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BOE Launches Climate Stress Tests; Fedspeak Cheat Sheet; ECB Asset Purchases in Focus
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Good day. The Bank of England launched a program to assess the ability of lenders and insurers to withstand risks such as rising sea levels, flooding, cyclones and wildfires, in the latest step by a central bank to scrutinize the impact of climate change. Meanwhile, we round up comments from Fed officials ahead of next week’s Federal Open Market Committee meeting and look ahead to the European Central Bank's policy decision tomorrow.
Now on to today’s news and analysis.
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Big Banks Face Climate-Change Tests
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Storm Christoph caused widespread flooding in the U.K. in January. The Bank of England’s most extreme climate-change forecast sees increasingly frequent extreme weather. PHOTO: PAUL ELLIS/AGENCE FRANCE-PRESSE/GETTY IMAGES
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The U.K.’s biggest banks, including HSBC Holdings PLC and Barclays PLC, and insurers such as the U.K. units of American International Group Inc. and parts of Lloyd’s of London, will estimate how their businesses will perform in the next 30 years based on three different scenarios in which governments and companies either take early, late or no action to mitigate climate change.
The tests represent the latest step by central banks and financial regulators to look at climate change when assessing the health of financial institutions. Regulators have traditionally used similar “stress tests” to measure the resilience of lenders to adverse economic scenarios such as deep recessions, rises in interest rates or trade wars.
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Fedspeak Cheat Sheet: What Officials Said Before Their June Meeting
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A number of Federal Reserve officials have opened the door to debating when they should pull back on their bond-buying stimulus, without giving any clues when the shift might occur.
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Key Developments Around the World
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Here's What Analysts Expect From the ECB
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Though inflation in the eurozone isn’t even half that of the U.S., the central bank debate is about the same thing on both sides of the Atlantic—when the rate of bond purchases should slow, MarketWatch reports. Economists at Morgan Stanley say the European Central Bank will keep its current pace of purchases. Economists at Credit Suisse articulate a more contrarian case that the ECB will cut the monthly purchase rate on the Pandemic Emergency Purchase Program to €60 billion, though the bank still expects the full program will be used. “Either way,” add economists at Deutsche Bank, “we expect the ECB to argue June is an operational decision on the appropriate pace of purchases, not a strategic decision to keep or
exit PEPP.” The Deutsche Bank forecast is for the current bond purchase rate to be maintained, in what they see as a “close call.”
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U.S. Job Openings Reached Record Level This Spring
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Available jobs in the U.S. climbed further above pre-pandemic levels last month following a record surge earlier in the spring, a sign of strong demand for workers—with the leisure and hospitality sectors showing the most growth in openings. Additionally, the rate at which workers quit their jobs, a sign of confidence in the labor market, also rose to a record high in April, and the rate at which workers were laid off fell to a record low, the Labor Department said.
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U.S. Trade Deficit Narrowed in April
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The deficit in trade of goods and services shrank by 8.2% to a seasonally adjusted $68.9 billion in April, compared with the record $75 billion gap in March. Imports fell 1.4% to $273.9 billion, while exports grew 1.1% to $205 billion.
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Biden Ends Infrastructure Talks With Senate GOP Group
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President Biden called off an effort to reach an infrastructure compromise with a group of Senate Republicans after progress stalled, an administration official said, shifting his focus to other negotiations with a bipartisan group.
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Wealth Gap Seen Widening as Major Economies Power Recovery
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“While there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world,” David Malpass, president of the World Bank Group, said.
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China Tests Out Intervening in Housing Market to Tame Prices
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Cities in China are trying to control one of the biggest problems of the country’s post-pandemic economy: runaway housing prices, like those in Shenzhen, where a modest-size apartment typically costs more than $1 million.
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Financial Regulation Roundup
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IRS Is Investigating Release of Tax Information of Wealthy Americans
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Authorities are investigating the release of tax information of some of the richest Americans, including Amazon.com Inc. Chief Executive Officer Jeff Bezos and Berkshire Hathaway Inc. CEO Warren Buffett.
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Biden’s Capital-Gains Tax Proposal Puts Estate Planners to Work
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Estate planners for the wealthiest Americans are combing through the administration’s proposed tax increases, hunting for ways to sidestep the potential hit from higher taxes on investment income and new capital-gains taxes at death.
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7:45 a.m.: European Central Bank releases policy statement
8:30 a.m.: U.S. Labor Department releases May CPI; European Central Bank’s Lagarde holds press conference
10 a.m.: Bank of Canada release interest rate announcement
1 p.m.: Bank of Canada’s Lane gives speech
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10 a.m.: University of Michigan releases preliminary June U.S. consumer sentiment
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For the Economy, Quitting Never Felt so Good
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All the usual explanations for why job growth over the past couple of months has been underwhelming may be incomplete, Justin Lahart writes, noting that many workers are also seeking opportunities elsewhere.
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The Pandemic’s Legacy of Financial Frailty in Emerging Markets
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Based on last year’s evidence, the inability or unwillingness of states to borrow and spend may have resulted in a more precarious financial position for their private sectors, Mike Bird writes.
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Is the Dollar’s Long Slide Coming to an End?
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The WSJ Dollar Index, which measures the greenback against a basket of other currencies, has been on an almost nonstop slide since the start of April. But this past week, it has stood its ground, despite the fact that U.S. payroll numbers released Friday were weaker than economists expected. It may be a sign that the dollar’s depreciation has largely run its course, Jon Sindreu writes.
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China’s factory-gate prices surged by the most in nearly 13 years in May, escalating global concerns about rising commodity costs and squeezed profit margins for businesses, and raising pressure on Beijing to rein in prices.
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The ZEW index of economic sentiment for the eurozone declined slightly to 81.3 in June from the 84 record-high reached in May. (Dow Jones Newswires)
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The eurozone economy shrank in the first quarter, but less than initially estimated, Eurostat said, noting that GDP across the 19 countries using the euro as their currency fell by 0.3% from the previous quarter, compared with an initial estimate of a 0.6% drop. On year, the economy shrank by 1.3%. (DJN)
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German industrial production declined 1.0% in April from March in calendar-adjusted terms, Destatis said, adding it revised March’s industrial production on-month increase to 2.2% from an earlier 2.5% rise. (DJN)
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Canada posted a goods-trade surplus of 594 million Canadian dollars in April, or the equivalent of $491.6 million, Statistics Canada said. Exports fell 1% in April, while imports dropped 4.7%. In volume, or price-adjusted, terms, exports fell 3.5% while imports declined 6.8%. (DJN)
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Pedro Castillo, a far-left political outsider, was leading the count on Tuesday in Peru’s tight presidential election as markets reeled over investor concerns he could win and boost state control over the country’s market economy.
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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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