Aurelia Butler

Concerns over the highly transmissible variant have spooked investors around the world and prompted companies to delay their return-to-office plans. Here are the updated plans of Canadian banks and insurers’ to bring staff back to office: Bank of Nova Scotia: Scotiabank has paused plans to begin a phased return for its Toronto head-office employees from Jan. 17. When the return happens, it will be staggered for different groups and most head-office staff will follow a hybrid working model.Sun Life Financial (NYSE:SLF) Inc: Canada’s second-biggest life insurer has paused its office re-opening pilot for more employees until the end of January.The company has launched a flexible return-to-office approach for a majority of its 12,000 staffers in Canada, that will allow them to choose where to work from.National Bank of Canada (OTC:NTIOF): Canada’s sixth-biggest lender has asked employees to work remotely if possible.Royal Bank of Canada: Most of the bank’s 61,000 employees are working from home, but many have begun returning to offices or will do so over the coming weeks and months. Many of those will adopt a hybrid work model, working some days from home and some days in the office. Each business group and region is determining the best work arrangements for them, and employees will receive at least four weeks’ notice before they return to offices. Toronto-Dominion Bank: The bank asked employees who are able to do so to work from home until further notice.Bank of Montreal: Canada’s fourth-largest bank has asked its investment bankers to go back to working from home until the week of Jan. 17, according to a Bloomberg News report https://www.bloomberg.com/news/articles/2021-12-16/bank-of-montreal-asks-investment-bankers-to-work-from-home?sref=vEQJzSks. Canadian Imperial Bank of Commerce: Canada’s fifth-largest lender has asked its staff in the country to work remotely and halted plans for a return to work location in January.Manulife Financial (NYSE:MFC): Canada’s biggest life insurer has pushed its return-to-office date for employees in North America for the time being, according to a memo seen by Reuters. It had earlier planned Jan. 24 as its back to offices date in the U.S.In addition, the banks and insurers have put in place mandatory vaccination policies https://www.reuters.com/world/americas/canadas-major-banks-require-employees-entering-premises-be-vaccinated-2021-08-20 that employees will need to follow to return to their premises. More

Germany’s powerful business lobby has lashed out at China after the communist country blocked imports from German manufacturers in Lithuania.The BDI accused Beijing of a “devastating own goal” after companies from other EU member states were caught by China’s decision to ban imports from the Baltic country. “The latest measures China has adopted against Lithuania amount to a trade boycott that will impact the whole of the EU,” it said. “Imports from China, which are needed in German manufacturing facilities in Lithuania, are also being affected, as are exports from Germany to China which contain Lithuanian components.” “In the long term, the escalation by China is a devastating own goal. It shows that China is prepared to decouple economically from “politically undesirable” partners. It’s clear to the BDI that any damage to the value chains that are at the heart of the EU single market, is not to be tolerated.”However, in a swipe at Lithuania for bolstering ties with Taiwan, a move that precipitated the crisis, it criticised individual states that were “out of step” with EU policy. China is Germany’s biggest trading partner, with €213bn in goods exchanged in 2020. “It remains important to maintain economic relations with China on a high level,” the BDI said. Its statement will add to pressure on Berlin to intervene diplomatically.Continental, the German blue-chip auto parts supplier, is among the companies to have had exports blocked by customs authorities in China, according to people familiar with the matter. The company makes telematic control units at a factory in the Lithuanian city of Kaunas.China blocked all imports from Lithuania earlier this month, after the Baltic state allowed Taiwan to open a de facto consulate in its capital Vilnius. Beijing, which considers Taiwan to be part of China, also suspended its consular services in Lithuania. Vilnius pulled its diplomats out of China over concerns for their safety.But China’s import ban targeted at Lithuania is now beginning to hurt foreign companies who established manufacturing facilities in the low-cost country.Lithuanian officials met the European Commission on Friday, an industry representative in the country told the Financial Times.The EU is preparing a legal case at the World Trade Organization, which could take months.Continental, which has operations in 58 countries, is considering shipping products from Lithuania via other countries, one person said, in order to avoid further the Chinese blockade. The company declined to comment.Hella, another German supplier with a large plant in Lithuania, has also encountered difficulties with exports to China, according to one industry representative, as have smaller companies with operations in the country. Hella did not immediately respond to requests for comment.A spokeswoman for the German economy ministry said it was aware of the difficulties encountered by Continental and was “concerned” by developments, but did not elaborate on the coalition government’s plans. Florian Schröder, the managing director of the German-Baltic Chamber of Commerce, said several German companies had been seeking advice from the body after having trouble importing or exporting products.“We have been working hard for the past 5 years to establish a small automotive supplier cluster,” he told the FT.“Now things have escalated and many German and Lithuanian companies are affected.”Chinese officials have denied ordering any action, but told the EU that private logistics companies and importers might be avoiding Lithuanian goods in anger over its links with Taiwan. Brussels is collecting evidence but many companies fear that if they complain they will be shut out of China completely. Additional reporting by Richard Milne in Oslo More

The EU is changing its rules to allow Britain to continue supplying medicines to Northern Ireland as a first step in solving a dispute over post-Brexit trade in the region.Brussels will legislate to permit UK-approved medicines to enter Northern Ireland to avoid a possible shortage due to post-Brexit regulations.The EU move was given a cautious welcome by Lord David Frost following meetings with the EU on Friday, but the UK Brexit negotiator warned that the two sides still had a long way to go to resolve their differences.The solution on medicines, which government officials privately acknowledged will ensure that Northern Ireland has the same access to medicines as the rest of the UK, marked a positive end to several months of at-times fractious negotiations that have poisoned the wider EU-UK relationships.It was welcomed by the pharmaceutical industry in both the EU and the UK. In a joint statement the Association of the British Pharmaceutical Industry (ABPI) and the European Federation of Pharmaceutical Industries and Associations (EFPIA) said the EU proposal created a “strong footing for a long-term resolution”But despite the progress as the two sides broke for Christmas, Frost cautioned that they were still far apart on several key issues raised by the so-called Northern Ireland protocol, which governs trade in the region. He added that solutions would need to be found “urgently” for Northern Ireland in the new year ahead of politically sensitive local elections in May, and urged the EU towards more creative solutions. The two sides continue to disagree on how to reduce bureaucratic friction on the Irish Sea border. This was created when Northern Ireland was left behind in the EU single market for goods after Brexit in order to avoid the return of a hard trade border on the island of Ireland.

Despite agreeing to the arrangement, Frost has since warned that the level of customs checks on the Irish Sea border is “not sustainable”, arguing it has destabilised the region’s politics and made trade too complex and expensive for some smaller companies in Great Britain wanting to send goods to Northern Ireland.“I do not believe that the negotiations are yet close to delivering outcomes which can genuinely solve the problems presented by the protocol,” he said in a statement, adding it was “disappointing” a comprehensive deal had not been possible this year.Frost wants drastic changes to the operation of the Northern Ireland protocol. But this week he dropped his demand to remove the oversight of the European Court of Justice from the protocol and has offered to agree to an interim deal on the most pressing issues, deferring others until later. The concessions have convinced many EU diplomats that the UK is seeking a deal. Maros Sefcovic, the EU Brexit commissioner, told reporters in Brussels that the agreement on medicines showed “the protocol has the flexibility to work on the ground. We must carry this momentum into the other areas of discussion.”Frost has suggested an independent arbitration system to manage disputes over the implementation of the protocol that would keep EU judges at one remove but still allow them oversight of matters of EU law. But Sefcovic on Friday dismissed the idea, saying the UK should stick to what it had signed upon leaving the bloc.“Without the ECJ you cannot have access to the single market,” he said. He also claimed the protocol was working “to the benefit of Northern Ireland”, citing increased investment and a growing amount of local produce on supermarket shelves.Talks will resume in early January, with Frost and Sefcovic due to meet again on January 14. More

This was the week that central banks around the world changed gears and got serious about inflation. Gone was talk from the Federal Reserve, European Central Bank or Bank of England that rapidly rising prices were temporary, transitory or transient. Instead, they began to worry about high inflation being “persistent”.The ECB and Fed sharply scaled back their programmes of asset purchases. Central banks in two rich economies, the UK and Norway, raised interest rates. Nine emerging economy central banks, ranging from Chile to Russia, also pushed rates higher. Even the Bank of Japan, more often concerned with deflation, dialled back its coronavirus crisis monetary support.Rarely has there been such a clear shift across the global economy towards a more hawkish outlook on inflation. Ajay Rajadhyaksha, head of macro research at Barclays, said: “Central banks are clearly pivoting to a tightening regime far more quickly than appeared likely just a few months ago”.Francesco Pesole, foreign exchange strategist at ING, said the most important new message this week was “the centrality of inflation in the policy discussion”. As well as putting inflation at the centre of their thinking, officials in charge of monetary policy downgraded the importance they attached to coronavirus and its effects on economic activity. Statements from the Fed, ECB and BoE all highlighted the uncertainty surrounding the Omicron variant. But none thought it would be pivotal to policy in coming months. In the US, Fed chair Jay Powell said Omicron “doesn’t really have much to do with” its plan to accelerate the removal of pandemic-era monetary stimulus. Christine Lagarde, ECB president, stressed that “our economies have become more resilient, stronger and are more capable of adjusting wave after wave after wave, and variant after variant”. As for the UK, BoE governor Andrew Bailey said it was unclear if Omicron would add to or lessen inflation pressure “and that’s a very important factor for us”.There was no sign these responses were co-ordinated. Yet the consistency of their message has raised concerns among some economists that leading central banks may have forgotten how corrosive coronavirus waves can be. “The central bankers who have taken this hawkish, or less dovish in the ECB’s case, tilt were never imagining . . . in October and November that there would be this bolt from the blue with Omicron,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “I’m surprised that there is not a little bit more willingness to accept that things actually could be quite bad for a while.”The underlying reason driving the rise in inflation is global demand exceeding the world’s capacity to supply goods and services. Yet while leading central banks acknowledged the problem, how they chose to address it varied. The Fed’s rapid withdrawal of quantitative easing, and the signal it will raise interest rates three times next year to leave them at between 0.75 and 1 per cent, was well telegraphed. Yet the view among some economists was this was too little too late — given that US inflation, at almost 7 per cent, is already at an almost four-decade high. Ethan Harris, head of global economics research at Bank of America, said: “There is slow-motion capitulation with the Fed . . . We will see [interest rate forecasts] inching up.” By contrast, the BoE surprised everyone with its rate increase. It felt it could not afford to wait because, with UK inflation already more than 5 per cent, the bank was receiving reports that companies were planning further wage and price rises. As Huw Pill, its chief economist, told CNBC on Friday, the BoE had to raise interest rates “in order to ensure the credibility of our [2 per cent inflation] objective”.

The ECB was calmer because it felt there were fewer signs of rapid wage growth in Europe than in the US or UK, and it continued to expect eurozone inflation to fall below its target in the next two to three years.“It was striking to us how much more confident in the economics of the outlook and more balanced on Omicron, ECB president Lagarde appeared,” said Krishna Guha of Evercore ISI. “This largely reflects the fact that underlying inflation dynamics in the eurozone remain subdued.”The one global outlier to these central bank moves came from Turkey, which cut its interest rate to 14 per cent, despite inflation running at more than 21 per cent; boosted consumer demand, with a 50 per cent rise in the minimum wage — and then watched investors flee. As a cautionary tale for others, by midday Friday the Turkish lira had fallen 17 per cent against the dollar during the week. None of the hawkish moves by other central banks should yet be seen as a demonstration of their independence from government. Inflation has become a political problem in many countries, especially the US, and such central bank action is supported by politicians. Moreover, policy is still providing stimulus, interest rates remain very low, and there is scope to ease again if the economic effects of Omicron prove worse than expected. But now that the tightening cycle has begun, a bigger challenge facing central banks has drawn nearer. It will arrive if they have to go far further than they did this week, and take unpopular decisions to squeeze persistent inflation out of the economy. Their biggest test is yet to come. Additional reporting by Martin Arnold in Frankfurt More

Economists are warning that Germany risks sliding into recession this winter after the country’s main indicator of business confidence slumped to its lowest point since February and the central bank slashed its growth forecasts.Germany’s vast manufacturing sector has been hamstrung for months by delays and shortages of materials caused by supply chain bottlenecks. But now its larger services sector is also being weighed down by new restrictions to contain a surge in coronavirus infections.The worsening outlook for Europe’s largest economy was underlined by the Bundesbank cutting its growth forecasts for this year and next year, while warning output was likely to fall at the end of this year.The monthly indicator of German business sentiment produced by Munich’s Ifo Institute fell more than most economists expected to 94.7 in December, down from 96.6 the previous month. “Companies assessed their current business situation as less positive,” said Clemens Fuest, president of Ifo. “Pessimism regarding the first half of 2022 also increased. The German economy isn’t getting any presents this year.” Fuest said sentiment declined in the services, retail and construction sectors — including a steep drop in confidence among tourism and hospitality companies. Confidence rose among German manufacturers, but more of them also warned of worsening supply logjams. Carsten Brzeski, head of macro research at ING, said: “The fourth wave of the pandemic could now actually push the economy to the brink of stagnation, or even into a technical recession.” However, some economists said a recent rebound in German industrial production, driven by a jump in car production in October, could save the economy from a fall in overall output during the final quarter. “It is unlikely that fourth-quarter growth will be negative given the momentum you have going into it,” said Sven Jari Stehn, chief European economist at Goldman Sachs. He added, however, that there were “downside risks” to Goldman’s forecast for German growth of 0.4 per cent in the first quarter of next year — particularly if a stricter national lockdown is introduced to counter the Omicron coronavirus variant, and it lasts longer than expected.The Bundesbank on Friday cut its German growth forecasts for this year from 3.7 to 2.5 per cent, and for next year from 5.2 to 4.2 per cent. It warned gross domestic product “could fall somewhat” in the final quarter of this year, but would rebound from next spring thanks to a “boom in private consumption”, as well as higher exports and business investment.

Jens Weidmann, the Bundesbank’s outgoing president, said inflation risks were “skewed to the upside” and urged policymakers to be “vigilant”. The central bank raised its forecasts for German inflation, predicting it would increase from 3.2 per cent this year to 3.6 per cent next year, before moderating to 2.2 per cent in 2023. There was more evidence of supply snags pushing up inflationary pressures, after German producer prices rose 19.2 per cent from a year ago in November — their fastest rate since 1951 — driven mainly by soaring prices for energy, metal and wood products. The Bundesbank predicted that supply chain bottlenecks would not be resolved until the end of next year. Both Deutsche Bank and Commerzbank — Germany’s two largest private sector lenders — also warned of a likely recession this winter. Deutsche Bank forecast the German economy would contract 0.5 per cent in the current quarter and the following one “largely due to the brake on private consumption caused by tightened Covid regulation and voluntary social distancing”.Jörg Krämer, chief economist at Commerzbank, also forecast German consumer spending would fall in the short term. But he said households had built up extra savings worth 10 per cent of their disposable income during the pandemic, and predicted that “this will strongly boost consumption” once restrictions are lifted, even if only part of it is spent. More

Dear Santa,We have (mostly) been good all year and all we really want for Christmas is for US interest rates to stay nice and low for as long as possible.Love,InvestorsOne of the key tasks of markets journalists, a gift to the world, is to wade through lots of year-ahead outlook research from banks and investment firms so you don’t have to. Some of these things run to hundreds of pages — the product of intensive work by dedicated minds grappling with the task of making predictions in an inherently uncertain world (and trying to land in clients’ inboxes before the competition).It is a crude generalisation of these often thoughtful pieces, but nonetheless true, that for the next 12 months or so, they largely boil down to that letter to Santa above. Everything hinges on investors’ perception of inflation pressures and what they think the heavy-hitting central banks, chiefly of course the US Federal Reserve, will do about them.In a sense, this is nothing new. Fed policy matters, shock news. But it is notable that, whatever 2022 can throw at us — new coronavirus variants, geopolitics, whatever — still the number-one point of discussion among fund managers is the same as it has been for most of this year: inflation. If policymakers respond to what has, by any sensible measure, been a surprising burst higher in price pressures, and the Fed seeks to douse them down aggressively with rapid rises in interest rates, then some risky assets are vulnerable.“Bond yields totally dominate,” said Peter Rutter, head of equities at Royal London Asset Management. “It’s a bit simplistic. Maybe we’re missing a big thing that’s going to happen. But it’s so embedded in investors’ psyche, we are conditioned to low rates.”“It’s the best of times and the worst of times for equities,” Rutter continued. “It’s the worst of times because they have never been this expensive. But they are a bargain relative to buying Treasuries in a 4 per cent inflation environment. That’s why the equity market refuses to go down. You need asset classes that give you a positive rate of return.”Take away those rock-bottom yields on benchmark bonds, and the conversation is entirely different.This point shines through in a recent survey of credit investors carried out by Bank of America. “Investors seem to think there is only one risk that matters: a policy error by central banks,” the bank said in its summary of the study. “Almost half of those surveyed say this is their major concern, close to the largest reading ever for a top concern. Investors feel entrenched inflation will end the era of central bank predictability, with forthcoming rate hikes being quicker, bigger and more chaotic than in the past.” The bank described the concern as “policy panic”.Omicron? Whatever. The survey revealed that 70 per cent of investors in the study thought this new variant of the pandemic would have little economic impact, thanks to low appetite for lockdowns and the safety net of existing vaccines. Only 5 per cent have identified lingering Covid-19 as the top concern for 2022. Instead, it is all about the rates outlook.

Now, of course, a policy “error” by the Fed, or any other central bank for that matter, is in the eye of the beholder. One can argue that failing to raise rates hard and fast in response to price pressures is a mistake in itself that fosters greater inequality and potentially stores up a big correction further down the line. Some hedge funds stand to gain from a break in the rates environment. Still, few would argue against the notion that tighter monetary policy poses a challenge to fund managers.The all-consuming primacy of monetary policy over asset prices goes hand in hand with what has been a punishing environment for many specialists in banks, the investment industry and in policy, as inflation has not behaved even remotely like most predicted. Early this year, when US inflation first blasted above expectations, fund managers were alarmed but able to shrug off any urge to panic, pointing to the outsized role for some specialist items such as used cars. Since then, efforts to write off inflation as transitory have suffered a brutal collision with reality. Central banks have succeeded in being patient, and have declined to rush in with rate rises, but 2022 is widely expected to be the year that they snap. The Bank of England has already nudged up rates, while the Fed has signalled three rises next year. The question, and the subject of fierce debate, is whether that is a sufficient, or excessive, response.Salman Baig, multi-asset investment manager at Unigestion in Geneva, is among those who think inflation will calm down and that the Fed will respond to negative shocks, such as a serious dent from Omicron, by dialling down its hawkishness.“My view is the Fed will back off,” he said. “At most, there will be one Fed hike next year. If we are right that central banks end up being less aggressive, that’s a boon. We have to be humble. We could be wrong, inflation might pick up. But that’s why we have risk controls.”It is a simple wish [email protected] More

ROME (Reuters) – The Italian government on Friday reached a deal with the ruling parties to cut income and business taxes by about 7.5 billion euros ($8.50 billion) next year, according to an amendment to the 2022 budget before parliament.Rome will also allocate around 4 billion euros to curb energy bills for households and companies, the amendment said.The budget, which parliament must approve by Dec. 31, targets the 2022 deficit to fall to 5.6% of national output from 9.4% this year, reflecting strong economic growth and the end of stimulus measures introduced at the height of the COVID-19 pandemic.With international energy prices rising, Mario Draghi’s government has earmarked an additional 1.8 billion euros to try to rein in utility bills, the budget amendment shows. That comes on top of the 2 billion euros previously set aside.A separate measure allows households to pay electricity and gas bills related to the first four months of next year in 10 instalments, to dilute the impact on family finances.The tax cuts will be implemented mainly through a reorganisation of income tax (IRPEF), reducing the number of tax rates to four from five and increasing some tax-related benefits for low-earners.The first tax band on annual income of up 15,000 euros will be left at 23%. The second band, between 15,000 and 28,000 euros, will be lowered to 25% from 27%.The third band, on income from 28,000 to 50,000 euros, will get the most substantial cut, to 35% from 38%. The fourth band, on income from 50,000 to 75,000 euros, will rise from 41% to 43%. This is the rate that is currently applied on income above 75,000 euros, effectively cancelling the fifth income tax band.The tax reform also exempts more than 800,000 self-employed workers from paying a regional business tax (IRAP).($1 = 0.8825 euros) More