Monex Morning Report 13/08/20

OVERNIGHT HIGHLIGHTS

S&P500 closes just short of record high as markets rally; Asia stocks to track U.S. higher

The US Treasury Secretary, Mnuchin: Pelosi unwilling to meet to continue negotiations; UK crashes into deepest recession of any major economy

Top Market News

Fed’s Daly says loss of enhanced unemployment benefits creates a ‘hole’ in spending

The recent expiration of the U.S. government’s enhanced unemployment benefits of $600 a week could impact families and the broader economy by removing income that was used to pay for rent, groceries and other debts, San Francisco Federal Reserve Bank President Mary Daly said on Wednesday. “It creates the potential for a hole, a little bit of a hole in consumer demand and consumer spending,” Daly told reporters Wednesday. “We have evidence that suggests they were spending those resources to pay rent or to buy food or to buy other consumer goods.”

Originating Source

Fed policymakers say economic growth will be muted until virus contained

The U.S. economic slowdown is likely to continue as more restrictions are put in place to control the coronavirus epidemic, and Americans will have to learn to “live with” the virus for the rest of the year, two Federal Reserve policymakers said on Wednesday. .Consumer spending will probably remain weak relative to the past as people avoid activities that require high levels of social interaction for health reasons, Boston Fed President Eric Rosengren said during an online event organized by the South Shore Chamber of Commerce in Massachusetts.

Originating Source

U.S. economy does not need a lot more stimulus: White House adviser

The U.S. economy appears to be entering a self-sustaining recovery and does not need a big dose of stimulus from another coronavirus relief bill, a top White House economic adviser said on Wednesday. “The numbers are coming in very, very nicely,” National Economic Council Director Larry Kudlow told Fox Business Network, adding that data suggested a jump in COVID-19 cases over the summer put only “a slight restraint on the economy.”

Originating Source

UK says trade talks with U.S. continue to make positive progress

Britain said its latest round of trade talks with the United States made positive progress in many areas, and that both sides agreed negotiations should continue at pace in the coming months. After leaving the European Union earlier this year Britain is trying to tie up swift trade deals with major partners like the United States to capitalize on its new freedom to strike bilateral deals rather than EU-wide ones. “Positive progress continues to be made in many of the areas covered by an agreement,” the British trade department said in a statement.

Originating Source

UK finance minister Sunak sees promising signs after record GDP hit

British finance minister Rishi Sunak said there were some “promising signs” that the country’s economy was recovering from its record economic crash during the coronavirus lockdown which was announced earlier on Wednesday. Sunak said growth of 8.7% in gross domestic product in June was encouraging, even as official data showed the economy contracted by 20.4% in the second quarter as a whole. Sunak told broadcasters there was too much uncertainty to know if Britain would have a swift, V-shaped economic recovery.

Originating Source

New Zealand central bank expands bond-buying, warns of negative rates as nation locks down again

New Zealand’s central bank surprised markets on Wednesday by expanding its bond-buying programme and warned that policy rates might have to go below zero to revive the coronavirus-battered economy as the country was plunged back into lockdown. The Reserve Bank of New Zealand expanded its large scale asset purchase (LSAP) programme to as much as NZ$100 billion ($65.39 billion), from NZ$60 billion previously, and extended the deadline for purchases out to mid-2022. It left interest rates at an all-time low of 0.25%, as widely expected. Underlining policymakers’ readiness to step-up support, the RBNZ said it is also actively considering a package of additional monetary tools, including negative interest rates and low-cost funding to banks. The purchase of foreign assets also remain an option.

Originating Source

U.S.-China Trade Deal Is ‘Fine,’ Trump Adviser Kudlow Says

The trade deal is “fine” and China is “substantially” increasing purchases of American goods, U.S. President Donald Trump’s top economic adviser Larry Kudlow said Tuesday, dismissing concerns that rising tensions between the two countries might jeopardize the deal.The “one area we are engaging is trade,” Kudlow said at a White House press conference. “It’s fine right now.” China continues to promise to implement the phase-one trade and the evidence shows they are increasing purchases, especially of commodities, Kudlow said.

Originating Source

The US Treasury Secretary, Mnuchin: Pelosi unwilling to meet to continue negotiations

The US Treasury Secretary, Steve Mnuchin, has said that he spoke to House Speaker Pelosi earlier today. Pelosi unwilling to meet to continue negotiations unless agreed in advance to her proposal costing at least $2tln. Democrats have no interest in negotiating. Sticking points on reaching a deal include the size of an extended unemployment benefit, aid for state and local governments and reopening of schools. This is not going to resolved at a drop of a hat, yet markets are sidestepping the pending risk for the US consumer, instead, presuming a deal will be struck.

Originating Source

Top Trump News

Trump Pledges Big Tax Cuts

President Donald Trump is tapping his presidential authority to make tax changes that Congress is refusing to do, but his limited power means he could end up over-promising and under-delivering on his pledge to slash IRS bills. Trump has given employers the option to defer hundreds of billions of dollars worth of payroll tax levies and is contemplating another executive action that would amount to a roughly $100 billion capital gains tax cut for investors by changing Treasury Department guidelines.

Originating Source

Trump Risks Crisis at UN

More than two years after President Donald Trump quit the multinational nuclear deal with Iran, his administration is risking a crisis at the United Nations by threatening to reimpose international sanctions that were eased under that accord. It’s a threat that could produce an outcome that once was unthinkable: pushing allies such as Germany and France to side with Russia and China in the UN Security Council, leaving the U.S. isolated. The conflict may begin with a vote in the council this week on a U.S. resolution to make permanent an international ban on arms deals with Iran that’s due to expire in October.

Originating Source

New Nuclear Deal With Iran

Iranian Foreign Minister Mohammad Javad Zarif dismissed Donald Trump’s claim that he’d be able to secure a new nuclear deal with Iran within weeks if re-elected, saying a breakthrough would require a complete reversal of U.S. policy toward the Islamic Republic. Trump said last week that he expects to quickly reach a deal with Tehran if he’s given a second term in November. The comments suggested the American president believes Iranian officials are waiting for the U.S. election before committing to talks with their leading foe in the hope they could get a better agreement if Joe Biden wins the White House.

Originating Source

Economic Indicators

United Kingdom GDP Annual Growth Rate

Britain’s gross domestic product slumped by 21.7 percent year-on-year in the second quarter of 2020, the biggest fall since comparable records began in 1956 and compared with market expectations of a 22.4 percent plunge, a preliminary estimate showed. There was a widespread disruption to economic activity due to the coronavirus pandemic and the government’s efforts to contain it. Household consumption dropped 25.2 percent and fixed investment slumped 27.0 percent. In addition, government spending was 16.9 percent lower while exports and imports both fell sharply.

United Kingdom Manufacturing Production YoY

Manufacturing production in the United Kingdom dropped 14.6 percent year-on-year in June 2020, following an upwardly revised 23.1 percent plunge in the previous month and compared with market expectations of a 15 percent decline. During June 2020 the manufacturing sector restarted operations following lockdown restrictions due to the COVID-19 with businesses managed to operate while adhering to social distancing measures. On a monthly basis, factory output went up 11 percent, the biggest increase since 1968, led by transport equipment (52.6 percent).

New Zealand Interest Rate Decision

The Reserve Bank of New Zealand expanded its large scale asset purchase (LSAP) programme up to NZD 100 billion on August 12th, 2020, amid significant uncertainty due to the COVID-19 crisis, while holding its official cash rate/OCR steady at a record low of 0.25%, as widely expected. Policymakers warned that policy rates might have to go below zero as the country was plunged back into lockdown, adding that the economic risks remain to the downside. The board viewed that domestic economic activity remains below the level it was at prior to the outbreak, and that a sustainable recovery in investment and employment depends on both the degree to which the virus is contained effectively.

Euro Area Industrial Production MoM

Eurozone’s industrial production increased by 9.1 percent from a month earlier in June 2020, missing market expectations for a second consecutive month and easing from a revised 12.3 percent jump in May. Forecasts were pointing to a 10.0 percent rise. Activity continued to rebound from record slumps seen in March and April as COVID-19 restrictions were eased in the region. Output increased for all segments: durable consumer goods (20.2 percent vs 53.7 percent in May); capital goods (14.2 percent vs 26.0 percent); intermediate goods (6.7 percent vs 9.7 percent); non-durable consumer goods (4.8 percent vs 3.3 percent); and energy (2.6 percent vs 3.0 percent).

United States Core CPI MoM

US core consumer prices, which exclude volatile items such as food and energy, went up by 0.6 percent from a month earlier in July 2020, the largest increase since January 1991, and above market consensus of 0.2 percent, following the gradual easing of lockdown restrictions in some states. Motor vehicle insurance cost continued to rise sharply in July, after recent declines. In addition, shelter, communication, used cars and trucks, and medical care prices also increased in July, while the index for recreation declined.

United States Crude Oil Stocks Change

US crude oil stocks slumped by 4.512 million barrels in the week ended August 7th, 2020, the third consecutive period of decrease and compared to market expectations of a 2.875 million drop, according to the EIA Petroleum Status Report. The data also showed that crude stockpiles in the US Gulf Coast dropped by 24.6 million barrels over the past three weeks, the most on record, while fuel demand last week rose to 19.4 million barrels, the highest since March. Meantime, gasoline inventories fell by 0.722 million barrels, while markets had forecast a 0.674 million decrease.

U.S. Federal Budget Balance

The US budget deficit narrowed to USD 63 billion in July of 2020 from USD 120 billion in the corresponding month of the previous year and compared with market expectations of a USD 193 billion gap. Receipts more than doubled from a year earlier to USD 563 billion because of payment of non-withheld taxes, while outlays in July were USD 626 billion, up from USD 371 billion a year earlier. The July deficit brought the fiscal year-to-date deficit to USD 2.81 trillion, compared to USD 867 billion for the comparable period of 2019.

Economic Calendar

Wednesday

New Zealand RBNZ Interest Rate Decision

Wednesday

US Core CPI (MoM) (Jul)

Thursday

US Crude Oil Inventories

Thursday

Australia Employment Change (Jul)

Friday

China Industrial Production (YoY) (Jul)

Friday

US Core Retail Sales (MoM) (Jul)