Finance

Mastercard said Thursday it entered into an agreement to buy CipherTrace for an undisclosed amount.
CipherTrace develops tools that help businesses and law enforcement root out illicit digital currency transactions.
The deal is the latest sign of how major corporates are showing increased interest in the crypto market.

The MasterCard logo on a smartphone arranged in Saint Thomas, Virgin Islands.
Gabby Jones | Bloomberg | Getty Images

Mastercard has agreed to acquire blockchain analytics start-up CipherTrace, in the latest sign of how major companies are warming to cryptocurrencies.
The payments giant said Thursday it entered into an agreement to buy CipherTrace for an undisclosed amount. Based in Menlo Park, California, CipherTrace develops tools that help businesses and law enforcement root out illicit digital currency transactions. The company’s competitors include New York-based Chainalysis and London start-up Elliptic.

“Digital assets have the potential to reimagine commerce, from everyday acts like paying and getting paid to transforming economies, making them more inclusive and efficient,” Ajay Bhalla, president of cyber and intelligence at Mastercard, said in a statement. “With the rapid growth of the digital asset ecosystem comes the need to ensure it is trusted and safe.”
Financial terms of the deal were not disclosed. Mastercard shares were up about 0.6% Thursday morning in New York.

A key concern with bitcoin and other cryptocurrencies is that the people transacting them are anonymous. That has made digital assets the currency of choice for a number of hackers and other criminals. However, the blockchain is a public ledger of all digital currency transactions, and services like CipherTrace’s analyze movements of funds to ascertain whether they’re dubious.
Mastercard said the deal would help its customers protect themselves and comply with regulations as they start to build out their own digital currency offerings. CipherTrace says its platform is used by some of the world’s largest banks and crypto exchanges.
The deal is the latest sign of how major corporates are showing increased interest in the crypto market. Mastercard itself said it would open its network up to select cryptocurrencies this year, while rival Visa recently disclosed more than $1 billion worth of crypto was spent by consumers using its crypto-linked payment cards.

Bitcoin was trading at around $47,000 Thursday, up nearly 2% in the last 24 hours. The world’s largest digital coin slumped sharply on Tuesday after El Salvador adopted it as legal tender.
Proponents of cryptocurrencies saw the move as a step toward wider adoption of the asset class. However, El Salvador’s bitcoin rollout wasn’t without its issues, with the country temporarily disabling its official bitcoin wallet to increase the capacity of its servers.

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Check out the companies making headlines before the bell:
Lululemon (LULU) – Lululemon reported adjusted quarterly earnings of $1.65 per share, easily beating the consensus estimate of $1.19. The apparel maker’s revenue also topped estimates, helped by a surge in direct-to-consumer sales. Lululemon also raised its full-year guidance. The stock surged 13.5% in the premarket.

GameStop (GME) – GameStop skidded 7.5% in premarket action after it reported an adjusted loss of 76 cents per share for its latest quarter, 9 cents wider than analysts were anticipating. Revenue did top Wall Street forecasts, and the videogame retailer saw its loss narrow from a year ago as sales grew by more than 25%.
Boston Beer (SAM) – Boston Beer tumbled 9.6% in premarket trading after the brewer of Sam Adams beer pulled previously issued financial guidance. The company said it had overestimated demand for its Truly hard seltzer brand ahead of the summer.
RH (RH) – RH beat consensus estimates by $2.00 with adjusted quarterly earnings of $8.48 per share, and revenue above Street forecasts. The home furnishings company said it continues to see elevated demand from consumers spending more time at home. RH also raised its full-year outlook, and the stock added 2.1% in the premarket.
United Airlines (UAL) – The airline trimmed its outlook due to the surge in Covid-19 cases that has cut into passenger demand. United is adjusting its capacity in response and said if current trends continue, it will report an adjusted fourth-quarter loss. United shares fell 1.4% in premarket action. Southwest Airlines (LUV), JetBlue (JBLU) and American Airlines (AAL) followed with similar warnings. JetBlue lost 1.4%, American fell 1.2% and Southwest was down 0.9% in premarket trading.
Caesars Entertainment (CZR) – Caesars struck a deal to sell the non-U.S. assets of its William Hill sports betting unit to British gambling firm 888 Holdings for about $3 billion. Caesars had acquired William Hill earlier this year.

NetEase (NTES), Bilibili (BILI) – NetEase and Bilibili are among the U.S.-traded China gaming and media stocks under pressure after the companies were summoned by authorities to ensure that new rules for those sectors were being implemented and followed. NetEase fell 5.5% in the premarket, while Bilibili was down 7.2%.
Analog Devices (ADI) – Analog Devices said it expected its 2020 purchase of rival semiconductor maker Maxim would add to adjusted earnings 12 months after closing, 6 months sooner than it had initially anticipated. Analog Devices also added $2.5 billion to its share repurchase program.
Warner Music Group (WMG) – The music publisher’s shares fell 2.1% in the premarket after StreetAccount reported that a 3.15 million share block was being shopped through Morgan Stanley.
Macy’s (M) – Macy’s gained 1.2% in premarket trading after Cowen upgraded the retailer’s stock to “outperform” from “market perform”, noting better inventory and pricing management as well as a more robust digital strategy.
Correction: This story has been updated to reflect that Boston Beer overestimated demand for its Truly hard seltzer.

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CHINA’S ECONOMIC planners want more home-made semiconductors, but they are not satisfied with more chips simply being produced at home. They want to bring the entire supply chain—from raw materials and chip grinders to labour and capital—onshore. Tens of thousands of companies have established microchip businesses over the past year. Now the state is rushing to ensure such cash-hungry firms can raise capital at home, too.On September 2nd Xi Jinping, China’s president, announced that a new stock exchange will be launched in Beijing, joining existing markets in Shanghai and Shenzhen. It is hoped that the bourse, a revamp of an over-the-counter exchange called the New Third Board, will channel capital from professional investors to fast-growing small and mid-sized firms.This is not the first time Mr Xi has backed a new stock exchange aimed at innovative companies: Shanghai’s STAR market opened in 2019, advertising relaxed rules that help accelerate fundraising for smaller firms. Domestic listings appear to be thriving. Shanghai will bag two of the world’s largest initial public offerings (IPOs) of the year, those of China Telecom, a state-owned communications company, and Syngenta, a state agrochemical giant. Funds raised through such offerings in the city are set to reach their highest level in a decade this year, according to Bloomberg.The emphasis on domestic fundraising fits snugly into China’s strategy of “dual circulation”, the cornerstone of the country’s latest five-year plan, which aims to bolster domestic markets and reduce reliance on foreign ones, often on national-security grounds. It also offsets the worsening environment for overseas listings. New domestic regulations make it harder for Chinese firms to list abroad: internet companies with more than 1m users, for example, must now apply to the cyberspace regulator for permission. In America, the securities watchdog has halted Chinese IPOs following several disastrous listings. Congress plans to force many Chinese groups to delist if they do not share certain auditing documents—ones that the Chinese state forbids them to reveal.On the face of it, the roles of offshore and onshore IPOs seem to have reversed. An IPO in Hong Kong or New York was once seen as further removed from Beijing’s reach and less sensitive to policy surprises. The latest policy and geopolitical turmoil, however, has rocked overseas listings while making Chinese-traded securities “a route to counter geopolitical risks stemming from US sanctions”, say analysts at Natixis, a bank.Neither Hong Kong nor New York can offer such a defence. The Hang Seng Tech Index and Nasdaq Golden Dragon Index, both of which track some of China’s biggest listed tech groups, tumbled by 28% and 33%, respectively, between the end of June and late August, according to Natixis. By contrast, the STAR 50 index rose by 1.4% over the same period.Channelling capital at the snap of a finger might be harder than regulators think, however. Many tech groups raise funds privately through offshore structures not recognised by China’s regulators. Part of the reason why Chinese tech companies listed abroad in the first place was because the foreign investments they took on made cashing out through an onshore IPO a regulatory minefield.Mr Xi might launch all the new exchanges he wants, but he has neglected deeper reforms to their governance. The STAR market uses a “registration system” for IPOs whereby, in theory, companies need only meet a number of clear requirements to go public. In practice, however, the China Securities Regulatory Commission (CSRC) retains control over who goes public and when. A number of listings have been put on hold this year. The CSRC has a “civil-servant mentality” towards keeping markets orderly and avoiding unwanted social disturbances, says a manager at a global investment group. Regulators will be reluctant to shed that mindset, be they in Shenzhen, Shanghai or Beijing. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Home comforts” More

ECONOMISTS DO NOT agree on much, but they do almost all think that a shortage of housing is a big drag on the economy. Zoning laws and conservation rules have proliferated since the 1960s, with diktats on everything from the number of car-parking spaces to how pitched a roof must be. These have made it harder to get projects off the ground: house-building in the rich world, relative to population, has fallen by 50% since 1964. Low housing supply means higher prices, constraining cities’ growth and reducing productivity. One estimate suggests that restrictions lowered American output growth by a third between the 1960s and 2009.Although most housing experts want more building, few spend much time thinking about how to make this happen. Some pin their hopes on the “YIMBY” movement—enthusiastic nerds who turn up to planning meetings and shout “yes” not “no” to having more houses “in my back yard”. But YIMBYs are few and their power limited. More encouragingly, politicians are waking up to the damage caused by distorted housing markets. In Britain the Conservative government talks a good game on boosting housebuilding. On September 1st America’s White House decried “exclusionary zoning laws and practices” and promised to raise the supply of affordable housing. Yet its talk of “relaunching partnerships” and “leveraging existing federal funds” hardly inspires confidence. Better solutions are needed.One option is for the state to build houses itself. Singapore has taken this route since the 1960s. The government nationalised most land supply and built vast numbers of flats. Today 80% of Singaporeans live in these buildings and housing costs are low. In Russia the state has played a more Singaporean role in housing since 2000. Annual construction of new homes has tripled.But is more public housing enough? Few people, including well-off Singaporeans, dream of living in a government-built house. The post-war push in the West to build huge housing projects, meanwhile, ended in failure—when money was tight it was always easy to slash maintenance budgets. The bigger question, then, is what needs to happen to boost private housebuilding.Happily, there are precedents. In the decade to 2013, for instance, Tokyo boosted its overall housing stock by over 1m, more than double the increase in the 1980s. Sydney has boosted annual completions by 50% since the early 2000s. Such reforms can quickly have positive effects. A new paper on São Paulo, which enacted zoning reforms in 2016, finds that the policy boosted housing supply by 1.4%, leading to a 0.4-1% reduction in prices.Reforms are sometimes the outcome of crisis. In normal times homeowners fiercely resist new developments because they worry that property prices will fall. This was less of a concern for Tokyoites after Japan’s property bubble burst in 1992. In other cities the housing market is so dysfunctional that even NIMBYs recognise something must be done. In San Francisco, where the average house price is 2.4 times New York’s and rough sleeping is rife, there is talk of a more pro-development approach.Yet waiting until a city is at risk of turning into San Francisco is hardly a viable strategy. A more durable one involves recognising that the housing shortage is the result of skewed incentives, and then correcting them. That in turn means focusing on two groups: planners and homeowners.Take planners first. In many countries local governments assume this responsibility. They must deal with the downsides of extra houses—the need to provide more school places, for instance. Yet they do not often reap the gains in the form of a bigger tax base, since the majority of taxes in rich countries accrue at the national level. In England, councils that raise extra revenue often see it vanish into the central-government pot. This creates large disincentives to allow housing development.One solution is to take power from local bureaucrats. This was what São Paulo did. Another involves incentivising local authorities to become more development-friendly. Switzerland has gone furthest. The cantonal system means that a high share of taxes raised locally stays there, so for local governments more houses means more tax revenues. Switzerland builds three times as many homes per person as Britain, and construction continues to rise.Tweaking the incentives facing individuals may prove even more powerful. The main reason for the long-run decline in housebuilding relates to rising homeownership. More people on the property ladder means more voters with an interest in rising prices and so a political system that becomes hostile to development. Yet it is possible to find solutions that allow homeowners to behave selfishly while still encouraging more building—relying on the same instinct that drives NIMBYism, but for YIMBY ends.Building a coalitionOne intriguing idea floated in a recent paper by Policy Exchange, a British think-tank, involves existing residents sharing the benefits of more building. A street would vote to put extra floors on its houses or even rebuild with more homes, and would keep the lion’s share of the profits accruing from the value of existing houses rising or from the sale of the new properties. A similar scheme already exists in Israel, where homeowners are granted development rights on their house, which they can then sell to builders. The programme has “played a huge role in supplying additional housing in recent years, especially in high-demand areas”, says Tal Alster of the Hebrew University of Jerusalem.More creative ideas could be considered. William Fischel of Dartmouth College has suggested that homeowners could take out “home-equity insurance”, which would pay out in the event of falling house prices. Others simply want to compensate NIMBYs in exchange for more building. What is clear, though, is that no one needs any more papers showing that stringent zoning regulations raise housing costs. It is time for solutions. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “How the YIMBYs can win” More

LIKE PENGUINS and the melting ice cap, investors’ natural habitat is changing. Inflation is typically bad news for mainstream assets such as stocks and bonds, because it reduces the present value of future earnings and coupons. Yet this is where, after a decade of slow growth and sluggish inflation, investors have parked much of their trillions. As consumer prices rise uncomfortably fast in much of the world, they are scrambling to protect their portfolios from the changing economic climate.A growing cohort is placing its faith in “real” assets—the physical sort, including property, infrastructure and farmland. Could these prove a haven in times of change? Investors certainly have good reasons to deem them safe places to perch. Inflation often coincides with rises in the prices of these assets. An economic expansion tends to fuel consumer-price growth as well as demand for floor space and transport or energy infrastructure.Moreover, these assets produce cash flows that usually track inflation. Many property leases are adjusted annually and linked to price indices. Some—those of hotels or storage space, say—are revised even more often. The revenue streams of infrastructure assets are typically tied to inflation, too, through regulation, concession agreements or long-term contracts. Meanwhile, the rising maintenance or energy costs associated with these assets are often either passed through to tenants (for property) or fixed for long periods (for infrastructure). And debt raised against them—often fixed-rate, and in copious amounts—becomes cheaper to repay.As a result, real assets have done well during inflationary periods. A recent report by BlackRock, an asset manager, suggests that the total returns of privately held property and infrastructure assets globally have beaten those of main stock and bond indices when inflation has exceeded 2.5%. David Lebovitz of JPMorgan Asset Management reckons that a typical pension fund should start off by allocating 5-10% of its assets to them, with the share rising to 15-20% over time. Some big funds are in fact bolder: Ontario Teachers’ Pension Plan, which manages C$228bn ($182bn), wants to lift its allocation from 21% to 30%.That might all sound very alluring, but it should come with health warnings. For one, performance has become harder to predict: think of retail space and office blocks (under threat from e-commerce and remote work), airports and power plants (exposed to decarbonisation) and even farmland (vulnerable to climate change). The asset class may require a greater appetite for risk and more homework than its backers are used to.Another difficulty is that real assets are hard to access. They are typically private, meaning that only the most sophisticated investors have the resources and patience to find gems on their own. The rest might gain exposure in public markets, through real-estate investment trusts, infrastructure stocks or exchange-traded funds. But these tend to be closely correlated with equities, defeating the point of investing in them. Institutional investors also have access to private funds, but these tend to deploy capital only slowly and come at a cost, as their managers typically charge high fees.In any case, real assets cannot insulate an investor’s entire portfolio against inflation. Their merit is that they preserve their own value when inflation is high. But to protect all of their capital investors must seek assets that do not just tread water, but gain value more quickly during inflationary bursts than their other holdings depreciate. And there is not a lot of consensus over which ones fit the bill. Gold, commodities, inflation-linked bonds, derivatives: each has champions and detractors.Perhaps the biggest danger, though, is that real assets fall victim to their success. Many investors already turned to them over the past decade as they hunted for stable yields and sought diversification. Between 2010 and 2020 private real assets under management more than doubled, to $1.8trn. Finding things to buy is getting harder. Some $583bn raised by funds since 2013 remains unspent. A bubble is possible, says David Jones of Bank of America Merrill Lynch. The definition of a real asset may become stretched. Already some argue for it to include exotic fare such as non-fungible tokens—digital media recorded on a blockchain. Rather like penguins that huddle ever closer on a shrinking bit of ice, some investors might find themselves falling into treacherous waters.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Habitat destruction” More

THE PAST decade has not been especially kind to investors in private equity. Since 2010 they have poured $8trn into buy-out funds. Yet the returns, net of fees, that these vehicles have delivered to their “limited partners” (typically pension schemes, endowments and other institutions) have been similar to America’s comparable stock index—with vastly more risk.Hence the boom in a more rewarding way to bet on private equity: investing in the asset managers themselves, rather than their products. On September 6th Goldman Sachs said it would float a new investment vehicle, called Petershill Partners, which will hold 19 minority stakes in private-equity groups and hedge-fund managers that together oversee $187bn. The listing, set to take place in about a month, could value Petershill at more than $5bn, making it the largest alternative-asset business listed in London. Until now its assets have been managed by Goldman’s Petershill arm, through private funds. The bank will continue to make investments on investors’ behalf after the listing, in return for fees.The attraction of the strategy is clear. The profits distributed to limited partners by typical private funds are subject to the vagaries of the economic cycle, but the management fees levied by buy-out firms themselves—generally 1.5-2% of the capital committed by limited partners—are locked in as soon as funds are raised. And institutional investors, hungry for returns amid low interest rates, are piling into such funds. Assets managed by the 19 firms that Petershill part-owns have swollen by 91% in aggregate since the stakes were bought. That, plus fresh acquisitions, explains why the earnings Petershill distributes yearly to its own investors have more than doubled, to $310m, since 2018.Yet until recently these investors could not easily cash out; Petershill’s private funds, like most others, have long durations. That lack of liquidity probably kept some investors away. Existing ones may have also been prevented from committing themselves to new funds. The listing partly solves that problem by letting existing investors sell down 25% of their stake in Petershill. It also lets the investment vehicle market its shares to retail investors, rather than just a rich coterie of Goldman clients. The unit also plans to sell $750m-worth of new shares, providing it with more capital with which to fund acquisitions at a time when private markets are especially lively.Investors are ravenous for a slice of private-equity action. Shares in Bridgepoint, a British buy-out firm that listed in July, are 43% up on their debut price. The five biggest listed private-equity firms have more than tripled in combined value since March 2020. Antin Infrastructure Partners, a buy-out firm based in France, has unveiled plans to raise €350m ($413m) through an initial public offering in Paris.Listing Petershill reflects Goldman’s desire to move away from volatile activities, including bond and equity trading, and focus instead on businesses that earn regular fees, such as asset and wealth management. Last month it agreed to buy the asset-management arm of NN Group, a Dutch insurer, for €1.6bn. Petershill’s suggested price of $5bn, at 22 times estimated net income in the year to June, looks cheap compared with other listed private-equity stocks: Bridgepoint, for instance, trades at more than 30 times earnings. All the better for the bank, however, if it helps peddle private equity to the masses. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Raiding the stakes” More

Varo is set to announce Thursday that it raised $510 million in a Series E round led by hedge fund Lone Pine Capital and including dozens of new and existing investors.
The firm’s valuation rose to $2.5 billion from approximately $700 million after its previous fundraising, according to people with knowledge of the matter.
Varo doubled its customer accounts to four million and tripled revenue in the 13 months after getting its charter, according to CEO Colin Walsh said.

Varo Money’s mobile banking application.

Varo Bank has more than tripled its valuation after gaining a national banking charter last year, CNBC has learned.
The company is set to announce Thursday that it raised $510 million in a Series E round led by hedge fund Lone Pine Capital and including dozens of new and existing investors. The firm’s valuation rose to $2.5 billion from approximately $700 million after its previous fundraising, according to people with knowledge of the matter.

Varo is the latest digital bank to garner a multi-billion dollar valuation while attracting millions of new customers who are dissatisfied with traditional institutions. But unlike larger competitors like Chime who partner with FDIC-backed banks to handle deposits, Varo is a fully regulated bank, having won the first national charter for a consumer fintech firm in July 2020.
“There’s an element of legitimacy of operating as a real bank that is very powerful at the end of the day,” Varo CEO and founder Colin Walsh said in a phone interview. “We’re directly regulated, everything we do is subject to scrutiny.”
By owning its bank, San Francisco-based Varo has an array of funding and cost advantages compared to most of its competitors, according to Walsh. That has enabled it to offer higher interest rates, instant cash advances and access to the Zelle payments network, he said. Before being granted its charter, Varo partnered with Bancorp.
“We’ve effectively eliminated the intermediaries,” Walsh said. “Those are real costs that we’ve cut out that we can now use to create more value for our customers and for our shareholders.”
Varo doubled its customer accounts to four million and tripled revenue in the 13 months after getting its charter, he said.

The start-up owns its customers’ data, rather than ceding it to a partner bank, he said. That will allow it to offer more personalized user experiences in the future, according to the CEO. That may be key as it builds out its product set to potentially include investing and cryptocurrency functions. Increasingly, fintech firms like Square and Revolut are jostling to become all-in-one apps for all things financial.
“Customers do not want to have a dozen apps on their phone to manage their financial lives, they want a trusted provider to help them navigate through the various things that they’re trying to solve,” Walsh said.
Walsh, a former American Express executive, made the bet early in Varo’s development to seek a bank charter. He started the process in 2017, and while some competitors were gaining customers at a dizzying clip, Varo spent more than three years satisfying the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve.
“We sort of did it in reverse order from the Silicon Valley playbook, which is, you know, just find a niche, scale up really quickly and then figure out the rest,” Walsh said. “Now it’s about dialing it up in a way that will create a very profitable business that will have an enormous impact on the lives of our consumers.”
Varo is weighing options for eventually going public, as well as overseas expansion, Walsh said. Armed with its charter and more than half a billion dollars to plow into customer acquisition and product development, the CEO seemed eager to compete with other fintech firms.  
“They’ve just been at it longer,” Walsh said. “Now the fun begins.”

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Markets had been eagerly awaiting the Frankfurt institution’s latest policy decision for signs of an imminent unwinding of pandemic-era stimulus, amid surging inflation and strong economic growth.
Euro zone inflation notched a decade high of 3% in August and GDP across the 19-member common currency bloc climbed 2% in the second quarter, exceeding economist expectations.

Christine Lagarde (R), President of the European Central Bank (ECB), and Vicepresident Luis de Guindos (L)
Thomas Lohnes | Getty Images News | Getty Images

LONDON — The European Central Bank kept its monetary policy unchanged on Thursday but opted to slow down the pace of net asset purchases under its pandemic emergency purchase program.
The Governing Council voted to maintain the interest rate on the ECB’s main refinancing operations at 0%, on the marginal lending facility at 0.25% and on the deposit facility at -0.5%.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters,” the ECB said in a statement.
Markets had been eagerly awaiting the Frankfurt institution’s latest policy decision for signs of an imminent unwinding of pandemic-era stimulus, amid surging inflation and strong economic growth.
The euro gained 0.2% against the dollar following the decision to trade at around $1.1837, while European stocks pared earlier losses.

The ECB reiterated that interest rates will remain at their present or lower levels until inflation is seen reaching 2% “well ahead of the end of its projection horizon and durably for the rest of the projection horizon,” and until the ECB judges that inflation will stabilize at 2% over the medium term.
“This may also imply a transitory period in which inflation is moderately above target,” the ECB added.

Seema Shah, chief strategist at Principal Global Investors, said Thursday’s move represented the first “meaningful step” toward tapering for the ECB, though acknowledged that the central bank would not be declaring this. The size of the purchase envelope remains the same, meaning the move is not technically a taper as yet.
“Characteristically, it hasn’t tied itself to a specific pace of purchase, instead retaining an element of flexibility which will be helpful in the face of a potential tightening in financial conditions as Fed taper draws near,” Shah said.
With market focus having shifted over the past week from the timing of Fed tapering to when the ECB might reduce the pace of its purchases, Shah said Thursday’s announcement did not come as a surprise.
“With markets concerned about the risk of a hawkish policy error, Lagarde’s efforts to disconnect bond purchases from rate lift-off will be important in reassuring investors that the central bank isn’t on the verge of making a repeat of the 2011 policy mistake,” she added.

Decade high

Euro zone inflation notched a decade high of 3% in August and GDP across the 19-member common currency bloc climbed 2% in the second quarter, exceeding economist expectations.
The central bank’s Pandemic Emergency Purchase Programme was implemented in March 2020 to support the euro zone economy through the Covid-19 crisis, and is due to end in March 2022 at a potential total value of 1.85 trillion euros ($2.19 trillion).
ECB policymakers have sounded contrasting tones as to the danger of inflation becoming persistent rather than “transitory,” as has been the general consensus among central banks around the world.
Some analysts have suggested that the ECB will announce the reduction of its Covid-induced stimulus package in December, with the U.S. Federal Reserve having signaled that it will likely begin tapering by the end of the year.

ECB Chief Economist Philip Lane said in a recent interview that “September is very far away” from the planned PEPP conclusion date, suggesting a tapering announcement may yet be a few months away.
The asset purchase program (APP) will continue at a monthly pace of 20 billion euros, the Governing Council confirmed. The central bank has been using this program in combination with PEPP to sustain the 19-member economy.
“The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates,” the statement said.

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