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Fed Wants to Cut Rates for Loans for Cities and States; Fed Fuels Private-Equity Debt Boom
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Good day. The Federal Reserve said it would give a break to cities and states seeking short-term loans from an emergency lending program by reducing the rates it charges. The Fed has repeatedly broadened the number of governments eligible for the program, but so far only the state of Illinois has used it to sell debt to the central bank. Meanwhile, the private-equity industry has been a beneficiary of the Fed's efforts to combat the economic fallout of the coronavirus pandemic.
Now on to today’s news and analysis.
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Fed to Lower Rates for Cities, States Seeking Short-Term Loans
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The Federal Reserve has repeatedly broadened the number of local governments eligible for an emergency lending program. PHOTO: DANIEL SLIM/AGENCE FRANCE-PRESSE/GETTY IMAGES
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The Federal Reserve said it would reduce the rates it charges cities and states seeking short-term loans from an emergency lending program. Changes to the program must be agreed upon by the Treasury Department, which has approved $35 billion to cover losses on up to $500 billion in loans extended by the Fed.
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Fed's Covid Response Fuels Private-Equity Debt Boom
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The second quarter saw one of the highest-ever levels of junk-bond issuance by private-equity-backed companies, at more than $31 billion, according to Dealogic.
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When Will the Latest Coronavirus Unemployment Benefits Start?
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President Trump signed an executive order on Saturday for a federally funded $300 a week in enhanced unemployment benefits for workers laid off during the coronavirus pandemic. Here is what we know about how the benefits will work under his executive actions.
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Coronavirus-Hit State Budgets Create a Drag on U.S. Recovery
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Spending cuts by state and local governments grappling with the coronavirus pandemic pose a headwind to the U.S. economic recovery as lawmakers consider how much federal aid to provide.
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U.S. Employers Shed IT Jobs Amid Faltering Reopening Plans
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Employers shed 134,000 information-technology jobs in July, a sign that companies might be taking a wait-and-see approach as questions remain over everything from a new stimulus package to the return of in-person schooling.
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Key Developments Around the World
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RBNZ Increases Asset Purchase Program Limit to $65.8 Billion
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The Reserve Bank of New Zealand said it is boosting monetary stimulus to counter the pandemic’s economic damage. It raised the limit of its large-scale asset purchase program to 100 billion New Zealand dollars ($65.8 billion) from NZ$60 billion. Other policy tools are being prepared, including a negative cash rate, direct low-cost funding to banks and purchases of foreign assets.
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China’s Xi Speeds Up Inward Economic Shift
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Chinese leaders long embraced foreign investments and exports to power China’s economy. Now, with the world in recession and U.S.-China tensions deepening, President Xi Jinping is laying out a major initiative to accelerate China’s shift toward more reliance on its domestic economy.
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U.K. Economy Shrinks by More Than Any Other Rich Country
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U.K. gross domestic product shrank 20.4% in the second quarter, the country’s statistics agency said Wednesday, a performance that means it suffered the worst economic hit from the coronavirus in Europe as well as reporting the highest death toll.
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Financial Regulation Roundup
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Study: Commercial Properties’ Ability to Repay Mortgages Overstated
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The findings corroborate a complaint received last year by the SEC stating commercial mortgage loans frequently feature inflated financials and come as the commercial-mortgage-backed securities industry seeks a lifeline.
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Two U.S. Agencies Examining Investments Sold by Crowdfunding Site
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Two U.S. agencies are examining investments sold by YieldStreet Inc., an online platform that pitches itself as giving people the chance to get in on deals usually reserved for the largest investors.
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Lehman Loses Effort to Recover $1 Billion From Investors
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A federal appeals court is letting investors keep roughly $1 billion they received from Lehman Brothers Holdings Inc. after its 2008 bankruptcy filing triggered the liquidation of dozens of collateralized debt obligations.
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High-Speed Trader Virtu Discloses $6.9 Million Hacking Loss
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Virtu Financial Inc., one of the world’s largest high-speed trading firms, disclosed the breach, which occurred in May, in a lawsuit filed Monday against Axis Insurance Co. in an effort to get the insurer to cover the loss.
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8:30 a.m.: U.S. Labor Department releases July CPI
10 a.m.: Boston Fed’s Rosengren speaks on economy and financial conditions at virtual event
11 a.m.: Dallas Fed’s Kaplan speaks online to Lubbock, Texas, chamber of commerce
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Time N/A: Central Bank of Egypt releases policy statement
11 a.m.: Atlanta Fed’s Bostic speaks at National League of Cities virtual summit
2 p.m.: Bank of Mexico releases policy statement
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How to Beat China and Help the World’s Poor
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In the contest between Chinese and American models of capitalism, developing countries will side with whoever offers them not more debt but the opportunity to create capital based on property, Hernando de Soto writes at The Wall Street Journal.
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Employers shed 134,000 information-technology jobs in July, a sign that companies might be taking a wait-and-see approach as questions remain over everything from a new stimulus package to the return of in-person schooling.
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Brazil’s central bank is likely to leave its benchmark lending rate unchanged at the record low of 2% at its next meeting, though there could be at least one more cut before the end of the year, according to Goldman Sachs economist Alberto Ramos. (Dow Jones Newswires)
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The U.S. producer-price index, a measure of the prices businesses receive for their goods and services, rose a seasonally adjusted 0.6% in July, the largest monthly rise since October 2018. (DJN)
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U.S. oil production will average 11.26 million barrels per day this year, according to the latest forecast by the U.S. Energy Information Administration, as rig counts, new drilling permits and other measures of activity in the American oil patch continue to decline. (DJN)
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Mexico’s reopening of auto plants, construction sites and mines contributed to a 17.9% rise in industrial production in June from May, with a 26.7% rebound in factory output, a 17.5% increase in construction and a 23.1% jump in mining excluding oil and gas. (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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