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Fed Can't Find Takers on Its Offer to Buy Corporate Bonds; ECB Expected to Step Up Bond Purchases
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Good day. The Fed's promise to buy corporate bonds calmed credit markets in March, but it still hasn't officially launched the program and companies are reluctant to sign up to it. That's partly because of the stigma of borrowing from a backstop program, the Journal reports. Some companies also don’t want the Fed buying their bonds now in case another wave of coronavirus roils markets later. Meanwhile, the European Central Bank is expected to unveil some €500 billion in additional bond purchases tomorrow, an increase that would allow it to soak up most of the additional debt that eurozone governments are expected to issue this year.
Now on to today’s news and analysis.
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Fed Promised to Buy Bonds but Is Finding Few Takers
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The Federal Reserve thawed credit markets in March by promising a whatever-it-takes program to buy corporate bonds. Ten weeks later, the Fed has yet to buy a single bond.
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Just the announcement of the backstop ended panic selling, boosted prices and fueled a record surge of new corporate-bond sales. Companies are now reluctant to sign up for Fed purchases because such a move could be seen as a sign of weakness during a market rebound, some bond fund managers and bank executives said.
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“I really don’t think the market needs it anymore. They are the victim of their own success.”
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— Thomas Murphy, Columbia Threadneedle Investments portfolio manager
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Fedspeak Cheat Sheet: What Officials Said Ahead of June Meeting
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Fed officials gave few hints of new action at their June 9-10 policy meeting, with some saying now is a time for the central bank to execute on policies already in place. Here is a sampling of officials' comments over recent weeks.
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Eurozone Takes a Page From U.S. to Fight Crisis
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Worried about the depth of its downturn, Europe is narrowing the gap with the U.S. in its emergency response, lining up two new packages potentially worth hundreds of billions of euros that reflect lessons learned in previous crises and boost prospects for a global recovery.
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Glynn’s Take: A Generation of Australians Enters First Recession
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Australia’s nearly three decades of expansion is over, with Treasurer Josh Frydenberg confirming Wednesday that the economy is in recession, something virtually nobody in the country under the age of 50 has experienced in their working lives. Read More.
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How Many U.S. Workers Have Lost Their Jobs?
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Friday’s U.S. jobs report is expected to show U.S. employers shed nearly 30 million positions from payrolls this spring—but that is just one of several varying estimates of job destruction. Other data suggest layoffs might have topped 40 million, while another count shows only about 20 million are tapping unemployment benefits.
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White House Weighs Options for Next Stimulus Bill
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President Trump plans to meet with his senior advisers as soon as this week to discuss policy options for the next coronavirus relief package as the administration prepares for negotiations with Capitol Hill, according to a senior administration official.
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Key Developments Around the World
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China Nudges Banks to Help Small Businesses
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China is dabbling with Western-style unconventional monetary policy, with its central bank allocating 400 billion yuan ($56.1 billion) to buy slices of unsecured loans made by regional lenders to small and micro enterprises.
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Outlook for Poor Nations is Grim
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The world’s low-income and emerging market economies will likely remain deeply damaged even five years after the coronavirus pandemic and associated lockdowns began, according to a new study from the World Bank.
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U.S. Weighs Tariffs Against Nations Seeking to Tax Internet Firms
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The Office of the U.S. Trade Representative said on Tuesday it was beginning investigations into tax measures known as digital-services taxes that are being proposed or implemented in many countries to tax commerce on the internet.
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Cash in Bank? Lebanese See Cars, Chalets and Sculptures as Safer
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In a desperate attempt to preserve life savings amid the country’s financial crisis, many well-off Lebanese are now sinking money into Land Rovers, ski chalets and expensive artworks, triggering an unlikely boom at the very top end of the luxury market.
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Financial Regulation Roundup
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Japan Warns Its Banks About Risky U.S. Debt
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Japanese regulators have warned the nation’s banks for the first time about the risk of investing in overseas securitized corporate loans, which have run into trouble from a wave of U.S. bankruptcies.
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U.S. Tightens Squeeze on Venezuela Oil Trade
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The Trump administration Tuesday tightened its web of sanctions around the Maduro regime in Venezuela, blacklisting four companies allegedly involved in the country’s oil sector to cut off the flow of revenue President Nicolás Maduro needs to preserve his power.
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10 a.m.: Bank of Canada releases interest-rate decision
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7:45 a.m.: European Central Bank releases policy statement
8:30 a.m.: European Central Bank’s Lagarde holds press conference
8:30 a.m.: U.S. Commerce Department releases April international trade data
2 p.m.: Bank of Canada’s Gravelle speaks by videoconference
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Reality Shock for Emerging Economies Reliant on External Funding
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A rush by investors to safe assets after the coronavirus shock leaves policy makers in emerging economies confronting severe liquidity problems, and they have limited scope for action, write Alicia García-Herrero, a senior fellow at the economic think-tank Bruegel, and Elina Ribakova, deputy chief economist at the Institute of International Finance, in a policy paper. Plunging currencies make it more difficult to mount an aggressive monetary-policy response in emerging economies than in developed economies. Capital controls are costly. And, while the Federal Reserve has provided swap lines to key central banks, "the Fed risks being overburdened in its
attempt to provide cross-border dollar liquidity." That leaves the International Monetary Fund as "the most obvious lender of last resort for emerging economies." But Ms. García-Herrero and Ms. Ribakova call for two changes at that institution: "a more targeted set of facilities with quicker disbursement and less conditionality; and increased financial resources."
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Dear America, a Cold War With China Will Be Expensive
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U.S. security hawks should be aware that a broad-based attempt to disentangle the two countries’ supply chains and educational linkages will come at a significant cost to America’s own competitiveness, Nathaniel Taplin writes at The Wall Street Journal.
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The New York Fed's weekly economic index points to the U.S. economy declining 10.79% year-over-year in the fourth quarter, a forecast that deterioriated in the past week due to consumer spending and confidence data. (Dow Jones Newswires)
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China’s services sector emerged from a three-month slump to record strong growth in May, while its counterparts in the rest of the world saw further declines in activity as lockdowns began to ease.
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The British pound rose to its highest level against the U.S. dollar in a month as investors grew more optimistic about trade negotiations between the U.K. and the European Union.
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The Barclays' global manufacturing confidence index rose in May to minus 2.5 from minus 3.1, Barclays said, adding that the global manufacturing recession is likely to bottom in the second quarter. (DJN)
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German jobless claims rose by 238,000 in May, down from an increase of 372,000 in April, official statistics showed. (DJN)
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Consumer sentiment in Germany is up slightly, according to German trade association HDE, which said its consumer barometer rose to a level 93.51 in June from 90.53 in May. (DJN)
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
Send us your tips, suggestions and feedback. Write to:
Jon Hilsenrath, Michael Derby, Nell Henderson, Nick Timiraos, Jason Douglas, Paul Hannon, Harriet Torry, Kate Davidson, David Harrison, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Michael Maloney, Paul Kiernan, James Glynn
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