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After Powell’s renomination, attention turns to speed of Fed’s bond-buying taper

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November 24, 2021

By Lindsay Dunsmuir

(Reuters) -As Federal Reserve Chair Jerome Powell looks forward to four more years at the helm of the world’s most powerful central bank, attention is turning to the increasing likelihood he and his fellow policymakers will wean the U.S. economy off emergency support faster in the face of high inflation and strong job gains.

All signs point to that approach being firmly on the table, with economic data earlier on Wednesday showing the number of Americans filing new claims for unemployment benefits https://www.reuters.com/markets/us/us-weekly-jobless-claims-drop-51-year-low-q3-growth-revised-slightly-up-2021-11-24 fell last week to the lowest level since 1969, and one of the U.S. central bank’s most cautious policymakers saying she is open to a quicker removal of stimulus in the face of “eye-popping” inflation.

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In renominating Powell https://www.reuters.com/markets/us/powell-tapped-second-term-fed-chair-2021-11-22 to a second term as Fed chief on Monday, U.S. President Joe Biden made plain that both the administration and the central bank would take steps to tackle the soaring costs of everyday items, including food, gasoline and rent. Inflation in October rose at its fastest annual pace in 31 years, testing the Fed’s working assumption that the COVID-19 pandemic-induced burst would be temporary.

The beginnings of the debate among Fed policymakers on how quickly they should do away with their monthly asset purchase program could emerge on Wednesday when the central bank publishes minutes of its latest policy meeting.

Fed officials agreed at the Nov. 2-3 meeting to begin reducing the $120 billion in monthly purchases of Treasuries and mortgage-backed securities – a program introduced by the Fed in 2020 to help nurse the economy through the pandemic – with a timeline that would see them tapered completely by next June.

But they left open the possibility that the pace of the slowdown in asset purchases could be altered, and eyes are now fixed on what would necessitate a speedier withdrawal.

“The meeting minutes will be closely scrutinized over how high the bar is to adjust the pace of tapering,” said Sam Bullard, a senior economist at Wells Fargo.

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Since the November meeting, economic data has shown a reacceleration in job gains and a surge in retail sales, but most striking has been the degree to which inflation has failed to ebb as Powell and others at the Fed had expected. The Labor Department’s benchmark for consumer price inflation shot up to a 6.2% annual pace last month.

Commerce Department data on Wednesday showed the Fed’s preferred measure of price increases continuing to run at more than twice https://www.reuters.com/markets/us/us-consumer-spending-surges-october-inflation-heats-up-again-2021-11-24 the central bank’s 2% flexible average goal.

Investors currently see about even odds that the Fed will have to raise rates next May and three times in total in 2022, according to CME Group’s FedWatch program.

POLICYMAKER ANXIETY

The policy meeting readout on Wednesday will also likely provide more details on the depth of ill-feeling on inflation among policymakers, most of whom spent the first part of the year insisting the surging prices would be short-lived as supply-chain wrinkles were ironed out as the economy reopened.

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“In May it was easy to dismiss, but with each passing month they are taking it more seriously. And they probably feel more comfortable acting given the improvement of the labor market … full employment is closer on the horizon,” said Michael Feroli, chief U.S. economist at JPMorgan.

Fed Vice Chair Richard Clarida, who will be replaced by Lael Brainard, a current member of the Fed’s Board of Governors, early next year when his term expires, said last week that discussion of speeding up the bond-buying taper to give greater flexibility on how early to raise the central bank’s benchmark overnight interest rate from its current near-zero level will be on the agenda at the Dec. 14-15 policy meeting.

That was the latest sign that policymakers are now deeply attuned to the path of inflation pressures, which have intensified and broadened, causing a headache for Powell, who reworked the Fed’s policy framework last year to prioritize its maximum employment goal.

Powell, who would begin his second term as Fed chief in February if his renomination is confirmed by the U.S. Senate, still expects inflation to dissipate by the end of next year, though he noted, while standing alongside Biden at the White House on Monday, that the Fed is keenly focused on price pressures.

St. Louis Fed President James Bullard and Fed Governor Christopher Waller called on the Fed last week to withdraw its bond-buying support more quickly, by March and April, respectively.

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Some other more patient policymakers have suggested they are now more comfortable with an interest rate rise earlier next year than previously anticipated, noting that the current pace of job gains would put the Fed on track to be near or at its maximum employment goal by the middle of 2022.

Even San Francisco Fed President Mary Daly, who until this week argued against haste in removing policy accommodation, told Yahoo Finance on Wednesday she would look at inflation and jobs data before the next meeting and “if things continue to do what they’ve been doing, I would completely support an accelerated pace of tapering.” Daly added that, while her own outlook was still for one interest rate rise in 2022, “it wouldn’t surprise me at all if it’s one or two by the latter part of next year.”

Inflation is not expected to peak until the first quarter of next year before beginning to subside, which means there will be no easy resolution to the inflation debate.

“In the meantime, what the Fed has to worry about is: Does this feed into wage and inflation expectations? If that is the case, then they do need to move more quickly,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.

(Reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao)

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Arnault-backed group launches second SPAC listing

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December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

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On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

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($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

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Bulls back in charge as Omicron worries wane

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December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

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The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

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There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

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“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

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(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

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Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

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December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

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Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

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Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

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Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

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