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Powell Stresses Need for Virus Containment; U.S. Recovery Shows Signs of Slowing; Still No Deal on Relief Package
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Good day. No new policy steps emerged Wednesday from the Federal Reserve's two-day meeting, while Fed Chairman Jerome Powell again stressed that the course of the economy will largely be determined by what gets done to slow the pandemic. “We can’t say it enough,” he said. The U.S. economy is set to officially record its steepest quarterly contraction since World War II, and recent signs point to a slowing recovery as the country faces a summer surge in coronavirus cases. Meanwhile, Wednesday was another day without a deal in Washington for another coronavirus relief package.
Now on to today’s news and analysis.
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Fed Maintains Stimulus Commitment as Economic Outlook Dims
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‘The path of the economy is going to depend to a very high extent on the course of the virus, on the measures that we take to keep it in check,’ Fed Chair Jerome Powell said.
PHOTO: ANDREW HARRER/BLOOMBERG NEWS
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Federal Reserve Chairman Jerome Powell said on Wednesday the U.S. economy faces a long road to recovery that will require more spending from Congress and the White House and greater public vigilance to prevent the spread of the coronavirus pandemic. Fed officials didn’t announce new policy steps at the conclusion of their two-day meeting Wednesday and reiterated their pledge to maintain aggressive measures to support the economy.
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Here is a transcript of Mr. Powell’s post-meeting press conference.
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Derby's Take: More Fed Support Likely, but Details Remain Murky
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Federal Reserve Chairman Jerome Powell said Wednesday the central bank can still do more for the economy. But when it comes to going beyond what the Fed already has done in recent months, the central bank leader didn’t offer specifics on what that might entail. Read more.
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Recovery May Be Slowing After Steep Second-Quarter Contraction
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Economists surveyed by The Wall Street Journal project second-quarter U.S. gross domestic product—the broadest measure of goods and services produced across the economy—fell at a seasonally adjusted annual rate of 34.7% from April through June, a period when states imposed lockdowns across the country to slow the virus and then lifted restrictions. Recent signs point to a slowing recovery as the country faces a summer surge in coronavirus cases.
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Democrats Reject Trump’s Push for Short-Term Coronavirus Aid Deal
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“We don’t know why Republicans come around here with a skinny bill that does nothing to address really what’s happening with the virus and has a little of this and a little of that...We have to have a comprehensive, full bill,” House Speaker Nancy Pelosi said Wednesday.
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Key Developments Around the World
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South Korea, U.S. Extend $60 Billion Currency Swap Deal
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The central banks of South Korea and the U.S. agreed to extend their $60 billion currency swap facility by six months. South Korea is one of nine countries the Federal Reserve in March established temporary currency swap lines with to support a wider range of economies globally.
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BOJ Deputy Governor Defends BOJ’s Government Bond Purchases
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Bank of Japan Deputy Gov. Masayoshi Amamiya defended the bank’s purchases of Japanese government bonds in a speech Wednesday, emphasizing that a mix of fiscal and monetary policies can be effective amid the fallout from the pandemic. “The government’s aggressive fiscal measures and the bank’s monetary easing measures can have synergistic effects,” Mr. Amamiya said, adding that, “The bank’s purchases of JGBs are being conducted as part of monetary policy, and thus do not represent monetary financing of government debt.” (Dow Jones Newswires)
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Germany’s Economy Suffers Biggest Contraction on Record
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Germany’s gross domestic product fell 10.1% compared with the previous quarter, the largest decline since comparable records began in 1970, but Europe’s powerhouse is nonetheless expected to shrink by less and recover faster than other major economies.
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Singapore's MAS Calls on Local Banks to Curb Dividends for FY 2020
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The Monetary Authority of Singapore said it has called on local banks to limit their dividends per share for fiscal 2020 at 60% of fiscal 2019 dividends and that local banks can offer shareholders the option of receiving the fiscal 2020 dividends in scrip in lieu of cash. (DJN)
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Financial Regulation Roundup
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Index Giant S&P Faces Potential SEC Lawsuit Over Volatility Gauges
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The Securities and Exchange Commission plans to bring an enforcement action against S&P Dow Jones Indices, one of the world’s biggest index providers for exchange-traded funds, for failing to provide sufficient disclosures on certain volatility-linked indexes in 2018.
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Congress Seeks to Fix $120 Billion Tax Snafu in PPP Loans
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Lawmakers from both parties say small businesses that get loans forgiven under the Paycheck Protection Program should be able to deduct associated expenses, such as wages, on their tax returns.
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Germany Asks Russia to Help Find Former Wirecard Executive
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German authorities have asked Russian officials if Jan Marsalek, the former Wirecard AG executive who ran operations for the disgraced fintech company, had entered Russia and requested they act on an Interpol notice issued for his arrest.
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8:30 a.m.: U.S. Commerce Department releases first estimate of second-quarter GDP and annual update
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8:30 a.m.: U.S. Commerce Department releases June personal income and outlays
10 a.m.: University of Michigan releases final July U.S. consumer sentiment
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Oxford Economics Sees 10-year Yield Struggling to Hit 2% by 2024
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One of the Federal Reserve's options for future stimulus is yield curve control, or buying bonds as needed to cap yields. But the Fed may not need to go there, according to Oxford Economics, which told clients in a research note that “the fallout from the pandemic will reinforce the trend of low U.S. long-term rates.” Oxford also said that “we look for any rise in yields to be gradual and limited, with the key 10-year Treasury yield struggling to get to 2% by 2024.” In late trading Wednesday ahead of what was a quiet Federal Open Market Committee meeting, the 10-year yielded 0.58%, a rock bottom rate helping lower many kinds of real-world borrowing costs. But even a 2% yield is historically low, and Oxford's research raises questions about whether the Fed would need to take active measures to depress the 10-year yield, especially with many fundamental economic forces
working to keep it low.
—Michael S. Derby
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Fed Can’t Fix the Economy Alone
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The Federal Reserve has been a major player in pulling the economy out of past recessions, but now it is in a supporting role, Justin Lahart writes for WSJ, noting that “Instead, it will be America’s success in ending its health crisis that matters most. No amount of easy money is going to protect people from the novel coronavirus. That puts the impetus on federal, state and local officials to come up with and coordinate policies that work.”
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At Deutsche Bank and Barclays, European Banking Goes National
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Second-quarter results from Barclays and Deutsche Bank balanced strong investment banking returns against more challenging numbers from corporate and retail divisions weighed down by low interest rates and provisions for loan losses. But there were also notable differences between how the two performed, and a key risk is how well a lender’s primary markets are dealing with the shocks of the pandemic, WSJ's Rochelle Toplensky writes.
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The number of U.S. houses going under contract rose sharply in June, with the National Association of Realtors reporting its Pending Home Sales Index climbed 16.6% to 116.1 in its second consecutive monthly gain. (Dow Jones Newswires)
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Brazil's statistics agency postponed the release of the unemployment report for the three months through June from July 29 to Aug. 6, saying the work of collecting the information has been complicated by the coronavirus pandemic. (DJN)
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South Korea's exports likely fell for a fifth consecutive month in July amid a slow recovery in global demand. The median forecast from seven economists polled by the WSJ is for a 9.1% on year drop in Korea's outbound shipments, compared with a 10.9% fall in June. (DJN)
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U.K. retail shop prices fell 1.3% in the first week of July compared with declines of 1.6% in June and a 12-month average decline of 0.9%, according to the latest report by Nielsen and the British Retail Consortium. (DJN)
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U.K. car manufacturing had its weakest half-year since 1954, with 381,357 cars produced compared with 666,521 in the same period a year earlier, the Society of Motor Manufacturers and Traders 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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