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Central bank moves and supply shocks among top risks to global economy: Reuters poll

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October 28, 2021

By Shrutee Sarkar

BENGALURU (Reuters) – Central banks reducing emergency stimulus too quickly and further supply chain disruption are among the top risks to the world economy next year as the COVID-19 pandemic lingers, according to economists in a global Reuters poll.

Given global growth has likely peaked, forecasters have broadly sided with the view shared by many top central bankers that the recent surge in inflation will be transitory, even though their forecasts are drifting higher.

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But even though supply chain bottlenecks pose a serious threat to the recovery and there is scant sign so far of a sudden easing, some stock markets are trading close to record highs even as interest rates are now on the rise.

The concern is after an extended period of record low rates and emergency policy that central bankers https://www.reuters.com/business/fed-faces-showdown-supply-demand-patience-collide-2021-10-27 may get impatient and feel compelled to respond to the current spike in inflation where people are now feeling the pinch. [ECILT/US]

Reuters polls covering more than 500 economists from around the world concluded that 13 of 25 central banks would raise interest rates at least once before the end of next year. Some already have, like central banks of New Zealand, Russia and Brazil.

But about one-quarter of 171 economists responding to an extra question said central banks dialing down stimulus too quickly was one of the biggest downside risk to the global economy.

A similar number of respondents said more supply chain disruptions or flare-ups in the COVID-19 pandemic, set to enter its third year in 2022 as a much-diminished but still not vanquished threat, were the top risks.

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“Many major central banks are now cautiously shuffling towards the exit when it comes to their ultra-loose monetary policies. They aren’t doing this because of the strength of the economic recovery,” said Jan Lambregts, head of global economics and markets research at Rabobank.

“Cost-push inflation appears to have set the wheels in motion at central banks who said they now have a broader socio-political focus. Getting this one wrong could therefore prove very costly in terms of maintaining their policy independence.”

Indeed, global growth was expected to slow to 4.5% next year from a blistering 5.9% this year, largely unchanged from July. That slowdown next year is a bit sharper than International Monetary Fund https://www.reuters.com/business/imf-cuts-global-growth-outlook-supply-bottlenecks-hobble-pandemic-recovery-2021-10-12’s latest projection of 4.9%.

Growth was forecast to slow to around that pace in 2023, at 3.5%, according to the poll.

“The initial burst of activity linked to reopening is over, and growth momentum is rapidly losing pace. Fading fiscal support is playing a role but so too are the direct impact of COVID-19 related restrictions and disruptions,” noted Janet Henry, global chief economist at HSBC.

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“Despite the uncertainties, many central banks want to bring the era of ultra-loose monetary policy to an end.”

Most central banks are eyeing the exit. But there are some notable large exceptions.

The Bank of England https://www.reuters.com/world/uk/bank-england-raise-rates-025-q1-possibly-sooner-2021-10-21, the Bank of Canada https://www.reuters.com/business/bank-canada-raise-rates-q3-next-year-possibly-sooner-2021-10-25 are expected to raise rates next year and the European Central Bank https://www.reuters.com/world/europe/ecb-raise-rates-2024-risk-remains-earlier-hike-2021-10-22 is predicted to hike in 2024, but the Bank of Japan https://www.reuters.com/world/asia-pacific/japans-q3-growth-forecast-trimmed-further-covid-19-drag-2021-10-15 is now forecast to do nothing with interest rates through the end of the forecast horizon.

INFLATION FORECASTS UP MODESTLY

Economists upgraded inflation outlooks for 18 of 21 developed economies, by between 0.1 and 0.7 percentage points, and for 15 of 27 emerging economies, by between 0.1 and 1.8 percentage points.

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But nearly two-thirds of economists, 117 of 182, who responded to an extra question, said the recent surge in global inflation was unlikely to persist over the next 2-3 years.

The remaining 65 respondents said persistently higher inflation was likely, and among them over 60% said there was a high risk it dents world growth.

“It’s likely that inflation will fall back in every major economy next year. But there is evidence that underlying inflation pressures are building,” said Neil Shearing, group chief economist at Capital Economics.

“I don’t think that’s the 1970s-style inflation episode, but when you look across all indicators in the labour market and the product market, they all point to price increases and a higher rate of underlying inflation.”

For a graphic on Reuters Poll: Global economic growth outlook:

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https://fingfx.thomsonreuters.com/gfx/polling/lgpdwlbayvo/Reuters%20Poll%20-%20Global%20economic%20growth%20outlook.png

Growth in China, the world’s second-largest economy, was projected to slow to 5.5% in 2022 from an expected expansion of 8.2% this year. Most other major emerging market economies were expected to struggle this year and next. [ECILT/CN][ECILT/LTAM][ECILT/IN][ECILT/AFR]

“While developing Asian economies (ex-China) have been disproportionately hit by the Delta variant, they have shown some signs of a renewed pick-up as COVID-19 cases fall. Still, the economies with low levels of vaccinations remain vulnerable,” said Lloyd Chan, senior economist at Oxford Economics.

(For other stories from the Reuters global long-term economic outlook polls package)

(Reporting by Shrutee Sarkar; Analysis by Sujith Pai and Hari Kishan; Polling and additional reporting by the Reuters Polls team in Bengaluru and bureaus in Buenos Aires, Istanbul, Johannesburg, London, Shanghai, and Tokyo; Editing by Ross Finley, John Stonestreet and Hugh Lawson)

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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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