· Euro creeps higher on EU recovery fund optimism
The euro continued to rise on Thursday, boosted by a 750 billion euro (673.70 billion pounds) EU plan to prop up the bloc’s coronavirus-hit economies, though gains were limited as doubts about delivering the scheme crept in.
The euro was last up 0.1% at $1.1016, having risen earlier to a two-month high of $1.1035. The euro was steady versus the Swiss franc at 1.0664, though the day prior it rose to nearly a three-month high.
An index tracking the U.S. dollar against major currencies was stable at 98.93 as the greenback held its own in a crosscurrent between rising Sino-U.S. tensions and optimism over recovering global growth as economies re-open.
The United States is currently crafting a range of options to punish China over its tightening grip on Hong Kong, including sanctions, tariffs and restrictions on Chinese companies, according to people familiar with the discussions.
The yuan was neutral at 7.1725 in the offshore market, though it remained close to the 7.1965 record low it sank to the day before.
· Economists expect another 2.1 million Americans filed for unemployment insurance last week
Millions of Americans are still filing for unemployment insurance on a weekly basis, even after many states begin to open their economies from lockdowns to contain COVID-19.
US economists are forecasting that an additional 2.1 million Americans filed for unemployment insurance in the week ending ending May 23, according to Bloomberg data.
That would be a decline from the 2.4 million that filed for benefits in the previous week, but still show an elevated rate of joblessness in the US. The Labor Department will release the weekly report Thursday morning.
· U.S. businesses hammered by pandemic but see some green shoots, Fed says
U.S. businesses continued to be slammed by the effects of the novel coronavirus epidemic into the middle of May, a Federal Reserve report showed on Wednesday, and few expected a swift recovery despite some signs of hope.
The sharp plunge in economic activity recounted in the U.S. central bank’s latest temperature check of business activity across its 12 districts shed light on the depth of the economic pain generated by the virus, which has led to an unprecedented downturn and a U.S. death toll approaching 100,000.
The Fed’s survey, known as the “Beige Book,” was conducted in April, when non-essential businesses were shut down in much of the country, through May 18, when some states had started to loosen restrictions.
“Economic activity declined in all districts – falling sharply in most,” the Fed said in its report. “Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.”
· NY Fed's Williams says U.S. economy could rebound in second half but uncertainty remains
The U.S. economy could reach a bottom in May or June and see a strong recovery in the second half of the year, New York Federal Reserve Bank President John Williams said Wednesday, adding that there is a lot of uncertainty in the forecast and that the central bank is considering a range of scenarios.
“Let’s just not forget this is an extreme decline in economic activity and an enormous hardship for people in this country,” Williams said during an interview with Bloomberg TV. “So even if we’re starting to see perhaps you know, stabilization there in terms of the economy and maybe a little bit of a pickup, we’re still in a very difficult situation.”
Williams said Fed economists are using various sources of data, including social media and information on how much Americans are driving, to develop forecasts that are slated to be released at the June policy setting meeting.
The policymaker said the pandemic could have large effects on demand and that he expects inflation to stay low over the next year or so.
· Bullard: 'High contact' industries still suffering, others adapting as they restart
The U.S. economy may well have hit its low point last month and businesses are gradually leaning to cope with the new reality of doing business amid continued concerns around the coronavirus pandemic, St. Louis Federal Reserve president James Bullard said on Wednesday.
Restaurants, hotels and other “high contact” firms remain hard hit, he said, but “there is reopening occurring. There is adaptation occurring. We are at the beginning...and I would expect that process to be something that plays out over the next 120 days. There will be a learning process there by different businesses that keeps customers confident and keeps their own work force confident.”
· Euro zone economy to shrink between 8% and 12% in 2020: Lagarde
The euro zone economy is likely to shrink between 8% and 12% this year as it struggles to overcome the impact of the coronavirus pandemic, European Central Bank President Christine Lagarde said on Wednesday.
The ECB earlier said the economy could shrink by between 5% and 12%, but speaking in a youth dialogue, Lagarde said that the “mild” scenario is already outdated and the actual outcome would be between the “medium and “severe” scenarios.
· German economy likely to shrink 6.6% this year due to coronavirus: Ifo
The German economy is likely to shrink by 6.6% this year as a consequence of the coronavirus crisis before growing by 10.2% in 2021, the Ifo Institute said on Thursday in its latest update.
On average, businesses expected operations to return to normal in nine months after severe lockdowns in the second quarter, Ifo said. Under this scenario, the economy would shrink 12.4% in the second quarter of this year.
· French finance minister hopes for deal on EU's 750 billion euro recovery plan in coming weeks
French Finance Minister Bruno Le Maire told France 2 television on Thursday that he hoped the European Union could reach a deal on the EU’s planned 750 billion euros ($826.1 billion) economic recovery package in the coming weeks.
The blueprint, if ratified by all, would stand as a milestone in a half-century of European integration, marking a step towards mutualised debt as a major funding tool for the first time and paving the way for greater EU powers of taxation.
· Bank of England's Bailey sees risk of 'longer and harder' recovery
Britain’s economy is at risk of taking longer to recover from the impact of the coronavirus than in the main scenario published by the Bank of England earlier this month, Governor Andrew Bailey said on Wednesday.
“The risks are undoubtedly on the downside for a longer and harder recovery,” Bailey wrote in an opinion piece for The Guardian newspaper, striking the same cautious tone as other BoE officials in recent weeks.
“It is also possible that the pace at which activity recovers will be limited by continued caution among households and businesses even as official social distancing measures are relaxed,” Bailey added.
Earlier this month the BoE said that under one plausible scenario, the economy could shrink by a quarter between March and June - and suffer its biggest annual fall in output in more than 300 years - but largely recover by late next year.
Bailey emphasised this scenario hinged on life getting back to normal relatively quickly.
· China approves controversial national security bill for Hong Kong
China’s National People’s Congress, the country’s parliament, on Thursday approved the proposal to impose a new national security law for Hong Kong — paving the way for the legislation to be finalized and implemented in the city.
Details of the law are currently scarce but it will reportedly target secession, subversion of state power, terrorism activities and foreign interference.
· Here’s what it means if Hong Kong loses its special status.
Impact on U.S. trade with Hong Kong
Hong Kong’s trade with the U.S. would suffer a significant impact if tariffs were imposed.
U.S. goods and services trade with Hong Kong totaled more than $66 billion in 2018, according to the Office of the U.S. Trade Representative (USTR). U.S. exports to Hong Kong were $50.1 billion, while imports were $16.8 billion, according to the data.
Hong Kong was America’s third-largest market for wine exports, fourth-largest market for beef and seventh-largest for agriculture products in 2018, according to the city’s trade and industry department.
Top goods imported from Hong Kong include machinery and plastics, according to the USTR.
“A greater risk is that loss of special status leads the US to restrict sales of sensitive technologies to Hong Kong firms,” Mark Williams, chief Asia economist at Capital Economics, wrote in a note that was sent out on Thursday morning.
“Knowledge-intensive products from the US only make up around 5% of Hong Kong’s total imports. But restricting the ability of Hong Kong-based firms to source sensitive products would remove one of Hong Kong’s distinct advantages as a business location relative to mainland China,” he wrote.
Both U.S. and Hong Kong companies could suffer
There are more than 1,300 U.S. companies operating in Hong Kong, as well as 85,000 Americans living in the city, according to the U.S. State Department.
The international community’s perception of Hong Kong as an autonomous and attractive place to do business could be affected.
Currently, Americans also enjoy visa-free travel to the Chinese territory. But visa restrictions could kick in if those tensions worsen, analysts said.
“Pompeo’s decision open(s) the door for possible tariffs on imports from Hong Kong, visa restrictions or asset freezes for top officials. China has previously warned it would retaliate if the US interfered in its affairs,” Rodrigo Catril of National Australia Bank wrote in a note on Thursday morning.
No impact on Hong Kong’s global trade status
While revoking the city’s special status with the U.S. could have far-reaching consequences, doing so “would have no direct impact on Hong Kong’s international status,” said Capital Economics.
The city would still be treated as an independent customs territory by the World Trade Organization, and as a separate entity by other institutions such as the International Monetary Fund and the World Bank.
Of course, the U.S. is unlikely to be deterred by those WTO rules if it considers slapping tariffs on the city, the research firm said.
· Oil falls as surprise U.S. stock build douses demand recovery hopes
Oil prices plunged on Thursday after U.S. industry data showed a surprise steep build in crude oil inventories, dampening hopes of a smooth recovery in demand as some countries begin to ease their way out of coronavirus lockdowns.
The decline in oil benchmarks extended losses from Wednesday over uncertainty about Russia’s commitment to deep output cuts ahead of a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, a grouping dubbed OPEC+.
U.S. West Texas Intermediate (WTI) crude futures were down 3%, or 98 cents, at $31.83 a barrel at 0709 GMT. The U.S. futures slipped earlier as much as 5% to a low of $31.14.
Brent crude futures were down 2%, or 71 cents at $34.03 per barrel, after dropping to as low as $33.63.
Data from industry group API showed U.S. crude stocks rose by 8.7 million barrels in the week to May 22, compared with analysts’ expectations for a draw of 1.9 million barrels.
Reference: Reuters, CNBC, Kitco
Thai
Eng