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Fed's Quarles Sees Challenges Ahead for the Financial System; Clarida Says Fed Ready to Respond Again
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Good day. Randal Quarles, the Fed's point man on financial regulation, sees more challenges ahead for the financial system. The coronavirus pandemic will “inevitably involve an increase in nonperforming loans and provisions as demand falls and some borrowers fail,” he said. Fed Vice Chairman Richard Clarida, meanwhile, said the central bank has done a lot to aid the economy and will act again if needed. He also said the Fed’s base case for the economy isn't a double-dip recession.
Now on to today’s news and analysis.
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Covid Still Poses Challenges for Financial System, Fed’s Quarles Says
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Randal Quarles saud ‘the path of recovery remains highly uncertain.’ PHOTO: ZACH GIBSON/BLOOMBERG NEWS
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Global policy makers responded decisively to the coronavirus outbreak earlier this year but the financial system isn’t out of the woods yet, a top Federal Reserve official said Tuesday. “The Covid event is not behind us yet,” Randal Quarles, the Fed’s vice chairman for financial regulation, said in remarks prepared for a speech to the Exchequer Club in Washington. “We know that the financial system will face more challenges,” he said.
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Fed’s Clarida: Economy’s Path Tied to Efforts to Deal With Pandemic
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Fed Vice Chairman Richard Clarida said the fate of the U.S. economy is tied to what happens with the coronavirus pandemic, adding the central bank can and will do more if it determines such action will help it achieve its job and inflation goals.
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Recession Forces Spending Cuts on States, Cities Hit by Coronavirus
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State and local governments from Georgia to California are cutting money for schools, universities and other services as the coronavirus-induced recession wreaks havoc on their finances.
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Layoffs Fell in May to Pre-Coronavirus Levels
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In May, 1.8 million workers were laid off or otherwise discharged from their jobs, down from 7.7 million in April and 11.5 million in March. May’s dismissals were in line with the numbers reported in January and February, before the pandemic shut swaths of the U.S. economy.
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Federal Aid Helped Wide Swath of Small Businesses, Needy or Not
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The government’s $670 billion Paycheck Protection Program reached a wide swath of small businesses across almost every sector of the economy, benefiting hard-hit industries as well as professional firms and construction companies better able to weather the crisis.
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Key Developments Around the World
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Argentina Bond Deal Endorsed by Old Allies Gramercy and Fintech
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Argentine bond prices rose Monday after the country’s government revised a restructuring proposal it made in April by offering to increase bondholder recoveries. The new deal garnered support from two hedge funds that played prominent roles in previous Argentine defaults and restructurings, but has yet to be endorsed by the three principal creditor groups that have been in talks with the government.
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Zimbabwe’s Plan to Save Its Currency: Shut Down the Stock Exchange
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The exchange had served as a refuge of sorts, protecting the African country’s investor class from surging inflation. Its subsequent shutdown is the latest financial contortion in a country with a history of monetary dysfunction.
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Financial Regulation Roundup
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Deutsche Bank Fined $150 Million Over Epstein Links, Other Lapses
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New York’s financial-services regulator fined Deutsche Bank AG $150 million for failing to properly monitor its dealings with late financier and convicted sex offender Jeffrey Epstein, the latest run-in with U.S. regulators for the German lender.
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Banks Could Get $24 Billion in Fees From PPP Loans
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JPMorgan Chase & Co. and Bank of America Corp. will split $1.5 billion to $2.6 billion in fees for delivering more emergency loans than any other lenders that participated in the Paycheck Protection Program.
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Private-Equity Firms Tap PPP, Despite Later Rule Barring Them
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A number of private-equity firms received millions of dollars in loans from a taxpayer-backed program despite being told they weren’t allowed to access the money, an analysis of U.S. Small Business Administration data shows.
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Chinese Tech Firms Get Trading Boost From Hong Kong Listings
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Hong Kong is becoming an active center for trading stock in some of China’s largest technology groups, bolstering the case for more secondary listings of U.S.-listed Chinese companies.
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Time N/A: National Bank of Poland releases policy statement
10 a.m.: European Central Bank’s de Guindos speaks during a virtual meeting organized by Consejo Empresarial Alianza por Iberoamérica
12:15 p.m.: Atlanta Fed’s Bostic speaks on the Federal Reserve’s response to Covid-19 during a virtual event
3 p.m.: Federal Reserve releases May U.S. consumer-credit data
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Time N/A: European Central Bank’s Lagarde and Panetta speak during a videoconference in a Eurogroup meeting
12 p.m.: Atlanta Fed’s Bostic speaks during The Tax Policy Center webinar
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NY Fed Growth Tracker Sees More Negative Downturn for U.S.
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A Federal Reserve Bank of New York tool designed to track the U.S. economy's performance during the coronavirus pandemic is sagging again. The bank said Tuesday that its Weekly Economic Index for the week ended July 4 showed the economy shrinking by 7.35% scaled to four-quarter GDP growth, compared with a 6.81% decline seen for the week ended June 27. The bank said upward revisions are likely, but added the most recent decline in activity was "driven by decreases in retail sales and consumer confidence, which more than offset a small increase in steel production." The New York Fed's latest index report arrives amid rising concern about the economy, as reopening activity takes place while virus cases
surge. That in turn raises questions about whether some of the good data seen of late is a false dawn.
—Michael S. Derby
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China Orders Up a ‘Healthy Bull Market,’ and Stocks Oblige
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Analysts fret that U.S. markets have become irrational thanks to retail traders with time on their hands. But American markets have nothing on China, Jacky Wong writes for Heard on the Street. There has been good news: China’s economy is recovering; corporate earnings are improving; monetary conditions have loosened significantly. But "what really seems to have gotten Chinese investors excited however, is state media’s sudden switch to a bullish tone," Ms. Wong writes.
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Car sales in China are showing signs of recovery, but they continue to fall in the U.S. and Europe is becoming the weakest auto market.
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German industrial production rose 7.8% in May from April as restrictions to contain the spread of the coronavirus pandemic eased, compared with a consensus forecast for a 10% increase, according to a poll by The Wall Street Journal. (Dow Jones Newswires)
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Europe’s tourist attractions are reeling from the loss of their biggest spenders, and few places are suffering from the lack of Americans more than Bellagio on the shores of Lake Como.
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Africa's cumulative economic losses for 2020 and 2021 will amount to $173.1 billion in a baseline scenario, and could reach around $236.7 billion in the worst-case scenario, the Africa Development Bank said.
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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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