the most unpredictable in years. BOE Governor Andrew Bailey has expressed concern about an inflation rate seen hitting 5% this year and at least two other policymakers have shared his concern.

(Additional reporting by Howard Schneider in Washington, Balazs Koranyi in Frankfurt and William Schomberg in London; Editing by Shri Navaratnam)

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Apple starts legal action against Russian regulator in App Store dispute -RIA

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December 6, 2021

MOSCOW (Reuters) – Apple has started legal proceedings against Russia’s anti-monopoly regulator in a dispute concerning alternative payment options on its App Store platform, the RIA news agency reported on Sunday citing court filings.

Russia opened an antitrust case against Apple in late October, accusing it of failing to allow app developers to tell customers about alternative payment options when using its App Store. It said Apple could face a fine based on its revenue in Russia if found guilty.

In documents published on Dec. 1, the Moscow Arbitration Court listed Apple as a claimant and Russia’s Federal Anti-monopoly Service (FAS) as a defendant in “economic disputes over administrative legal relations.”

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Apple, which did not immediately respond to a Reuters request for comment, demanded that additional documents be added to the case on Dec. 2, RIA reported.

Forbes Russia cited a FAS representative as saying that the proceedings related to a warning it issued on Aug. 30 over Apple’s alleged failure to inform users they could also pay for purchases outside the App Store.

The FAS did not immediately respond to a request for comment.

Apple faced pushback over its App Store rules in the United States in September when a federal judge issued a ruling forcing the company to allow developers to send their users to other payment systems.

(Reporting by Alexander Marrow; Editing by Andrew Osborn)

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Weaker foreign demand sinks German industrial orders in October

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December 6, 2021

By Michael Nienaber

BERLIN (Reuters) -Weaker demand from abroad drove a much bigger than expected drop in German industrial orders, including cars, in October, data showed on Monday, further clouding the growth outlook for manufacturers in Europe’s largest economy.

A pandemic-related scarcity of microchips and other electronic components has caused massive supply bottlenecks and production problems in Germany’s mighty automobile industry and other important sectors of the economy.

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Orders for goods ‘Made in Germany’ dropped 6.9% on the month in seasonally adjusted terms after a revised rise of 1.8% in September and a plunge of 8.8% in August, figures from the Federal Statistics Office showed.

A Reuters poll of analysts had pointed to a smaller decline of 0.5% on the month in October.

“After incoming orders climbed to an all-time high in mid-2021, the index has lost more than 16 points in recent months,” the economy ministry said, adding that the second sharp decline within three months put a further damper on the economic outlook.

Excluding distorting factors from bookings for big ticket items such as planes, industrial orders were still down 1.8%, the data showed.

The drop was driven by a decline in foreign orders of more than 13% on the month, with demand from countries outside the euro zone such as China particularly weak. Orders from domestic clients rose 3.4%.

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“New lockdowns in Asia are slowing industry in Germany,” VP Bank analyst Thomas Gitzel said. He added that the current wave of coronavirus infections across the globe was putting a renewed burden on the world economy.

Gitzel said that domestic demand should remain strong, helped by the new ruling coalition’s commitment to massive investment in the green economy.

“The decarbonization of the economy requires major investments in new technologies. German industry can and will benefit from this,” Gitzel said.

The weak orders data suggest that manufacturing will hamper overall economic growth in the coming months, with analysts expecting stagnation at best in the final quarter of this year.

(Reporting by Michael Nienaber, editing by Kirsti Knolle and Philippa Fletcher)

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Marketmind: Chasing the Omicron dip

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December 6, 2021

A look at the day ahead from Julien Ponthus.

Buying the dip triggered by the Omicron COVID-19 variant across global markets has proven a costly strategy so far. But some investors seem determined to have another go.

European and U.S. stocks futures are trading sharply higher after ending last week on a sour note and notwithstanding a dismal day in Asia where an MSCI index of Asia-Pacific shares outside Japan lost about 0.9%.

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The region has seen a series of corporate setbacks after ride-hailing giant Didi decided to withdraw from the New York stock exchange last week.

Shares in China Evergrande, the world’s most indebted developer, plunged 14% after it said there was no guarantee it would have enough funds to meet debt repayments.

Another giant, Alibaba dropped 5% after announcing it would reorganise its international and domestic e-commerce businesses. And U.S. regulatory opposition to the sale of Softbank-owned chip firm Arm pushed the Japanese conglomerate 8% lower.

But the mood is lighter already across Europe, allowing 10-year Treasury yields to claw back some of Friday’s falls which took them below 1.4% for the first time since late September.

There are five trading sessions left before Friday’s U.S. consumer price report which some reckon will provide the green light for the Federal Reserve to accelerate its tapering of bond purchases.

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Oil prices too rose by more than $1 a barrel after Saudi Arabia raised prices for its crude sold to Asia and the United States.

And if the market mood is perking up, there is no sign of that in Bitcoin which has fallen further and is now at $48,244 — some $20,000 below peaks hit a month ago.

Key developments that should provide more direction to markets on Monday:

-Vivendi is open to discuss with Rome over state control on TIM’s network

-Alibaba overhauls e-commerce businesses, names new CFO

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-Swiss National Bank Vice Chairman Zurbruegg to retire in July 2022

-Weaker foreign demand sinks German industrial orders in October

-CBI cuts UK economic growth forecasts on supply chain hit

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

– Russian President Vladimir Putin visits India

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– UK construction PMI/new car sales

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

BOE deputy Governor Broadbent, ECB Governor Lagarde and board member Panetta speak:

(Reporting by Julien Ponthus; editing by Sujata Rao)

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