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Analysis – Investors suddenly see rampant risks in eastern Europe

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November 19, 2021

By Marc Jones and Karin Strohecker

LONDON (Reuters) – Eastern and central Europe’s normally predictable financial markets are suddenly alive with the most diverse geopolitical and economic risks the region has faced in decades, and international investors are starting to pay attention.

The list makes worrying reading.

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The European Union faces a migrant crisis on its eastern borders the bloc says is being fomented by Belarus, tensions between Ukraine and Russia have flared up again, Brussels is locked in a dispute with the Polish and Hungarian governments over rule of law and democracy, and Romania has no government.

Money managers have long viewed the region as a sort of hybrid – part euro zone satellite bloc with ultra-low interest rates to boot, but also not fully out of Russia’s orbit especially at the fringes.

The latest series of events though, which importantly for market watchers comes against a backdrop of one of the strongest inflation surges since the end of the Cold War and rising COVID-19 cases, has been impossible to compartmentalise.

Hungary’s forint, a 12-year low Polish zloty, Romania’s leu and Russia and Belarus’ roubles are five of the eight worst performing world currencies this month and eastern European stocks are having their worst one in over a year.

Government bonds have been suffering as rising inflation crushes the real-term income they provide. Polish, Hungarian and Romanian bonds now have some of the most negative ‘real yields’ — the interest rate once inflation is factored in — anywhere in the emerging world, even lower than Turkey.

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Ukraine’s bonds have slumped 10% as Russian tanks have neared its borders again, while the threat that Western governments might ban banks and funds from owning Russian sovereign debt altogether has hit Moscow’s market.

“Welcome back to emerging markets,” JPMorgan headlined a report on Wednesday on the growing pressures in the region after the years of relative calm.

This week’s flash points saw the EU toughen sanctions on Belarus for encouraging thousands of people fleeing war-torn countries to try to cross into EU nations like Poland, an accusation Belarusian President Alexander Lukashenko denies.

Meanwhile NATO Secretary-General Jens Stoltenberg warned Russia on Monday the western military alliance was standing by Ukraine amid what he called a “significant” build-up of Russian troops near the border.

Romania is still trying to cobble together a government while calls for separatism in Bosnia have brought warnings of a return to the ethnic conflicts in the Balkans.

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“We have seen an effect across most assets,” said Viktor Szabo, a portfolio manager at investment firm abrdn, citing the drops in Ukraine’s hryvnia currency, Russia’s rouble and some of the region’s government bonds.

SHARP DETERIORATION

While the geopolitical tensions have dominated the headlines, UBS’s head of emerging market strategy Manik Narain warns about a sharp deterioration of broader economic fundamentals in CEE.

A rise in imports and supply chain issues in key export sectors like car manufacturing are likely to result in Poland’s first negative trade balance since 2012, Narain said. A long-running row with Brussels about Warsaw overriding parts of EU law could be costly too if it isn’t resolved.

The EU is currently withholding Poland’s 36 billion euro- share ($40.7 billion) of its Covid-19 recovery fund, equivalent to roughly 1% of the country’s GDP. That could jump to 4-4.5% of GDP though if traditional EU development funding, worth more than 120 billion euros over the next six years, is also stopped.

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JPMorgan estimates the deterioration in current account positions implies a GDP deficit of 2.3% in Poland, of 1.8% in the Czech Republic and 2.9% in Hungary.

That could see currencies weakening further and together with this year’s 300% surge in gas prices fuel inflation and force central banks to keep raising rates.

“If balance of payments deterioration proves more permanent, we expect higher FX volatility in the region,” JPMorgan said.

Every 1% of GDP current account deterioration requires interest rates to be 50 basis points higher than they otherwise would have been, calculates JPMorgan.

Borrowing costs would have to rise too. Inflation for big three CEE economies – Poland, the Czech Republic and Hungary – currently averages around 6.5%. If it ends up settling between 3-5%, 10-year bond yields in the region would hit 3.9%-5.2% – far higher than in recent years.

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Lyubka Dushanova, an emerging market specialist at State Street Global Advisors, reckons that CEE central banks being behind the curve and losing inflation-fighting credibility causes market weakness.

“It is difficult to distil the geopolitical tensions from the macroeconomic backdrop,” Dushanova said. “We are probably going to see some rocky times in the region.”

($1 = 0.8849 euros)

(Reporting by Marc Jones and Karin Strohecker; Editing by Emelia Sithole-Matarise)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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U.S. Black Friday shoppers tapered online splurge, as some returned to stores

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November 27, 2021

By Arriana McLymore and Richa Naidu

RALEIGH, North Carolina (Reuters) – U.S. shoppers spent slightly less online during Black Friday this year, with many venturing back to physical stores despite coronavirus fears, tight supplies, and retailers’ efforts to encourage earlier holiday purchases.

For the first time ever, spending online during Black Friday – traditionally one of the biggest shopping days of the year – fell, reversing the growth of recent years, according to data from Adobe Analytics, a wing of Adobe’s business that specializes in data insights and tracks transactions at 80 of the top 100 U.S. retailers.

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Retailers lured shoppers to make holiday purchases online as early as September this year, because the supply-chain logjam has prevented them from quickly replenishing year-end merchandise. Shoppers’ total outlay online during Black Friday was roughly $8.9 billion, less than the $9 billion in 2020, Adobe said. Spending online during Thanksgiving Day was flat at $5.1 billion, Adobe said.

Many retailers closed physical stores on Thanksgiving this year, as they did in 2020, amid a labor shortage and the coronavirus pandemic. Stores reopened the day after Thanksgiving, and shopper visits increased by 47.5% compared to 2020, but fell by 28.3% when compared to 2019, the last pre-pandemic year, according to data from Sensormatic Solutions.

Supply-chain challenges and shipping delays may have prompted shoppers to visit stores in order to increase the chances of securing gifts in time for Christmas. More are making purchases online that they can pick up in-store, which keeps shipping costs down.

Macy’s, Walmart, Target and Kohl’s, for example, gave shoppers the flexibility to shop online, in stores or through hybrid methods, walked away as winners on Black Friday, said Louis Navellier, chairman of investor Navellier & Associates.

Of those purchasing online, slightly more used their smartphones. Canadian e-commerce company Shopify said the number of shoppers on its platform who used smartphones to make purchases increased this year to 72% from 67% last year.

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Retailers’ moves to encourage buying holiday gifts earlier could also lessen the importance of Cyber Monday, the first Monday after Thanksgiving.

(Reporting by Arriana McLymore and Richa Naidu, Aakriti Bhalla and Sabahatjahan Contractor in Bengaluru; Editing by Nick Zieminski)

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Canada’s Shopify records Black Friday sales up 21%

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November 27, 2021

(Reuters) – Canadian e-commerce company Shopify Inc recorded worldwide sales of nearly $2.9 billion on Black Friday, an increase of about 21% in comparison to last year, the company said Saturday.

New York, London and Los Angeles were among the top-selling cities, the company said, while apparel and accessories was the top-selling product category.

Shopify also said it funded 23,000+ tonnes of carbon removal to counteract emissions from the delivery of every order placed on its platform on Black Friday.

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(Reporting by Aakriti Bhalla in Bengaluru; Editing by Nick Zieminski)

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