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Bank of Korea Stands Pat Despite Pressure to Cut; Fall of Bond Yields Could Complicate Future Fed Stimulus
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Good day. The Bank of Korea held its benchmark rate steady, despite pressure to ease policy to offset potential shocks from the novel coronavirus epidemic. And the recent decline in Treasury yields amid concern about the outbreak could complicate any longer-run effort by the Federal Reserve to provide economic stimulus.
Now on to today’s news and analysis.
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Bank of Korea Stands Pat Amid Pressure to Cut
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Bank of Korea Governor Lee Ju-yeol speaks during a press conference in Seoul.
PHOTO: JUNG YEON-JE/AGENCE FRANCE-PRESSE/GETTY IMAGES
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South Korea’s central bank held its key rate steady at 1.25% Thursday while trimming this year’s growth estimate amid continued pressure to act to offset the potential shock of the coronavirus epidemic on the country’s trade-reliant economy. The central bank said the spreading epidemic has slowed South Korea’s exports and domestic consumption, downgrading its 2020 growth outlook. The bank now expects the country’s gross domestic product to grow 2.1% in 2020, slower than its November projection of 2.3%.
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Derby's Take: Recent Fall of Bond Yields Could Complicate Future Fed Stimulus
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The yield on the 10-year Treasury note—a key influence on borrowing costs for things like mortgages, cars and corporate debt—hit a record low on Wednesday. Why does this matter to the Fed? Officials already have warned that, if confronted by an economic downturn, their benchmark interest-rate target range would likely fall to near-zero levels from the current 1.5% to 1.75%. To provide stimulus, they then would have to turn to guidance about the future of the benchmark rate and bond buying, as the Fed did after the financial crisis. Read More.
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Other Developments Around the World
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Bank of Mexico Sees Less Growth, More Inflation in 2020
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Citing weakness at the end of 2019 and coronavirus-related risks, the central bank said it now expects Mexico's gross domestic product will grow between 0.5% and 1.5% this year, compared with its previous forecast of 0.8% to 1.8%.
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The lower growth forecast and the expectation that core inflation will move toward the 3% target by year-end suggest room for further interest-rate cuts without the Bank of Mexico abandoning its conservative stance, Goldman Sachs says. (Dow Jones Newswires)
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Canada Warns of Freight-Rail Delays of ‘Many Weeks’
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Canada’s transport minister said Wednesday the country was “many, many weeks” away from a return to normal for freight-rail traffic, after police this week dismantled a blockade that had choked off shipments from east to west.
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Citing the economic shock caused by rail blockades, disappointing data and concerns about the coronavirus outbreak, Bank of Nova Scotia economist Derek Holt said the Bank of Canada will cut its key rate on March 4. By contrast, Capital Economics said the central bank will issue a "markedly more dovish" policy statement next Wednesday and keep its benchmark rate on hold at 1.75%. (DJN)
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Financial Regulation Roundup
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BlackRock Power Broker Barbara Novick Is Stepping Down
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Barbara Novick turned BlackRock Inc. into a force in Washington by building a lobbying machine that let the money manager she co-founded avoid the regulatory burdens big banks faced, fueling it transformation into a giant with $7.4 trillion in assets under management.
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SoftBank’s Misra Used Campaign of Sabotage to Hobble Rivals
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Rajeev Misra, the man atop the world’s biggest tech fund, paid an intermediary to smear his main rivals inside SoftBank Group, people familiar with the matter say. A spokesman for Mr. Misra said he didn't orchestrate the effort
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U.S. Blacklists Companies, Individuals With Alleged Ties to Hezbollah
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The U.S. Treasury Department blacklisted three Lebanese individuals and a dozen Lebanon-based entities, designating them as “specially designated global terrorists,” alleging they are linked to an organization that provides financial support to Iran-backed Hezbollah.
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Artificial Intelligence Comes to the Tax Code
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Governments are increasingly relying on machine learning and data analytics to analyze troves of data as they seek to detect tax evasion, respond to taxpayers’ questions and make themselves more efficient.
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Fed Can’t Wait to Respond to Outbreak, Former Board Member Says
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The novel coronavirus is a material risk to the economy and the Federal Reserve should take immediate action, writes economist and former Fed board member Kevin Warsh in a WSJ opinion column. He says the Fed should lead a concerted response by central banks, beginning with a 0.25 percentage-point rate cut.
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Time N/A: Bank of Korea releases policy statement
8:30 a.m.: U.S. Commerce Department releases second estimate of fourth-quarter and 2019 GDP; U.S. Commerce Department releases January durable-goods data
11 a.m.: European Central Bank’s de Guindos speaks in Seville, Spain
11:30 a.m.: Chicago Fed’s Evans speaks on economy and monetary policy in Mexico City
2:30 p.m.: European Central Bank’s Lane speaks in London
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8:30 a.m.: U.S. Commerce Department releases January personal income and outlays; U.S. Commerce Department releases January advance economic indicators report
9:15 a.m.: St. Louis Fed’s Bullard speaks on economy and monetary policy in Fort Smith, Ark.
10 a.m.: University of Michigan releases final February U.S. consumer sentiment
11:15 a.m.: Bank of England’s Cunliffe speaks at China trade and financial globalization conference at London School of Economics
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The New York Fed implemented a $38.44 billion overnight repurchase agreement operation. Some $49.46 billion in outstanding repos were maturing, so overall liquidity fell.
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China's official manufacturing purchasing managers index for February will show a reading of 43, the lowest since the global financial crisis, according to the median forecast of 11 economists. (DJN)
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A survey of eurozone business confidence mostly completed in the first two weeks of February showed a pickup in confidence among European manufacturers and service providers.
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The pace of U.S. new-home sales was the strongest in 13 years in January.
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Rising home prices have pushed more people who can’t afford houses or apartments to live in vehicles Across the Western U.S.
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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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