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Fed Takes on Muni Debt; U.S. to See Extent of First Wave of Pink Slips
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Good day. Global financial markets are down again today, rattled by the coronavirus pandemic and delay in Washington over an economic rescue package. The Fed on Friday expanded a lending operation to accept municipal debt as collateral. And we will get a glimpse of the damage to the job market this week when the Labor Department reports on Thursday on applications for unemployment benefits.
Now on to today’s news and analysis.
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Fed Includes Municipal Debt in Money-Market Lending Backstop
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The Federal Reserve said swap lines with five central banks ‘serve as an important liquidity backstop.’ PHOTO: ANDREW HARRER/BLOOMBERG NEWS
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The Federal Reserve on Friday expanded a lending operation that will accept municipal debt as collateral amid funding strains that could intensify as cities and states combat the coronavirus pandemic. The changes apply to a lending facility to backstop the $3.8 trillion money-market mutual-fund industry unveiled last Wednesday. The Fed originally limited the program to the $800 billion in prime money-market funds, which invest in very short-term corporate debt.
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Why the Fed Had to Backstop Money-Market Funds, Again
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The Fed's new backstop of the money-market mutual-fund industry, announced late Wednesday, comes despite years spent on an overhaul of the $4 trillion industry designed to prevent a future taxpayer-backed bailout. That effort didn't succeed, say current and former regulators, in part because some of the steps the SEC took to revamp the industry may have exacerbated investor redemptions.
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“It’s just frustrating that we never really fixed this stuff to begin with...The industry lobbyists came in and persuaded regulators to do half measures. And we’re back in the soup again.”
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— Former Federal Deposit Insurance Corp. chief Sheila Bair,
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Republican Rescue Package Fails Procedural Hurdle in Senate
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Senate Democrats blocked a rescue package designed to blunt the economic impact of the coronavirus pandemic, after a dispute with Republicans over corporate bailout provisions and aid to dislocated workers.
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Key Developments Around the World
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Coronavirus-Triggered Downturn Could Cost Five Million U.S. Jobs
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The fallout from the pandemic is expected to have a significant negative impact on U.S. economic prospects, with predictions emerging for losses of up to five million jobs this year and a drop in output of as much as $1.5 trillion.
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The Worst of the Selloff Isn’t Here Yet, Banks and Investors Warn
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The most brutal stretch for global markets since the financial crisis likely isn’t over yet, say investors and analysts who believe it is too early to assess the possible scale of economic damage from the coronavirus. But many analysts and portfolio managers warn that neither those declines nor recent extraordinary actions by the Federal Reserve are likely to signal the end of the market crunch.
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OPEC, U.S. Shale Producers Open Talks Amid Oil Rout
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U.S. oil industry regulators opened a dialogue with OPEC in talks that could help foster a truce between the world’s three largest oil producers and potentially resolve a Saudi-Russian price war that has devastated oil markets in recent weeks, people familiar with the matter said.
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China Central Bank Sees 'Obvious' Second-Quarter Improvement
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China's economic indicators are expected to have an “obvious” improvement in the second quarter and the economy will quickly recover to its potential output, central bank vice governor Chen Yulu said Sunday.
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Bank of Mexico Cuts Interest Rate in Unscheduled Meeting
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Mexico's central bank cut its reference interest rate by half a percentage point to 6.5% on Friday, bringing forward its policy decision by a week in response to the fallout from the global crisis brought on by the coronavirus pandemic.
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The Bank of Canada on Friday announced more measures to boost liquidity in financial markets by increasing the frequency of its term repo operations and activating a contingent term repo facility. (Dow Jones Newswires)
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Bucking the global trend of monetary easing and following six consecutive cuts, Russia's central bank held its key interest rate steady on Friday at 6%. (DJN)
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Financial Regulation Roundup
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Wall Street Goes Remote as Coronavirus Spreads
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For banks, brokers and stock exchanges, working remotely is a challenge owing to strict compliance rules and specialized technology requirements. Although experts say systems are holding up well, security concerns are growing.
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President Trump Joins Democrats in Calls to Block Share Buybacks
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As Congress rushes to bail out industries slammed by the coronavirus pandemic, President Trump has joined Democratic lawmakers demanding corporate aid include new restrictions on the stock buybacks that executives use to support their shares.
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Coronavirus-Led Slowdown Tests the Mettle of China’s Shadow Banks
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Cracks are forming in China’s sprawling shadow-banking sector, as the coronavirus epidemic drains economic activity around the country and pressures lenders that many private firms have relied on for years.
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U.S. Extends Individual Tax Filing Deadline from April 15 to July 15
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Taxpayers will get more time to pay as some lose jobs and businesses close during the pandemic. “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties,” Treasury Secretary Steven Mnuchin said Friday.
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Europe's Banking Regulators Offer Flexibility Over Bad Loans
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After lobbying by lenders, regulators said they will be flexible about how lenders account for loans turning sour due to the coronavirus crisis to protect banks from burning through capital because of delayed loan repayments.
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Time N/A: Central Bank of Nigeria releases policy statement
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Time N/A: National Bank of Hungary releases policy statement
5:30 a.m.: Bank of England releases Financial Policy Committee summary
10:00 a.m.: U.S. Commerce Department releases February new-home sales
7:50 p.m.: Bank of Japan releases Jan. 20-21 meeting minutes
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How the Coronavirus Changed Everything About Economic Policy
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Government plans now include ideas considered fringe not long ago, Jon Sindreu writes at The Wall Street Journal, noting that “The Trump administration wants to mail $250 billion in checks to Americans. Economists are even putting forward heterodox proposals like having central banks print such checks—so-called helicopter money—and giving everyone a basic income.”
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The spread of Covid-19 could ease in summer, only to resurge when cool, dry weather returns to Northern Hemisphere, some scientists say.
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U.S. existing-home sales jumped to a seasonally adjusted annual rate of 5.77 million in February, the highest monthly pace in 13 years, amid record low mortgage rates. Sales increased 6.5% from January and 7.2% from a year earlier, marking their eighth consecutive year-over-year rise, the National Association of Realtors said Friday.
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The Philippine central bank cut its economic growth forecast for the country due to the impact of Covid-19, and now expects growth of between 5.0% and 5.5% this year, compared with the government’s target of 6.5% to 7.5% before the onset of the coronavirus pandemic.
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Brazil's GDP growth this year is forecast to be 0.02%, down from a previous forecast of 2.1%, the government said, reflecting the deep impact the spread of coronavirus is expected to have on the country's economy. (Dow Jones Newswires)
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Saudi Arabia moved ahead with a $32 billion plan on Friday to soften the hit from the coronavirus pandemic on its economy that includes exempting private businesses in the kingdom from some government fees and allowing them to delay other payments. (DJN)
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