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U.S. economy strengthening as weekly jobless claims fall below 200,000; spending strong

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November 24, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits dropped to a 52-year low last week, suggesting economic activity was accelerating as a year marked by shortages, high inflation and an unrelenting pandemic draws to a close.

The plunge in claims reported by the Labor Department on Wednesday was, however, exaggerated by difficulties adjusting the data for seasonal fluctuations this time of the year. Still, the labor market is tightening, with the number of people on jobless rolls the lowest since mid-March 2020 when the economy was in the grips of the first wave of COVID-19 infections.

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The economy’s strengthening tone was confirmed by other data showing strong consumer spending as well as business orders for equipment, excluding transportation. The goods trade deficit narrowed sharply last month amid a surge in exports. But higher prices remain troublesome, with inflation surging by the most in nearly 31 years.

“There might be some seasonal adjustment problems, but the handwriting is on the wall and all the anecdotal reports on how companies cannot find the help they need are true,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The economy will finish the year with a bang.”

Initial claims for state unemployment benefits tumbled 71,000 to a seasonally adjusted 199,000 for the week ended Nov. 20, the lowest level since mid-November 1969.

Economists polled by Reuters had forecast 260,000 applications for the latest week. The decline pushed applications below their pre-pandemic average of about 220,000.

Unadjusted claims increased 18,187 to 258,622 last week amid a surge in Virginia, which offset declines in California, Kentucky and Missouri. The report was published early because of the Thanksgiving holiday on Thursday. The data could become noisy over the holiday season.

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“The claims series can be noisy and especially choppy around holidays like Thanksgiving when the seasonal factors anticipate large swings in the underlying data,” said Daniel Silver, an economist at JPMorgan in New York. “But even so, initial claims fell by more than a half million over the year through Nov. 20, both before and after seasonal adjustment.”

Claims have declined from a record high of 6.149 million in early April 2020, and are now in a zone viewed as consistent with a healthy labor market, though an acute shortage of labor caused by the pandemic is hindering faster job growth.

But there is hope for an increase in the labor pool. The number of people continuing to receive benefits after an initial week of aid dropped 60,000 to 2.049 million in the week ended Nov. 13, the claims report showed. That was the lowest level since the mid-March in 2020.

Employment growth has averaged 582,000 jobs per month this year. There were 10.4 million job openings as of the end of September. The workforce is down 3 million people from its pre-pandemic level, even as generous federal government-funded benefits have expired, schools have reopened for in-person learning and companies are raising wages.

Stocks in Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

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Claims for jobless benefits hit 5-decade low: https://graphics.reuters.com/USA-ECONOMY/zjvqkwbklvx/chart_eikon.jpg

BRIGHTENING PICTURE

The claims data was bolstered by reports on October consumer spending and business investment in equipment in suggesting the economy was regaining speed in the fourth quarter after hitting a speed bump in the July-September period as coronavirus cases flared up over the summer and shortages became more widespread.

A separate report from the Commerce Department on Wednesday confirmed the sharp slowdown in growth in the third quarter. Gross domestic product increased at a 2.1% annualized rate, the government said in its second estimate of GDP growth for the period. That was still the slowest growth pace in more than a year but was revised slightly up from the 2.0% pace of expansion reported in October.

The economy grew at a 6.7% rate in the second quarter. The slight upward revision last quarter reflected a more moderate pace of inventory drawdown than initially estimated, which offset a big step-down in consumer spending.

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But that is all in the rear-view mirror. A third report from the Commerce Department showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1.3% in October after rising 0.6% in September. Consumers bought motor vehicles and traveled, showing no signs yet of holding back because of high inflation.

The COVID effect on consumer spending: https://graphics.reuters.com/USA-ECONOMY/SPENDING/gdpzydlbkvw/chart.png

Global economies’ simultaneous recovery from the pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, unleashing inflation.

President Joe Biden announced on Tuesday that the United States would release 50 million barrels of crude from the U.S. Strategic Petroleum Reserve to help cool oil prices, in coordination with China, India, South Korea, Japan and Britain.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.4% last month after gaining 0.2% in September. In the 12 months through October, the so-called core PCE price index accelerated 4.1%. That was the largest gain since January 1991 and followed a 3.7% year-on-year advance in September.

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The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible 2% target.

Adjusted for inflation, consumer spending rose a solid 0.7%.

In another boost to the economy, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6% last month, the Commerce Department said in a fourth report.

More goods were exported in October, helping to sharply narrow the goods trade deficit by 14.6% to $82.9 billion. If the trend holds, trade could contribute to GDP growth in the fourth quarter. Wholesalers continued to rebuild inventories last month though motor vehicle shortages stymied progress by retailers, a fifth report showed.

Inventory accumulation, the key driver of GDP growth last quarter, will likely continue to support the economy in the fourth quarter.

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(Reporting by Lucia Mutikani; Editing by Paul Simao, Chizu Nomiyama and Andrea Ricci)

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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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