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Stimulus Deal Boosts Markets; Digital Dollars Enter Stimulus Debate; BlackRock's Fed Mandate; Virus Poses Stress-Test Conundrum
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Good day. Global stocks are surging after lawmakers and the Trump administration agreed an estimated $2 trillion package to shield the U.S. economy from the coronavirus pandemic. Meanwhile, some lawmakers are looking at letting the Fed set up digital dollar accounts to speed payments to households, the Fed picked BlackRock as its bond buyer, and some are asking if it makes sense for banks to run stress tests in a year when reality could turn out to be even uglier than the test's worst-case scenario.
Now on to today’s news and analysis.
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Fed Digital Dollars Are Part of Debate Over Coronavirus Stimulus
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Fed Chairman Jerome Powell has said there are privacy concerns regarding a digital currency offered by the central bank. PHOTO: JACQUELYN MARTIN/ASSOCIATED PRESS
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While it may not make it to the finished coronavirus economic stimulus and support package now being weighed in Congress, some legislators are pushing to give the Federal Reserve a new tool some believe could radically reshape how it conducts monetary policy. At issue are so-called digital dollars and the accounts that would hold them. Separate House and Senate bills propose creating these two things as part of a broader effort to reduce the shock of the economic shutdown related to limiting the spread of the coronavirus.
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White House Reaches Deal With Lawmakers on Stimulus Bill
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The legislation, which congressional officials were set to continue to write throughout the early morning Wednesday, will provide direct financial checks to many Americans, drastically expand unemployment insurance, offer hundreds in billions in loans to both small and large businesses, and provide health care providers with additional resources as the virus spreads.
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Derby's Take: Fed Could See Big Changes in 2020 Financials
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The Federal Reserve this week released an annual report that showed a decline in its 2019 earnings. But the financial statement for 2020 could look radically different as the central bank takes extraordinary steps to shield the economy from the coronavirus health crisis. Read More.
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Key Developments Around the World
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Federal Reserve Taps BlackRock to Buy Bonds for the Government
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The money manager will buy agency commercial mortgage-backed securities secured by multifamily-home mortgages for the New York Fed. The Fed will determine which securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are suitable for purchase.
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BlackRock also will be in charge of a Fed-backed facility to buy new investment-grade bonds from U.S. companies and will oversee another vehicle for buying already-issued investment-grade bonds.
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Threat to the $3 Trillion Commercial Mortgage Market
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As the spread of the coronavirus upends the U.S. economy, forcing restaurants, movie theaters, gyms and offices to close, many businesses are likely to stop paying rent on April 1, and many property owners could default on their mortgages.
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Bond Downgrades Begin Amid Coronavirus Slowdown
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Among the bonds facing potential downgrades are those tied to shopping malls, hotels, airlines, risky corporate borrowers and local governments. The Federal Reserve plans to purchase corporate bonds with high ratings but it is unclear if that will stem further downgrades.
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Norwegian Krone Soars Amid Signs of Central Bank Intervention
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The krone surged 5% Tuesday against the dollar, its biggest jump since March 2009, indicating the Norges Bank is intervening in currency markets by buying up kroner in exchange for dollars. It would be the first time the central bank has bought its own currency since 1999.
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Thailand’s central bank on Wednesday left its benchmark interest rate unchanged after it took a series of measures in recent days, including a surprise rate cut, to mitigate the economic impact from the coronavirus pandemic.
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Some Bank of Japan board members expressed concern about the possibility the effects of the novel coronavirus on the country's economy could be long-lasting, according to a summary of opinions of the central bank's March 16 meeting released Wednesday. (Dow Jones Newswires)
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The Group of Seven industrialized countries in a statement said their central banks would "maintain expansionary policies for as long as needed" to respond to the economic and financial impact of the Covid-19 pandemic. (DJN)
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Malaysia's central bank instructed lenders to provide a six-month moratorium on all loans to consumers and small-and-medium enterprises to provide relief amid the coronavirus's economic fallout. (DJN)
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The Philippine central bank said it plans to lower the reserve requirement ratios of financial institutions under its supervision by up to 400 basis points this year. (DJN)
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EU Grapples With How to Support Member States’ Economies
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There is broad support to let countries tap precautionary credit lines from the eurozone’s bailout fund, European officials said, with governments considering allowing borrowing of as much as 2% of annual economic output.
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Financial Regulation Roundup
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Against Coronavirus, Fed’s Banking Stress Test Doesn’t Look So Bad
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The annual stress tests for the biggest U.S. banks, due April 6, are meant to gauge if banks would survive a hypothetical recession that sends the stock market plunging, oil into a tailspin, loan defaults rising and unemployment to society-shattering highs. But some economists are predicting that the current downturn could be worse than the worst-case scenario on this year’s test. Some are wondering if it is even worth conducting the exams this year.
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SEC Gives Relief to Mutual Funds Facing Redemption Issues
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Mutual funds facing stress from market turmoil caused by coronavirus will be able to tap their parent asset-management companies and other affiliates for funding under relief announced by the Securities and Exchange Commission.
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Time N/A: Bank of Thailand releases policy statement
8:30 a.m.: U.S. Commerce Department releases February durable-goods data
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8 a.m.: Bank of England releases minutes of March 19 special Monetary Policy Committee meeting and of Monetary Policy Committee meeting ended March 25
8 a.m.: Czech National Bank releases policy statement
8:30 a.m.: U.S. Commerce Department releases February advance economic indicators report
8:30 a.m.: U.S. Commerce Department releases third estimate of fourth-quarter and 2019 GDP
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Banks Can Do More, But Let’s Be Careful
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If the Fed’s latest round of massive liquidity injections don’t succeed in unclogging markets, it may be faced with another tough choice: whether to lift more constraints on banks, Telis Demos writes at The Wall Street Journal.
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He adds that “to ensure that banks don’t themselves become new overleveraged problems, the Fed needs to keep making sure that whatever banks need to load onto their balance sheet for the sake of the system isn’t just compounding risk or leverage in the system.”
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The New York Fed intervened with two operations: an overnight repurchase agreement, or repo, and a 13-day repo. The first saw $17.85 billion in demand from eligible banks, the second saw $13.5 billion.
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Russia's plan to ramp up oil production is being upended by the coronavirus crisis, people familiar with the matter said.
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The market for nonperforming bank loans in Europe is in disarray as investors brace for recession in Italy and other coronavirus-hit countries such as Spain and Portugal.
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The Richmond Fed said its composite manufacturing index measuring manufacturing activity across the central Atlantic region rose to 2 in March from -2 in February. Positive readings signal expansion, while negative readings indicate contraction. (DJN)
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Mexico’s inflation held steady in the first half of March as lower costs for energy and fresh produce offset higher prices of core goods and services, leaving the country’s consumer-price index up 0.11% in the two-week period and 3.71% higher than a year earlier, the National Statistics Institute said Tuesday. (DJN)
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South Korea will double its emergency relief fund to 100 trillion won ($78.6 billion) to provide financing for companies or merchants facing a temporary credit crunch due to the coronavirus pandemic. (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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