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China Embraces a Weaker Currency; Some Hopeful Signs for U.S. Economy Ahead of Beige Book; Americans Expect More Fiscal Help
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Good day. The People's Bank of China set its daily reference rate for the yuan at its lowest point in 12 years, a signal that Beijing sees the benefits of a weaker currency as it grapples with an economic slowdown and rising tensions with Washington. In the U.S., the latest economic data continues to suggest the worst may have passed. The Fed's beige book, to be published today, will shed more light. And new research from the New York Fed shows that Americans increasingly expect more financial support from the government to help people get through the downturn.
Now on to today’s news and analysis.
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As Its Economy Slows, China Embraces a Weaker Currency
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China's central bank, which sets a trading band for the yuan in onshore markets, fixed the currency's daily midpoint at 7.1293 per dollar on Tuesday, the lowest level since February 2008. The yuan weakened as trade tensions built, and broke below 7 yuan per dollar in August, prompting President Trump to accuse Beijing of manipulating its currency. But it rallied into January 2020, when the world’s two largest economies signed a partial trade deal. Chinese leaders have said they want to hold the currency fairly steady, but analysts said three consecutive weaker fixings suggested little appetite to defend recent yuan levels as frictions with the U.S. grow.
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Derby's Take: New Data Suggests Economy May Have Seen Worst of It
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Data released Tuesday provided glimmers of hope that the U.S. economy may no longer be in free fall. Factory and confidence data had something positive to say about the economy’s outlook, even as the numbers underscored the pain caused by much of the private sector remaining shut to reduce the spread of the coronavirus. Read More.
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Key Developments Around the World
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RBNZ Says Pandemic to Test Resilience of New Zealand Banks
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The resilience of New Zealand’s banks will be tested by the coronavirus pandemic, but the overall financial system is in a solid position to weather the economic downturn, the central bank said.
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U.S. Lawmakers Seek to Expand Wage Subsidy
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As unemployment rises and the first wave of federal economic relief nears expiration, lawmakers are increasingly looking to expand an existing wage subsidy to keep workers on payrolls and help businesses stay afloat.
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Western Economies See Biggest Slump Since Financial Crisis
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The Organization for Economic Cooperation and Development said the combined GDP of its 37 members was 1.8% lower in the first quarter than in the final three months of 2019, the largest fall since a 2.3% decline in the first three months of 2009 during the financial crash.
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France’s Macron Orders Up Billions in Aid for Auto Industry
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French President Emmanuel Macron Tuesday said his government planned to spend billions of euros to prop up France’s auto industry amid a collapse in car purchases caused by the coronavirus crisis.
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Financial Regulation Roundup
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U.S. Closing Insider-Trading Probes Into Three U.S. Senators
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The Justice Department is closing investigations into three U.S. senators for stocks trades made shortly before the coronavirus market turmoil, but is continuing a related investigation into GOP Sen. Richard Burr.
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Credit-Card Fraud Attempts Rise During the Coronavirus Crisis
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Fraudsters are increasingly using pilfered credit-card numbers and phishing attacks to prey on overwhelmed consumers and banks, according to Fidelity National Information Services Inc., which assists U.S. banks with fraud monitoring.
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Puerto Rico Board Backtracks on Planned Bondholder Payments
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The board overseeing Puerto Rico’s finances has concluded it won’t have a sufficient surplus to cover bondholders’ settlement payments under its current debt-adjustment proposal as the economic damage from the coronavirus becomes clearer.
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SEC Fines Ares Management $1 Million for Compliance Failures
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Ares Management LLC has agreed to pay $1 million to settle allegations that it bought stock in one of its portfolio companies while an Ares employee sat on that company’s board and had access to inside information.
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Europe Is Opening for Business But Isn’t on Sale
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European companies are cheap relative to U.S. rivals, which have strong dollars and higher-valued shares to spend, but new hurdles are also forming that will make it harder for outsiders to pursue acquisitions in the region.
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9 a.m.: European Central Bank publishes financial stability review
12:30 p.m.: St. Louis Fed's Bullard speaks online with C.D. Howe Institute on views on the Pandemic from its onset to reopening the economy
2 p.m.: Federal Reserve releases beige book report on economic conditions
3 p.m.: Atlanta Fed’s Bostic speaks online on Fed's Covid-19 community impact survey
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Time N/A: National Bank of Poland releases policy statement; Bank of Korea releases policy statement; Bank of England’s Saunders speaks online
8:30 a.m.: U.S. Commerce Department releases second estimate of first-quarter GDP; U.S. Commerce Department releases April durable-goods data
11 a.m.: New York Fed’s Williams speaks in online discussion hosted by Stony Brook University’s College of Business
3 p.m.: Philadelphia Fed’s Harker speaks online about Covid-19 and planning for equity in recovery
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NY Fed: Public Expects More Government Support to Navigate Crisis
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Consumers are broadly expecting more public support to get through the coronavirus crisis, according to new research from the New York Fed released Tuesday. The research said that based on the bank's most recent consumer sentiment survey, households "increasingly anticipate further fiscal expansions in government support, with consumers assigning higher likelihoods to expansions in affordable housing, federal student loan forgiveness, and in the generosity of unemployment and welfare benefits." Those expectations are not out of line with central bank expectations, with officials saying over recent days it's likely the government will need to do more to help households get through the economic crisis.
—Michael S. Derby
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The Recovery Needs a Supply-Side Push
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The Fed’s Wall Street-directed programs have proved timely but its Main Street Credit Facility is delayed and encumbered, threatening to turn a liquidity crunch into a solvency crisis, former Federal Reserve Board member Kevin Warsh writes in The Wall Street Journal.
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The S&P CoreLogic Case-Shiller index of U.S. home prices rose 4.4% in the year that ended in March, even as home sales dropped after the pandemic shut down activity in some regions.
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Lumber futures have soared since the start of April, driven by cutbacks at mills, signs that the home-building season might be salvaged and brisk business at home-improvement stores.
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U.S. crude futures for delivery in July advanced 3.3% to $34.35 a barrel Tuesday, continuing a recent recovery, as states and countries ease lockdowns and boost demand.
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Mexico's economy contracted in the first quarter, extending its 2019 downturn as gross domestic product shrank 1.2% from the previous quarter in seasonally adjusted terms, the National Statistics Institute said Tuesday.
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Singapore's relief efforts will get an additional 33 billion Singapore dollars (US$23.17 billion) for businesses and workers hurt by the Covid-19 pandemic amid signs its economy is on pace for its worst annual performance on record. (Dow Jones Newswires)
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Manufacturing activity in Texas edged up in May from April, suggesting a slight improvement in business conditions as a statewide coronavirus lockdown was gradually eased, according to the Federal Reserve Bank of Dallas. (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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