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May 28, 2020

Overnight changes in major currencies (9am PST)


U.S. (US): Initial Jobless Claims Drop To 2.123 Million; US Planning To Cancel Visas Of Chinese Graduate Students

The Labor Department said initial jobless claims dropped to 2.123 million, a decrease of 323,000 from the previous week. While jobless claims have steadily decreased over the past several weeks, the number of claims since the coronavirus-induced lockdown now exceeds 40 million. The Labor Department said the less volatile four-week moving average also fell to 2.608 million, a decrease of 436,000 from the previous week. A reading on the number of people receiving ongoing unemployment assistance, tumbled by 3.860 million to 21.052 million in the week ended May 16th. 05/28/2020 - 06:50AM (RTTNews) 

U.S. Secretary of State Mike Pompeo told Congress China had undermined Hong Kong’s autonomy so fundamentally he could not support recertifying the city’s special pre-1997 trading status established when it was a British colony. The US is planning to cancel the visas of thousands of Chinese graduate students believed by President Trump’s administration to have links with China’s military. The move could impact 3,000 to 5,000 Chinese students and could be announced as early as this week. The US and China are at loggerheads over China’s decision to go forward with national security legislation for Hong Kong that democracy activists in the city and Western countries fear could erode its freedoms and jeopardize its role as a global financial hub. Chinese students who are in the US will have their visas canceled and will be expelled, while those already outside the US will not be allowed to return. The main purpose of the action is to clamp down on spying and intellectual property theft that some Chinese nationals are suspected of engaging in on U.S. university and college campuses, the source said, adding that the administration expected significant push back from those institutions because of their financial interests in Chinese student enrollment. Some 360,000 Chinese nationals who attend U.S. schools annually generate economic activity of about $14 billion, largely from tuitions and other fees. The decision on the visas is likely to further sour ties between the world’s top two economies – which are also at odds over the coronavirus pandemic and trade talk. Deliberations on the visa move have been in the works for months, while not directly related to the tensions over Hong Kong, the timing appears to be part of “an overall pressure campaign” against China that has intensified in recent months. 05/28/2020 – 04:06AM (RTTNews)

European Union (EU): EU executive seeks higher EU budget guarantees in case of 'hard' Brexit

Euro traded 1.1073 at against USD at 9:00 am PST. 

The European Commission wants higher guarantees for the next long-term EU budget to back Commission borrowing for economic recovery and as a safeguard against a "hard Brexit." UK left the EU at the end of January but has various financial obligations to the 27-nation bloc that will last many years. EU law now says that the maximum national contribution to the EU budget by governments can be 1.2% of GNI. The EU wants to raise that ceiling to be sure to have enough cash to repay the 750 billion euros the Commission is set to borrow on the market to stimulate economic recovery across the bloc after the pandemic. “Our proposal is to increase the ceiling to 1.4% of GNI on a permanent basis in order to serve the repayments, but also in case there is an issue concerning Brexit, to be prepared for it,” European Commissioner for Budget and Administration Johannes Hahn told reporters. “In case of a hard Brexit, if they don’t pay what they promised to pay, it is sound financial management on our side. Then on top of it, to borrow the necessary amount on the market, we want to increase the headroom by another 0.6 point, so to 2.0% of GNI until the end of the repayment period,” he said. The Commission wants all bonds repaid by 2058. The Commission proposal for the borrowing against the security of increased EU government guarantees for the 2021-2027 budget will be discussed by EU leaders on June 19th and might not get immediate approval because states are wary of taking on extra risk. 05/28/2020 – 05:04AM (RTTNews)

United Kingdom (UK): BoE Says Too Little Stimulus To Push Economy Into 'Lowflation Trap'

British Pound traded at 1.2326 against USD at 9:00 am PST. 

BoE policymaker Michael Saunders said the UK economy could slip into a 'lowflation trap' in case of too little stimulus. "If we overdo the stimulus somewhat and then find the economy recovers strongly, we have ample tools and time to tighten policy again before persistent excess demand and inflation become a problem," Saunders said. He noted however, a lowflation trap caused by too little stimulus will be much harder to escape, with greater long-term costs from business failures and high unemployment.  At the May monetary policy meeting, Saunders sought an increase in asset purchase program. Further, Saunders said risks lie on the side of a relatively slow recovery for the UK after the coronavirus pandemic. He observed that a relatively slow recovery would be costly, not just in terms of leaving inflation below target and the economy operating with spare capacity for a longer period, but also because it would increase the long term costs to the economy from hysteresis and scarring. 05/28/2020 – 06:20AM (RTTNews) 

China: China Parliament Advances Hong Kong Security Law 

Onshore Chinese Yuan traded at 7.1447 per USD and offshore Chinese Yuan traded at 7.1557 per USD at 9:00 am PST.

Chinese lawmakers approved a proposal for sweeping new national security legislation in Hong Kong, defying a threat by U.S. President Donald Trump to respond strongly to a measure that democracy advocates say will curb essential freedoms in the city. China says the legislation will aim to tackle secession, subversion, terrorism and foreign interference in the city but the plan, unveiled in Beijing last week, The move to bypass the semi-autonomous city’s local Legislative Council has alarmed Hong Kong’s pro-democracy activists and opposition politicians. It risks spawning yet more protests in the city and could potentially prompt companies to flee if the laws undermine the independent judiciary in the Asian financial hub. The National People’s Congress approved the draft decision by a vote of 2,878-1 on Thursday at its annual session in Beijing, with six abstentions. Chinese authorities and the Beijing-backed government in Hong Kong say there is no threat to the city’s autonomy and the new law would be tightly focused.  China’s Premier Li Keqiang said the law would be good for Hong Kong’s long-term stability and prosperity and the “one country, two systems” formula would remain a national policy. The central government has all along fully and faithfully implemented the system, he said. 05/27/2020 –09:28PM (RTTNews)


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