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Fed Mulls How to Signal Rate Plans; Bullard Not Worried About Second Virus Wave; U.K. Sells Bond at Negative Yield
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Good day. The Fed's coming policy discussions are turning on how to signal its plans for keeping interest rates low. One strategy would tie future plans to achieving specific economic outcomes, while another would be to give calendar-based guidance, such as saying the central bank will hold rates low until some date in the future, Fed meeting minutes show. Meanwhile, St. Louis Fed leader James Bullard said he isn’t too worried about a second wave of the coronavirus because he believes people would be faster to respond to the threat. And the British government sold its first bond with a negative yield after Bank of England policy makers kept the possibility of negative rates on the table.
Now on to today’s news and analysis.
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Fed Discussed Plans to Provide More Economic Support
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The Federal Reserve building in Washington this week. PHOTO: TING SHEN/XINHUA/ZUMA PRESS
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The minutes of the Fed's April 28-29 meeting revealed officials’ significant alarm over the extent of economic dislocations so far. Some version of the word “severe” appeared in the minutes eight times to describe economic conditions or forecasts, while some version of the word “extraordinary” was used four times. The minutes indicated officials would begin clarifying over the course of several meetings this summer their intentions about future monetary-policy decisions. Their next scheduled meeting is June 9-10.
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Fed’s Bullard Doesn’t See Coronavirus Second Wave as Major Threat
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St. Louis Federal Reserve leader James Bullard broke from some of his central bank colleagues and said he isn’t that worried that the economy will be felled again by a later resurgence of the coronavirus.
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The Day Coronavirus Nearly Broke the Financial Markets
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March 16 was the day a microscopic virus brought the financial system to the brink. Few realized how close it came to going over the edge entirely. The Dow Jones Industrial Average plunged nearly 13% Stock-market volatility hit a record. Investors struggled to unload even safe bonds. Companies and government officials were losing access to lending markets.
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“The 2008 financial crisis was a car crash in slow motion. This was like, ‘Boom!’”
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Adam Lollos, head of short-term credit at Citigroup.
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Key Developments Around the World
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U.K. Government Sells Bonds at Negative Yield for First Time
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The U.K. issued its first bond with a negative yield as investors prepared for the possibility that Britain joins other European countries in having negative interest rates. Comments from U.K. central bank officials in recent days fueled speculation among investors that the country may set benchmark interest rates below zero, as part of efforts to support the economy during the coronavirus pandemic. The policy rate is currently 0.1%.
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Self-Employed Aren’t Counted in Wave of U.S. Unemployment Claims
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Hundreds of thousands of self-employed and gig-economy workers are receiving jobless benefits for the first time through a temporary coronavirus-related program, but those claims aren’t reflected in overall totals.
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Bank of Canada Official Says Economy Could Face Lasting Damage
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“Even if the economy as a whole bounces back quickly when the shutdown is eased, some sectors may be permanently affected,” Deputy Gov. Timothy Lane said in a speech, adding that damage to Canada’s productive capacity may be profound and long-lasting.
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Russia’s Economy Suffers Double Hit From Oil Slump, Coronavirus
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The economic pain has spread as infections balloon, and Russia, dependent on oil revenues for a third of its state budget, finds itself poorly-equipped to offer the sort of economic support programs provided in the West.
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Turkish Banks’ Big Foreign Debts Worry Investors
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Investors are worried Turkish banks won’t have enough euros and dollars to hand and will struggle to raise funds overseas as a wall of debt comes due over the next year, a vulnerability highlighted as the central bank borrowed dollars and euros from local lenders.
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Financial Regulation Roundup
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Bill Would Force Chinese Companies to Give Up U.S. Listings
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Chinese companies could be forced to give up their listings on U.S. stock exchanges under legislation approved by the Senate and that stemmed from China’s unwillingness to grant routine access to audit records sought by American regulators.
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FHFA Sets High Capital Hurdle for Fannie, Freddie
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A top federal regulator said on Wednesday that mortgage giants Fannie Mae and Freddie Mac should hold $240 billion in capital after they are returned to private ownership.
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BlackRock Softens Stance in Argentina Restructuring Talks
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BlackRock Inc. is proposing that a key group of Argentina’s creditors to which it belongs accept greater losses in a restructuring ahead of a potential default on the country’s sovereign debt this week, a person familiar with the matter said.
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Shutdown Casts Doubt on Value of Exchange Trading Floors
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Investors won’t necessarily benefit when the New York Stock Exchange and other market operators welcome traders back to their floors. A study found that NYSE’s crucial 4 p.m. auctions ran more smoothly after the Big Board closed its floor to curtail the spread of the coronavirus.
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Time N/A: Central Bank of the Republic of Turkey releases policy statement
Time N/A: Bangko Sentral ng Pilipinas releases policy statement
Time N/A: South African Reserve Bank releases policy statement
10 a.m.: New York Fed’s Williams speaks during cyber event
1 p.m.: Fed’s Clarida speaks on U.S. economic outlook and monetary policy during online discussion hosted by New York Association for Business Economics
2:30 p.m.: Fed’s Powell gives opening remarks and Fed’s Brainard moderates panel on Covid-19 during online Fed Listens event
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Time N.A: Bank of Japan holds policy meeting
7:30 a.m.: European Central Bank releases April 29-30 meeting minutes
10:30 a.m.: European Central Bank’s Lane speaks during virtual conference on inflation organized by Cleveland Fed and ECB
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Shutdown Casts Doubt on Value of Exchange Trading Floors
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Investors won’t necessarily benefit when the New York Stock Exchange and other market operators welcome traders back to their closed floors, new research suggests. An academic study released Thursday found that NYSE’s crucial 4 p.m. auctions, which determine end-of-day prices for thousands of stocks, ran more smoothly after the Big Board closed its floor to curtail the spread of the coronavirus. NYSE has questioned the study’s conclusions. The floor closure, which began March 23 and ends next week, is the first time in NYSE’s 228-year history that it has operated in all-electronic mode.
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Lawsuits Needn’t Block Recovery
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Rather than permanently change liability standards based on incomplete information about the coronavirus, it would be wiser to enact an immediate but temporary immunity, J. Michael Luttig and David B. Rivkin Jr. write at The Wall Street Journal. "That would permit the economy to begin reopening while allowing time for federal regulators to promulgate standards on which long-term immunity could be conditioned," they write.
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Nearly half of U.S. adults live in households that have lost income in the two months since the shutdown and more than a third expect to lose income over the next four weeks, the Census Bureau said.
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Nearly 15 million U.S. credit cards were in “financial hardship” programs in April, such as deferral programs that let borrowers temporarily stop making payments, according to estimates by credit-reporting firm TransUnion.
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The IHS Markit flash eurozone composite purchasing managers index rose to 30.5 in May from 13.6 in April, a reading the data provider said shows the downturn likely bottomed out in April. (Dow Jones Newswires)
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Eurozone consumers were a little less pessimistic about their prospects this month as governments began lifting restrictions intended to limit the spread of the coronavirus. The European Commission’s measure of consumer confidencerose to -18.8 from -22.0 in April. (Dow Jones Newswires)
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Canadian Prime Minister Justin Trudeau said his government is working on another relief package, this time targeting large retailers, a plan made in the context of commercial-rent relief. (DJN)
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U.S. intermodal originations, which track container goods carried by rail, truck and ship, rose to their highest level in eight weeks in the seven days to May 16, the Association of American Railroads said. (DJN)
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Argentina's economic activity shrank in March by a seasonally adjusted 9.8% on the month and by 11.5% from a year earlier, according to the country's Instituto Nacional de Estadistica y Census. (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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