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Central banks head for stimulus exit, but some take the slow lane

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November 4, 2021

LONDON (Reuters) – A great central bank exit from the extraordinary stimulus unleashed to keep economies afloat during the COVID-19 pandemic is underway, with the United States and Australia this week moving away from hefty policy support.

But policymakers have also pushed back against investor expectations for a slew of interest rate rises, as they wait to see whether inflation remains stickier than expected. The Bank of England surprised markets on Thursday by keeping rates on hold.

Here’s a look at where policymakers stand on the path out of pandemic-era stimulus.

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(GRAPHIC: Central bank balance sheets – https://fingfx.thomsonreuters.com/gfx/mkt/egvbkaneypq/cbanks0311.PNG)

1/ NORWAY

Norway’s central bank hiked its key rate by 25 basis points to 0.25% in September and reiterated on Thursday that it plans to tighten again in December.

That makes Norges Bank the most aggressive of the major developed economy central banks in curbing ultra-loose policy, bolstering Norway’s crown.

(GRAPHIC: Rate hike outlook boosts Norway’s crown – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkregyevm/NOK0311.png)

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2/ NEW ZEALAND

The Reserve Bank of New Zealand last month hiked rates for the first time in seven years, to 0.5%, and markets are pricing in another 0.25% raise at its Nov. 24 meeting.

New Zealand’s Consumer Price Index is surging, the unemployment rate is at record lows and policymakers warn that the country’s red-hot housing market is unsustainable.

Traders bet rates will exceed 2% by August 2022.

(GRAPHIC: Central bank interest rates – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjorgybpr/Rates0311.PNG)

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3/ CANADA

The Bank of Canada last week said it was ending its bond-buying programme given a robust economy, high COVID-19 vaccination rates and a strong jobs market.

It also signalled that rates could rise as early as April 2022 and said inflation would remain above target for much of next year, putting Canada firmly in the hawkish camp.

(GRAPHIC: US jobs key to Fed outlook – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjororkvr/Fed0411.PNG)

4/ UNITED STATES

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The Federal Reserve is taking the slow lane to the policy exit. It said this week it will “taper” its $120 billion monthly asset purchases to zero by mid-2022.

But it stressed that tapering does not mean a rate rise will follow soon, as it expects higher inflation to be “transitory”. Chair Jerome Powell added that the central bank would be patient and wait for more jobs growth before tightening.

(GRAPHIC: Markets react to BOE rate decision – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjorobkvr/GB0411.png)

5/ BRITAIN

The Bank of England dashed market expectations for an interest rate rise on Thursday, with a 7-2 vote by policymakers to keep rates at a record low of 0.1%.

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But the United Kingdom’s central bank said it would be necessary to raise rates “over coming months” if labour market data was in line with forecasts.

After several policymakers gave recent strong signals about the need to raise rates soon only to vote against one, money markets on Thursday scrambled to dial back expectations – an initial hike is now priced in for February.

6/ AUSTRALIA

Australia’s central bank remains in the dovish camp, but only just.

On Tuesday the Reserve Bank of Australia took a major step towards unwinding pandemic stimulus. It abandoned an ultra-low bond yield target and opened the door for a first rate hike in 2023, earlier than a previous forecast of 2024.

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Governor Philip Lowe pledged to be patient with policy, however, and rejected market talk of a hike as early as May.

7/ SWEDEN

Markets expect Sweden’s 0% rate will rise 75 bps by Q3 2024, versus the Riksbank’s view for unchanged rates in this period.

It has ended pandemic-era lending facilities but says rates will rise only if there are big changes in inflation pressures.

Inflation, at more than decade-highs, may top 3% next year, but is expected to ease thereafter. Bank boss Stefan Ingves sees an inflation overshoot as easier to tackle than an undershoot.

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8/ EURO ZONE

The European Central Bank remains dovish. Chief Christine Lagarde reckons a 2022 rate rise is very unlikely as inflation is still too low.

With inflation at a 13-year-high, markets are betting that the ECB will lift rates next year for the first time since 2011, but Lagarde has pushed back against that.

Long-term inflation pressures remain weak and the ECB will likely stick with asset purchases long after its pandemic emergency bond buying programme is scheduled to end in March.

(GRAPHIC: Life after PEPP – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnkmyjpr/PEPP0311.PNG)

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9/ JAPAN

Japan is an outlier. The Bank of Japan last week dismissed concerns that a weakening yen is stoking inflation, which has boosted wholesale price growth to 13-year highs.

The BOJ cut its consumer inflation forecast for the year ending March 2022 to 0% from 0.6% and slashed this year’s economic growth forecast, signs that it will keep its target for short-term interest rates at -0.1% for now.

(GRAPHIC: BOJ – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkregzkpm/BOJ.JPG)

10/ SWITZERLAND

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The Swiss National Bank is likely to lag its peers in lifting from -0.75%, currently the lowest benchmark interest rate in the world.

Unlike the ECB and the Fed, the SNB has not tweaked its framework to introduce a higher inflation tolerance threshold. That implies it would need to act if inflation accelerates above its price stability target of just below 2%.

Swiss inflation is running at two-year highs of 0.94% and markets are pricing in a 25 basis-point rate rise by end-2022.

The Swiss franc is trading near 11-month highs versus the euro, aided by some market speculation that it could tighten before the ECB.

(GRAPHIC: SNB – https://fingfx.thomsonreuters.com/gfx/mkt/egpbkanoavq/SNB.JPG)

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(Reporting by Tommy Wilkes, Saikat Chatterjee, Sujata Rao and Dhara Ranasinghe in London; Compiled by Dhara Ranasinghe; Editing by Catherine Evans)

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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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