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ECB Scales Up Bond Buying; BOC Official Says Business Finding its Footing; Hong Kong Defends Currency Peg
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Good day. The European Central Bank took a more aggressive posture with its bond-buying program in a move that eases pressure on the eurozone’s embattled governments and underscores a shift in Europe, whose policy makers initially lagged behind the U.S. in the amount of firepower thrown at the coronavirus crisis. Elsewhere, the Bank of Canada's deputy governor said the Canadian economy is gradually returning to life, while Hong Kong's de facto central bank intervened in foreign-exchange markets to defend its currency peg. In the U.S., the Labor Department's monthly snapshot of employment is due at 8:30 a.m. ET. The jobless rate likely hit a new postwar high, though there are signs the labor market is slowly mending.
Now on to today’s news and analysis.
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ECB Ramps Up Stimulus Program Beyond $1.5 Trillion
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Christine Lagarde, president of the European Central Bank, which is bolstering its stimulus effort. PHOTO: DANIEL ROLAND/AGENCE FRANCE-PRESSE/GETTY IMAGES
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The European Central Bank said it would vastly scale up its bond-purchase program to €1.35 trillion ($1.52 trillion), a move aimed at easing pressure on the region’s embattled governments and putting its stimulus effort in line with the Federal Reserve’s. The ECB’s decision, more aggressive than expected by analysts, should help to absorb much of the €1 trillion or more of additional debt that eurozone governments are expected to issue this year as they battle the coronavirus pandemic.
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ECB President Christine Lagarde said the bank's Governing Council hasn't discussed including junk debt in its bond-purchasing programs, though they continue to observe the situation. Some market participants expect the ECB to buy junk debt eventually because they believe a large-scale downgrading of corporate debt from the lowest investment grade to junk would pose a risk to financial stability. (Dow Jones Newswires)
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Euro Jumps as ECB Expands Bond-Buying Program
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Derby's Take: Oxford Economics Tallies Impact of Fed’s Pandemic Support
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Federal Reserve officials have framed their unprecedented actions during the coronavirus pandemic as an effort to help bridge the economy to the other side, but at least one research firm sees some stimulative power in what the central bank has done. Read more.
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Key Developments Around the World
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Bank of Canada Official Sees Hopeful Signs as Economy Reopens
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Deputy Governor Toni Gravelle said in a speech on Thursday that economic activity is gradually resuming in most parts of the country and that policy makers see reasons to be hopeful that the worst effects of the coronavirus pandemic and economic shutdown can be avoided.
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Chinese Bond Yields Climb
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Yields on China’s 10-year sovereign bonds, denominated in yuan, this week hit their highest levels since late February, as investors have dialed back hopes for more aggressive easing from the country’s central bank.
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Hong Kong Dollar's Rally Prompts Monetary Intervention
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The Hong Kong Monetary Authority intervened to defend its currency peg after the Hong Kong dollar hit the strong end of its trading band against the U.S. dollar. The HKMA sold $126 million of Hong Kong dollars at HK$7.75 per USD during New York trading hours. The rally is likely driven by demand for Hong Kong dollars as two of China's most valuable U.S.-listed companies are selling shares for multibillion U.S. dollar listings on the Hong Kong Stock Exchange. (Dow Jones Newswires)
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South Korea’s Virus Formula: Heavy on Stimulus, Light on Lockdowns
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South Korea’s economy has proved to be one of the most resilient in the world in the face of the coronavirus. But dependent on exports, the economy is feeling the pain of the global spending slowdown caused by the pandemic.
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Americans Are Saving More, but How Long Can It Last?
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As of April, the U.S. personal savings rate hit an all-time high of 33%, up from 12.7% in March, according to the U.S. Bureau of Economic Analysis. The previous record was 17.3% in May 1975, the tail end of an early 1970s recession.
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Unemployment Expected to Hit Postwar High; Signs of Hiring Seen
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Economists project millions of additional jobs were cut last month, on top of the 21.4 million jobs shed in March and April. Unemployment may have approached 20% or more in May, economists think.
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U.S. Exports, Imports Fell Sharply in April Amid Virus Disruptions
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Imports fell 13.7% in April from March, and exports dropped 20.5%, the largest declines since record-keeping began in 1992, the Commerce Department reported Thursday. The trade deficit expanded 16.7% to a seasonally adjusted $49.41 billion.
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Financial Regulation Roundup
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Whistleblower Who Revealed Abuses at BNY Mellon Gets $50 Million
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A former trader at Bank of New York Mellon Corp. who alerted authorities to the bank’s pattern of overcharging big clients on currency trades was awarded a $50 million whistleblower payment Thursday.
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Governments Ease Rules to Tap Savings In a Crisis
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For decades, governments have used the tax code to prod people to set money aside for old age. Faced with a pandemic that has upended businesses and lives, lawmakers are making it easier for people to raid these accounts.
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Tech Company Cries Foul on Pandemic Trading Suspension
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Nano Magic Inc., a maker of lens care, anti-fog and electronic device protection products, has mounted a novel challenge to an SEC decision to temporarily freeze its stock over online claims that a disinfectant the company held a patent for could “kill” the novel coronavirus.
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8:30 a.m.: U.S. Labor Department releases May jobs report
3 p.m.: Federal Reserve releases April U.S. consumer-credit data
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10 a.m.: U.S. Labor Department releases April Job Openings and Labor Turnover Survey
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Why Mr. Market Ignores a World in Turmoil
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It is deeply uncomfortable to watch Wall Street party while Main Street emerges from lockdown into tear gas, but the bullish story is that none of these problems matter nearly as much for stock prices as the good news for investors, James Mackintosh writes at The Wall Street Journal. He notes that "Businesses are reopening while the Fed is providing unprecedented support and governments are subsidizing the economy to the tune of 11% of GDP in developed countries."
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Despite protests across the U.S., stocks are rallying. That’s typical.
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U.S. nonfarm labor productivity declined at a seasonally adjusted annual rate of 0.9% in the first quarter from the fourth quarter of 2019, while hours worked fell at a seasonally adjusted annual rate of 5.6%, the biggest quarterly drop since the second quarter of 2009, the U.S. Labor Department said. (Dow Jones Newswires)
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The Bank of Canada's balance sheet has expanded to over 460 billion Canadian dollars (more than $340 billion) from about C$120 billion in early March, Deputy Governor Toni Gravelle said.
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Canada's goods trade deficit widened in April to 3.25 billion Canadian dollars ($2.41 billion) from a revised C$1.53 billion in March on the biggest nominal declines in exports and imports on record, Statistics Canada said. (DJN)
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Retail sales in the eurozone fell by 11.7% in April from March, a month in which sales had already fallen by 11.1%, and dropped 19.6% from a year earlier. (DJN)
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Consumer confidence in the U.K. fell to its lowest level in more than a decade at the end of May, even as the country's coronavirus lockdown began to ease, GfK said. (DJN)
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Remittances to El Salvador from the U.S. plunged 40% in April from the same month last year, central bank figures show.
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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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