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Euro zone inflation to remain above ECB’s target next year – Reuters poll

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November 12, 2021

By Shrutee Sarkar

BENGALURU (Reuters) – Euro zone inflation expectations are at risk of continuing to overshoot the European Central Bank’s 2% target next year, according to a Reuters poll of economists who raised their outlook for consumer prices for a fifth consecutive month.

While inflation rose above 4% last month, more than twice the ECB’s target, the Bank – unlike most other central banks – has pushed back on calls for tighter policy, calling the rise in inflation transitory and arguing it would subside next year.

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But pandemic-led supply chain disruptions and rising oil prices challenge those views. Surging house prices https://www.reuters.com/article/ecb-policy-idUSKBN2HU22B are putting further pressure on the ECB, which has undershot its inflation target for nearly a decade, to act.

“The inflation story is getting more difficult to navigate for the ECB,” said Peter Vanden Houte, chief economist at ING.

“Even though we don’t believe oil and natural gas prices will continue to increase at the same pace in 2022 – we are actually forecasting a decline – the upward inflation impact might last a bit longer. The same holds true for goods price inflation, which has been pushed upwards by high commodity prices and shortages.”

Euro zone inflation was forecast to average 2.2% next year after rising to 2.4% this year versus 1.8% and 2.3% predicted in October. Those forecasts are higher than the ECB’s projections of 2.2% and 1.7%, respectively.

On a quarterly basis, inflation was predicted to average 4.1% and 3.1% this quarter and next. It was forecast at 3.5% and 2.5% in last month’s poll. Inflation in October https://www.reuters.com/world/europe/euro-zone-inflation-equals-all-time-high-growth-accelerates-2021-10-29 was 4.1%, matching the all-time high set in July 2008.

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Although a higher base from this year led economists to expect a slower increase in prices in 2022, inflation was still expected to remain above the ECB’s target.

The ECB is forecast to keep its key interest rates on hold through to end-2023 at least, with the deposit rate at -0.50% and its refinancing rate at zero.

A smaller sample of economists in the Nov. 8-11 poll willing to look beyond end-2023 showed a deposit rate hike to -0.25% the following year.

But a like-for-like analysis showed fewer analysts now expect a hike in 2024 compared to the October poll. Only two forecast a rate hike next year.

“Despite the pushback from the ECB, markets continue to think the central bank is behind the curve, but we agree with the central bank’s assessment and do not expect a rate hike next year,” said Angel Talavera, head of Europe economics at Oxford Economics.

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Euro zone GDP will reach its pre-COVID-19 level this quarter, according to over 85% of respondents, 27 of 31, who answered an extra question. The bloc’s growth outlook remained steady and largely unchanged from October.

The ECB’s Asset Purchase Programme (APP), currently set at 20 billion euros per month, is set to rise to 40 billion after the Pandemic Emergency Purchase Programme ends on March 31. The highest forecast in the poll was 60 billion euros.

Nearly 70% of economists, 16 of 23, who responded to another question said the APP would finish by end-2023. The rest said it would end in 2024.

Thirteen of 22 respondents said if the ECB approves an APP increase, there would be an envelope covering a longer period. The others said it would be a set monthly volume.

“With other major central banks raising rates in 2022 – and thereby leading to potentially ‘unwarranted’ tighter conditions for the euro area too via spillover effects – we think the ECB will prefer to reserve capacity to buy more, if needed and flexibly over time in 2022,” said George Buckley, chief UK and euro area economist at Nomura.

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

(Reporting by Shrutee Sarkar; Additional reporting by Indradip Ghosh; Analysis and Polling by Sujith Pai and Vijayalakshmi Srinivasan; Editing by Ross Finley and Bernadette Baum)

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Volkswagen exploring IPO of luxury carmaker Porsche -sources

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December 7, 2021

BERLIN/HAMBURG (Reuters) -Volkswagen is still exploring a possible initial public offering of its luxury brand Porsche AG as a way to fund its costly shift towards software and electric vehicles, two people familiar with the matter told Reuters on Tuesday.

Speculation about a Porsche listing, which could be a record-breaking IPO, has surfaced over the year, but no decision has been made due to a complex stakeholder set-up, the sources said, adding it was unclear whether a listing would happen.

Reports about a possible listing of the unit have included estimates of a standalone Porsche AG valuation of between 45 billion and 90 billion euros ($101 billion).

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Earlier, Handelsblatt reported that the Porsche and Piech families, who control Volkswagen’s largest shareholder Porsche SE, are considering selling part of their VW stake to fund a substantial stake purchase in a possible Porsche IPO.

The families, who own 31.4% of Volkswagen shares and have 53.3% of voting rights via Porsche SE, could sell enough shares to raise roughly 15 billion euros, the German newspaper said.

They would remain the largest shareholder in Volkswagen, Handelsblatt added, ahead of the state of Lower Saxony, which holds a 11.8% equity stake and 20% of voting rights.

Porsche SE called the report “pure speculation”, without giving further comment. Volkswagen declined to comment.

Volkswagen preference shares, which have fallen significantly in recent weeks due to a leadership tussle, closed up 8.6% at the top of Germany’s benchmark DAX index.

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Porsche SE shares closed 8.5% higher.

People familiar with the matter told Reuters in May that the families were prepared to take a direct stake in Porsche https://www.reuters.com/business/finance/porsche-piech-families-weigh-direct-stake-possible-porsche-ipo-sources-2021-05-31 AG should the luxury carmaker be separately listed.

Such a move would loosen the grip of the families on Europe’s largest carmaker Volkswagen, in favour of direct ownership of the sports car brand founded by their ancestor Ferdinand Porsche, which dates back to 1931.

Asked about a potential listing of Porsche in October, Chief Executive Herbert Diess said that Volkswagen was constantly reviewing its portfolio, but gave no further comment.

Diess will probably stay on as VW CEO although he will cede some responsibilities after a clash with labour leaders, two sources familiar with the matter told Reuters.

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($1 = 0.8894 euros)

(Reporting by Victoria Waldersee, Ilona Wissenbach, Jan Schwartz, Pamela Barbaglia and Christoph Steitz; Editing by Madeline Chambers and Alexander Smith)

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American Airlines taps president Isom as next CEO

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December 7, 2021

By Rajesh Kumar Singh and Abhijith Ganapavaram

(Reuters) – American Airlines Group Inc CEO Doug Parker will hand over the reins of the No. 1 U.S. airline to president Robert Isom on March 31, the company said on Tuesday, sending its shares up 2% in morning trade.

Parker will continue as chairman, while Isom will join the carrier’s board after he takes over as CEO.

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Isom, a longtime airline industry executive, took over as president in 2016 and has overseen operations, planning, marketing and pricing.

The leadership change comes as the industry recovers from the lows hit during the pandemic but faces operational challenges due to the threat posed by the Omicron coronavirus variant.

Isom faces the challenge of repairing American’s balance sheet as the pandemic has left it with the largest debt stock in the U.S. airline industry. He will also have to work on improving relations with the company’s labor unions.

In an interview, Isom said American would focus on returning to profitability as soon as possible and delivering a reliable service. He also aims to pay down a lot of debt.

“We’re going to be really focused on making sure that we have an appropriate level of leverage,” Isom told Reuters.

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Returning to profitability, however, is contingent upon a full recovery in travel demand. Isom said while the airline’s domestic business remained strong, new travel restrictions following the Omicron variant’s discovery had dampened demand in some international markets.

“If there’s anything, it just delays recovery,” he said.

Isom, 58, has been playing a key role in developing American’s strategy before and through the pandemic.

Analysts at Jefferies said he would bring broad experience to the job and the leadership change was unlikely to result in a deviation from the strategy, focused on fleet renewal and alliances, under Parker.

“Given Mr. Isom’s lengthy history with Mr. Parker, this transition was likely in place for a significant period of time,” they wrote in a note.

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A ‘THOUGHTFUL AND WELL-PLANNED’ SUCCESSION

In a letter to employees, Parker said the transition was the result of a “thoughtful and well-planned multi-year process”, dating back to Isom’s elevation to president in 2016.

Parker, 60, said the transition would have happened sooner if it was not for the pandemic, which brought the airline industry to its knees.

“While we still have work to do, the recovery from the pandemic is underway and now is the right time to make the transition,” he said.

Parker, one of the longest-serving chief executives in the airline industry, is known for overseeing consolidation in the industry as well as leading it through crises.

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He took the reins at America West Airlines just 10 days before the 9/11 attacks. When America West merged with US Airways in 2005, Parker continued as CEO of the combined company.

He was named chairman and CEO of American Airlines in 2013 after its merger with US Airways.

He was also instrumental in negotiating a COVID-19 relief package for the industry, which carriers say has saved thousands of jobs, prevented bankruptcy and put it in a position to support the economy’s recovery from the pandemic.

Under Parker, American expanded overseas and took on low-cost carriers at home, sparking a fare war. He formed strategic partnerships with Alaska Airlines and JetBlue Airways Corp to compete in markets where other carriers had an advantage.

The alliance with JetBlue, however, has invited lawsuits from the U.S. Justice Department and six states.

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In June, Southwest Airlines Co named company veteran Robert Jordan as CEO in place of Gary Kelly, who will step down next year.

(Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru Editing by Arun Koyyur, Jason Neely and Mark Potter)

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U.S. bank executives worried about sustained high inflation

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December 7, 2021

By Matt Scuffham

NEW YORK (Reuters) -U.S. bank executives on Tuesday raised concerns about the impact of a sustained period of higher inflation, adding to pressure on the Federal Reserve to accelerate plans to wind down the pace of its asset purchases.

Senior bankers are increasingly concerned that higher inflation could impact borrowers’ ability to pay back loans, slow U.S. economic growth and destabilize stock markets.

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Wells Fargo Chief Executive Charlie Scharf said at a conference that the U.S. central bank may need to move quicker to address inflation concerns. Goldman Sachs CEO David Solomon said he anticipated a period of higher inflation.

Bank of America CEO Brian Moynihan said his bank was running internal health checks to ensure its portfolios could withstand a return to 1970s-style inflation.

“We’ve been doing that for three or four quarters now figuring that we’d be at this place where inflation is real and out there,” Moynihan said at the Goldman Sachs Financial Services Conference.

Annual U.S. inflation increased from 1.4% to 13.3% from 1960 to 1979, while the country’s economic growth stagnated.

That had a marked impact on people’s lives, with the value of savings and the purchasing power of fixed incomes like pensions being undermined.

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U.S. inflation is running at more than twice the Fed’s flexible 2% annual target.

The International Monetary Fund last week warned of intensifying inflationary pressures, especially in the United States, and said U.S. central bankers should focus more on inflation risks.

“There’s a case to be made that they (the Federal Reserve) should be moving faster than they’ve been moving,” Scharf said.

“Inflation is very, very real,” he said. “Prices are significantly higher for inputs across most industries. Labor shortages and wage increases are extremely real. Whether that continues for several years is not all that relevant, but it certainly will have an impact over the next year or so.”

PANDEMIC’S SHADOW

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The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Fed Chair Jerome Powell said last week.

“My guess is now that there will be a quicker path to appropriate actions,” Scharf said.

Goldman Sachs’ Solomon anticipates inflation will be higher for a period but doesn’t expect a repeat of the cost rises of the 1970s, he said in an interview with CNBC.

“There’s a reasonable chance that we’re going to have inflation above trend for a period of time, but that doesn’t mean it has to be like the 1970s,” he said. “You’ve got to be cautious and manage your risk appropriately.”

Solomon acknowledged “uncertainty” in global financial markets due to factors including the emergence of the Omicron COVID-19 variant and question marks over the pace at which the Fed and other central banks will reduce asset purchases.

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The Fed has begun reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities on a pace that would put it on track to complete the wind-down in mid-2022. There is growing pressure on the central bank to accelerate the end of the bond-buying program, which was unveiled in 2020 to stem the economic fallout from the pandemic.

“We’re still not completely out of the pandemic. There’s uncertainty that comes from that and that uncertainty is going to affect economic activity,” Solomon said.

“On top of that, we have shifts going on in fiscal and monetary policy to try to balance that. There’s no question that this has been an unprecedented period, so it’s very hard to predict how we’re going to come out of this.”

(Reporting by Matt Scuffham, Editing by Louise Heavens, Emelia Sithole-Matarise and Paul Simao)

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