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  • St Modwen shares surge 20% as Blackstone makes £1.2bn bid
    Yahoo Finance UK

    St Modwen shares surge 20% as Blackstone makes £1.2bn bid

    In a statement, St. Modwen said its board would likely recommend the non-binding conditional offer unanimously, should a firm intention be announced by 4 June.

  • Goldman, Pimco Detect Irrational Inflation Mania in Bond Market
    Bloomberg

    Goldman, Pimco Detect Irrational Inflation Mania in Bond Market

    (Bloomberg) -- Goldman Sachs Group Inc. and bond titan Pacific Investment Management Co. have a simple message for Treasuries traders fretting over inflation: Relax.The firms estimate that bond traders who are pricing in annual inflation approaching 3% over the next handful of years are overstating the pressures bubbling up as the U.S. economy rebounds from the pandemic.Add to that certain technical distortions in the way market-based inflation expectations are priced, and Goldman Sachs, for one, says the overshoot could be as large as 0.2-to-0.3 percentage point. That gap makes a difference with key market proxies of inflation expectations surging to the highest in more than a decade for shorter maturities.There’s at least one market metric that backs up the view that the pressures aren’t so out of hand and may even prove temporary. A swaps instrument that reflects the annual inflation rate for the second half of the next decade has been relatively stable in recent months.The debate over inflation is crucial as policy makers and investors navigate the recovery from the pandemic. The Federal Reserve has been hammering home that it sees any spike in price pressures as likely short-lived, and that it’s willing to let inflation run above target for a period as the economy revives. Now it appears to be catching a break with its campaign. Not only are the likes of Goldman and Pimco laying out the case for a more benign inflation outlook, but traders have also trimmed bets on rate hikes by the end of 2023, even in the face of robust economic data.“We do not see the sort of inflationary pressures that markets appear to be fearing, and high growth rates will not necessarily translate into a higher inflation rate,” said Praveen Korapaty, Goldman’s chief interest-rate strategist.Market measures known as breakeven rates, which are derived in part from Treasury Inflation-Protected Securities and represent expectations for annual increases in consumer prices, surged anew this week as the reopening of major industrial economies progressed.Commodities LinkInflation worries have been mounting against a backdrop of soaring commodities prices -- copper, for example, is near a record high. It’s all happening as lawmakers in Washington debate another massive fiscal-stimulus package.But it’s worth noting that two-year breakevens -- which reached an almost 13-year high close to 2.9% on Wednesday -- are firmly above where traders see inflation expectations in the second half of the coming decade. That shows the market is positioned for price pressures to eventually ebb.Korapaty calls the outlook for inflation “benign,” even though his firm is one of Wall Street’s most bullish forecasters on growth. His view is that the market is overly optimistic with its inflation assumptions, with the greatest mismatch to be found on the three- and five-year horizon. At roughly 2.8% and 2.7%, respectively, those rates are around 20 to 30 basis points higher than they should be, in his estimate.A measure of annual inflation that strips out food and energy costs, at 1.8% in March, could climb to as high as 2.4% to 2.5% this year, a level last seen in 2007, but the bump is likely to be brief, Korapaty says.“If we are right and inflation readings come off, we might be tempted to fade Fed pricing and take the view that markets can push back when pricing Fed liftoff,” Korapaty said. In addition, he says, that would be the right time to sell three-year breakevens.New ApproachThe intensifying discussions around price pressures come amid unease in markets and in Washington over the extent of fiscal stimulus. On Tuesday, Treasury Secretary Janet Yellen stirred markets by saying interest rates will likely rise as government spending swells and the economy achieves faster growth. She walked back the remarks hours later.The Fed has signaled that it intends to keep policy ultra-loose at least through 2023. In August, it adopted a new approach that lets inflation run above 2% for longer before raising rates. The goal is to get inflation to average 2% over time, to make up for previous shortfalls. The Fed has failed to achieve that level on a consistent basis for much of the past decade.Granted, some on Wall Street are more concerned about inflation risks. JPMorgan Chase & Co. chief global markets strategist Marko Kolanovic is warning that some money managers face an “inflation shock” to their portfolios.Futures are pricing in Fed liftoff in the first quarter of 2023, which is earlier than officials project. While the market’s timeframe hasn’t changed much over the past month, traders have reduced wagers on additional hikes by the end of that year. They now see a total of 75 basis points of tightening by the end of 2023, down about 15 basis points since April 1.Amid the surge in breakevens, demand for inflation-shielded funds has picked up. Investors have poured more than $30 billion into them this year, EPFR Global data show.TIPS CaveatsBreakevens have long carried the caveat that they can’t be taken at face value because of the illiquidity of TIPS and the risk premium that investors demand due to uncertainty over the path of inflation -- both of which lead to higher rates than would otherwise be the case.Fed officials have developed models to account for those variables, and Pimco has followed up with its own. Its conclusion, in a nutshell, is that inflation expectations are even further below the Fed 2% target than officials assume. That means traders may need to pull back on expectations for Fed liftoff from near zero.“We basically argued that inflation expectations are a little below where the Fed sees them” after coming in at around 1.75% as of March, the most recent reading in Pimco’s model, said Tiffany Wilding, an economist.Moreover, she sees the recent rise in five-year, five-year forward breakevens, which strip out short-term noise like fluctuations in oil prices, as partly due to uncertainty around the inflation outlook -- as opposed to just an acceleration of expectations.“Because we think front-end rates are pricing in a more aggressive Fed path than we believe, we do like shorter-dated nominal bonds, and think there’s value there,” she said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Wall Street Giants Get Swept Up by India’s Brutal Covid Wave
    Bloomberg

    Wall Street Giants Get Swept Up by India’s Brutal Covid Wave

    (Bloomberg) -- About 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, sits what was once the heart of the global financial industry’s back office.Before the pandemic, this cluster of glass-and-steel towers housed thousands of employees at firms like Goldman Sachs Group Inc. and UBS Group AG who played critical roles in everything from risk management to customer service and compliance.Now the buildings are eerily empty. And with case counts soaring across Bangalore and much of India, work-from-home arrangements that have sustained Wall Street’s back-office operations for months are coming under intense strain. A growing number of employees are either sick or scrambling to find critical medical supplies such as oxygen for relatives or friends.Standard Chartered Plc said last week that about 800 of its 20,000 staffers in India were infected. As many as 25% of employees in some teams at UBS are absent, said an executive at the firm who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and reward programs is running behind schedule, an executive said.While banks have so far avoided major disruptions by shifting tasks to other offshore hubs, India’s Covid crisis has exposed a little-discussed vulnerability for companies that have spent decades outsourcing functions to the country. India’s outbreak is intensifying even as vaccinations fuel economic recoveries in other parts of the world, heightening fears of a back-office bottleneck at a time when Wall Street firms have rarely been busier.“This is not a local, India-only problem, this is a global crisis,” said D.D. Mishra, senior director analyst at researcher Gartner Inc. The current wave will be “significantly bigger” and organizations with India-based staff “will need to take action to plan for and mitigate if needed,” Mishra and his colleagues wrote in a note last week.Nasscom, the key lobby group for India’s $194 billion outsourcing industry and its almost 5 million employees, has downplayed the threat to operations. But Mishra and fellow analysts at Gartner say they’re fielding a daily flood of calls from anxious global clients asking about the Covid-19 situation.India’s total coronavirus infections have risen to 21.5 million, of which about a third were added since mid-April. The state of Karnataka, whose capital is Bangalore, reported almost 50,000 new infections for a second straight day, with 30% of all results throwing up a positive result.Experts have warned the crisis has the potential to worsen in the coming weeks, with one model predicting as many as 1,018,879 deaths by the end of July, quadrupling from the current official count of 234,083. A model prepared by government advisers suggests the wave could peak in the coming days, but the group’s projections have been changing and were wrong last month.In Bangalore, Delhi and Mumbai, the three main bases for the financial giants’ operations, infection rates have reached such alarming levels that local governments have ordered stringent restrictions on movement.While the crisis has hit swathes of the nation’s $2.9 trillion economy, the latest wave has notably affected the twenty-something segment of the population that dominates outsourcing companies and is hard to replace. Most of them are English-speaking, technically-skilled workers.Continuity PlanningFor now, back-office units are marshaling part-time workers or asking employees to perform multiple roles and re-assigning staff to make up for those who are absent. They are scheduling overtime, deferring low-priority projects and conducting pandemic continuity planning exercises for multiple locations should the virus wave intensify.A Wells Fargo employee said some work is getting transferred to the Philippines, where staff is working overnight shifts to pick up the slack. The San Francisco-based bank employs about 35,000 workers in India to help process car, home and personal loans, make collections, and assist customers who need to open, update or close their bank accounts. The company didn’t respond to a request for comment.An employee at UBS said that with many of the bank’s 8,000 staff in Mumbai, Pune and Hyderabad absent, work is being shipped to centers such as Poland. The Swiss bank’s workers in India handle trade settlement, transaction reporting, investment banking support and wealth management. Many of the tasks require same-day or next-day turnarounds. A UBS representative didn’t respond to a request for comment.With uncertainty surrounding how soon the Indian government will contain the crisis, one executive who asked not to be identified likened the situation to flying blind without any idea how many employees will be affected from one week to the next.Rebalancing Loads“We are looking carefully at how we can rebalance loads,” Standard Chartered Chief Executive Officer Bill Winters said on an earnings call last week, noting that some work has been routed to Kuala Lumpur, Tianjin and Warsaw. “In any case, we think we are very well provided for.”Barclays Plc CEO Jes Staley said some functions were shifted to the U.K. from India. Call volumes have increased and people are distressed, he said, adding that signs of pressure was something to watch for. The bank has 20,000 employees in India.Last year, when a sudden lockdown ordered by Prime Minister Narendra Modi saw these banks scrambling to keep their operations running, the European Banking Authority said the push to outsource support functions “exposed these banks to operational risks.”After asking their employees to work from home en masse last year, most of them have continued to operate at near 100% work-from-home levels. Natwest Group Plc’s workforce in Bangalore, Delhi and the southern city of Chennai -- accounting for a fifth of its global total -- is completely set up to work from home.Management BandwidthSimilarly, thousands of Goldman employees are working from home, doing high-end business tasks such as risk modeling, accounting compliance and app building. A representative for the bank said workflows can be absorbed by the wider team if needed and there’s been no material impact so far.Citigroup Inc. said there’s currently no significant disruption, while Deutsche Bank AG said employees were working seamlessly from home. Morgan Stanley and JPMorgan Chase & Co. detailed relief efforts they are undertaking, but didn’t elaborate on the impact on their operations. Last week, HSBC Holdings Plc Chief Executive Officer Noel Quinn said he’s “watching it closely” and ruled out any material impact at this stage.Besides worrying about disruptions to operations, employee well-being and securing medical help are also taking up a lot of management bandwidth at every large outsourcing unit.At a recent all-hands, virtual corporate strategy team meeting at Accenture Plc, for instance, the talk wasn’t about the usual pay-raises or promotions. Instead, worker after worker demanded flexibility, reduced workloads and no-meeting Fridays, an executive said, asking not to be named discussing internal company matter.Their size has become a hindrance, one executive said, but it’s not clear where else they can go for talent and scale, he added.“We are telling clients they need to relax service levels and reduce expectations for the coming few weeks,” said Mishra, the Gartner analyst. “This not a normal situation.”(Updates infections and deaths in eighth and ninth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.