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EU Plans $2 Trillion Stimulus; Fed's Beige Book Shows Battered Economy; BOK Cuts Key Rate
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Good day. The European Union proposed a $2 trillion stimulus package that, if approved, would answer the European Central Bank's call for a fiscal effort to match its ultra-easy monetary policy. Meanwhile, the Fed's "beige book" showed the U.S. labor market and consumer spending continued to deteriorate through mid-May. But John Williams of the New York Fed said the economy may be hitting bottom. He also said the Fed is considering yield-curve control, where the central bank actively manages borrowing costs across different maturities. Elsewhere, the Bank of Korea cut its key rate to a record low.
Now on to today’s news and analysis.
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European Union Plans $2 Trillion Coronavirus Response Effort
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Brussels’ main shopping street. All EU countries must approve the coronavirus recovery plan. PHOTO: OLIVIER HOSLET/SHUTTERSTOCK
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The European Union set out a $2 trillion coronavirus response plan, including a massive pooling of national financial resources that, if approved, would deepen the bloc’s economic union in a way that even the eurozone debt crisis failed to achieve. Wednesday’s proposal aims to lift the region from its economic slump, but must overcome infighting dividing the bloc. If backed by all 27 member states, the plan would represent a historic step in knitting together national finances. The proposal follows a similar Franco-German plan set out last week and would establish significant new transfers of wealth among members, funded by commonly issued debt.
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U.S. Businesses See Few Signs of Recovery Through Mid-May
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U.S. businesses saw limited evidence of a recovery in recent weeks, with economic activity continuing to decline amid the coronavirus pandemic, the Federal Reserve said Wednesday.
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New York Fed's Williams: U.S. Economy May Be Bottoming
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“Based on what we are seeing now, I think we are pretty close, maybe May or June will be the low point right now based on the data we are seeing,” New York Fed leader John Williams said on Bloomberg’s television channel Wednesday.
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"Yield-curve control [is] a tool that could complement, potentially complement, forward guidance and our other policy actions."
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— New York Fed President John Williams
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Derby's Take: Bullard Says It’s Nearing Time to Cut Back Enhanced Jobless Benefits
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St. Louis Fed leader James Bullard said Wednesday he believes it’s getting close to time to nudge workers back into the coronavirus-ravaged job market. “We did the right thing” by increasing the jobless benefits, Mr. Bullard said. But, those enhanced benefits “should be phased out starting after July 31,” he added. Read more.
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Key Developments Around the World
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Bank of Korea Cuts Rate to Record Low
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South Korea’s central bank lowered its benchmark interest rate by 25 basis points to 0.5% and said it now expects the country's economy to shrink by 0.2% for 2020, compared with its February projection of 2.1% growth.
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Eurozone Economy to Shrink 8% to 12% This Year, Lagarde Says
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ECB President Christine Lagarde warned that the eurozone economy will shrink more than previously expected in 2020. Her comments were the latest signal that the ECB is preparing to increase its stimulus as soon as next week.
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Fed's Kashkari Weighs In On Police Killing
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Minneapolis Fed leader Neel Kashkari tackled a police killing in his city on Twitter Wednesday. "What's most shocking to me about the video of George Floyd is not only that he was killed helplessly by police officers," he said. "It is that they knew they were surrounded by witnesses and being taped...It was as if they were saying: this is what we've been trained to do. We are trained to use deadly force against black men. And if they die, it's their own fault for being in that situation. It indicates institutional racism that is actively taught and reinforced." (Michael S. Derby)
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Bank of Mexico Sees Sharp Economic Contraction in 2020
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Mexico's central bank expects the country’s economy to contract by at least 4.6% and as much as 8.8% this year as measures to control the coronavirus pandemic have brought many activities to a halt.
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RBA's Lowe Less Downbeat on Australian Economy
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Reserve Bank of Australia Gov. Philip Lowe told a parliamentary committee the economy is tracking somewhere between the RBA's central economic scenario and an upside scenario. He noted the number of virus cases has been lower than expected and restrictions are being lifted earlier than initially thought. Mr. Lowe downplayed the chance of a move to negative interest rates, and said it is too early to say if Australia's wage-subsidy scheme will be needed beyond September. (Dow Jones Newswires)
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U.S. Stock Market and Consumer Sentiment Tell Different Stories
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Stocks have rebounded dramatically off their March lows, while consumer sentiment is hovering near the lowest level in nearly a decade. The divergence is one of many realities investors are struggling to reconcile.
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Financial Regulation Roundup
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Japan Bank’s Foray Into Risky U.S. Debt Leaves $3.7 Billion Hole
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Japan's Norinchukin Bank, which was the biggest buyer of debt used to fund private-equity buyouts, suffered a ¥400 billion ($3.7 billion) hit and said it would stop investing in that market.
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Chinese Tech Firms Ready Hong Kong Listings as U.S. Pressure Rises
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NetEase Inc. and JD.com Inc., two of China’s most valuable U.S.-listed companies, are pushing ahead with multibillion-dollar share sales in Hong Kong, amid growing pressure from U.S. lawmakers for greater financial scrutiny of Chinese companies.
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GPB Capital Hit With Fraud Complaint From Massachusetts
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GPB Capital Holdings LLC faces civil fraud claims in Massachusetts, with regulators saying the firm made false statements to roughly 180 investors who put more than $14 million in its private-equity funds.
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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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8:30 a.m.: U.S. Commerce Department releases April advance economic indicators report; U.S. Commerce Department releases April personal income and outlays
10 a.m.: University of Michigan releases final May U.S. consumer sentiment
11 a.m.: Fed’s Powell speaks in Princeton University Griswold Center for Economic Policy Studies webcast
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This Isn't Your Father's Corporate-Bond Market
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Corporate bonds have never been so popular. Are they a safer investment than they used to be in a downturn, or just riding a wave of central-bank and index-fund money? Both could be true, Jon Sindreu writes for Heard on the Street.
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The European Commission's monthly survey of sentiment recorded a rebound in confidence among factories, and to a lesser extent retailers. But service providers became more despondent. (Dow Jones Newswires)
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Investment in the U.S. shale sector will drop by half this year even as oil prices rally, the International Energy Agency said. The Paris-based organization also expects global investment in oil and gas to decrease by a third and the financing of all energy projects to decline by 20%.
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U.S. manufacturing in the central Atlantic region recovered in May as lockdowns were eased and economic activity restarted, according to the Richmond Fed. Its latest Fifth District Survey of Manufacturing Activity's composite index was minus 27, up from a record low of minus 53 in April. (DJN)
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Bond issuance in response to Covid-19 could reach €100 billion in outstanding volume in 2020, according to AXA Investment Managers' conservative forecast, based on the issuance rate by end April.
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Denmark's central bank and finance ministry are looking into the possibility of adding a green element to the Danish issuance program in a way that ensures a continued well-functioning and liquid market for Danish government bonds.
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U.S. railroad freight traffic trends continue to improve and intermodal originations, which track container goods carried by rail, truck and ship, rose to their highest level in 11 weeks in the seven days ended Saturday, the Association of American Railroads said. (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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