Monex Morning Report 17/08/20

OVERNIGHT HIGHLIGHTS

U.S. Stocks close Friday flat, S&P500 posts slight gain for the week; Asia Stockes Point to Softer Start

U.S.-China trade deal review postponed as China ramps up farm, energy purchases; RBA bracing for huge economic contraction

Top Market News

British trade minister pledges to fight ‘unfair’ U.S. tariffs

“The U.S. government said last week it would maintain 15% tariffs on Airbus aircraft and 25% tariffs on other European goods as part of a long-running trade dispute, although it held off adding some extra tariffs as it had threatened. Britain had said it would step up demands for the United States to drop tariffs on goods such as single malt Scotch whisky after the industry warned a decision by Washington to retain the levy was putting its future at risk. ”

Originating Source

Weak inflation presents policy challenge for Brazil central bank: director

Brazil’s central bank faces monetary policy challenges ahead, in large part because inflation forecasts and inflation expectations remain below its central target, the bank’s Monetary Policy director Bruno Serra said on Friday.

Originating Source

RBA bracing for huge economic contraction

Reserve Bank governor Philip Lowe expects economic growth to contract by seven per cent when the June quarter figures are released. Dr Lowe expects next month’s data to reveal the biggest decline in many decades as a result of the coronavirus pandemic. “If there is any good news to be found here, it is that this decline is not as large as initially feared,” he told a parliamentary hearing on Friday.

Originating Source

U.S.-China trade deal review postponed as China ramps up farm, energy purchases

The United States and China have delayed a review of their Phase 1 trade deal initially slated for Saturday, sources familiar with the plans told Reuters, citing scheduling conflicts and the need to allow time for more Chinese purchases of U.S. exports.

Originating Source

U.S. prosecutors probe ex-NASA official, Boeing over space contract: sources

The U.S. Justice Department has opened a criminal probe into whether NASA’s former head of human spaceflight gave Boeing Co improper guidance during a lucrative lunar-lander contract competition.The officials were expected to hold a videoconference on Saturday, the six-month anniversary of the trade deal’s Feb. 15 entry into force as the coronavirus pandemic began spreading globally.

Originating Source

China hopes U.S. will create conditions to implement Phase 1 deal, commerce official says

China hopes the United States will stop taking restrictive and discriminatory action against Chinese firms and create conditions for the implementation of a Phase 1 trade deal, Assistant Minister of Commerce Ren Hongbin said on Thursday. Senior U.S. and Chinese officials are due to review the deal during a video conference this weekend, and are likely to air grievances in an increasingly tense relationship. Ren told a news conference that the coronavirus pandemic and U.S. export control measures had undoubtedly had an impact on Chinese purchases of U.S. goods and services. In January-July, Chinese imports from the United States fell 3.5% from a year earlier, falling short of the commitments made in the Phase 1 trade deal to increase purchases of American goods.

Originating Source

Russia starts manufacturing vaccine as cases near 1 million

Russia has started manufacturing its new vaccine for COVID-19, the Interfax news agency reported, citing the health ministry. Russia has said the vaccine, developed by Moscow’s Gamaleya Institute and the first for the coronavirus to go into production, will be rolled out by the end of this month. Some scientists said they fear Moscow may be putting national prestige before safety. Russia reported 5,061 new cases of the novel coronavirus on Saturday, bringing its nationwide tally to 917,884, the fourth highest caseload in the world. Russia’s coronavirus crisis response centre said 119 people had also died over the last 24 hours, pushing its official death toll to 15,617. It added that 729,411 people have recovered.

Originating Source

Fed’s Kaplan Says Inflation Can Run ‘Moderately’ Above 2% Goal

The Federal Reserve could allow inflation to accelerate above its 2% goal if has underperformed it in the past, said Dallas Fed President Robert Kaplan. “I would be willing to see inflation run moderately above 2% in the aftermath of periods where we’ve been running persistently below,” Kaplan said Friday in a virtual event with the Dallas Friday Group, a business organization. Kaplan said he would be comfortable with inflation around 2.25% or 2.375%. The policy, known as average inflation targeting, would be a shift from the Fed’s current way of keeping prices stable, in which it targets 2% regardless of what has happened in the past.

Originating Source

Top Trump News

Step up pressure on postal service cuts

U.S. Democrats on Sunday stepped up their efforts to rein in a cost-cutting campaign by President Donald Trump’s appointed postmaster general that has stoked fears about holding up mail-in ballots ahead of the November election.Louis DeJoy and another top postal official to testify this month at a hearing on a wave of cuts that has slowed mail delivery around the country, alarming lawmakers ahead of the Nov. 3 election when up to half of U.S. voters could cast ballots by mail.

Originating Source

Alibaba

U.S. President Donald Trump said on Saturday he could exert pressure on more Chinese companies such as technology giant Alibaba after he moved to ban TikTok. Asked at a news conference whether there were other particular China-owned companies he was considering a ban on, such as Alibaba, Trump replied: “Well, we’re looking at other things, yes.”

Originating Source

“Threatens ‘snapback’ of UN sanctions against Iran ”

“US President Donald Trump has announced that he intends to move next week to trigger a “”snapback”” of international sanctions against Iran at the United Nations. “”We’ll be doing a snapback,”” Trump told reporters on Saturday, one day after the UN Security Council rejected a US bid to extend a UN arms embargo on Iran. ”

Originating Source

Economic Indicators

China Fixed Asset Investment YoY

China’s fixed-asset investment dropped 1.6 percent year-on-year to CNY 32.92 trillion in the first seven months of 2020, compared to a 3.1 percent fall in January-June and in line with market consensus, after the economy began to open up and authorities loosened coronavirus-related restriction measures. Private investment decreased 5.7 percent (vs -7.3 percent in January-June) while public investment rose at a faster 3.8 percent (vs 2.1 percent). Investment in the primary industry grew 7.7 percent (vs 3.8 percent), while that in the secondary industry went down 7.4 percent (vs -8.3 percent) on the back of manufacturing. Investment in the tertiary industry rebounded 0.8 percent (vs -1.0 percent) due to transport, storage & postal industry; education, health and social work; and recreation & culture activities.

China Industrial Production YoY

China’s industrial production growth stood at 4.8 percent year-on-year in July 2020, below market consensus of 5.1 percent, as the economy recovers from the COVID-19 crisis. Manufacturing and utilities output continued to increase, while mining fell back into contraction territory. Among major industries, production grew for machinery (15.6 percent vs 8.7 percent in June), communication (11.8 percent vs 12.6 percent), general equipment (9.6 percent vs 7.4 percent), ferrous metals (7.9 percent vs 6.3 percent), chemicals (4.7 percent vs 4.0 percent), non-metal minerals (3.1 percent vs 4.8 percent), power equipment (1.7 percent vs 6.3 percent), and textiles (0.7 percent vs 3.2 percent). Production of transport equipment dropped 1.4 percent (vs -1.2 percent in June). For the first seven months of the year, output shrank 0.4 percent.

Chinese Unemployment Rate

Unemployment Rate in China remained unchanged at 5.70 percent in July from 5.70 percent in June of 2020.

Eurozone Gross Domestic Product (GDP) YoY

The Eurozone economy shrank 15.0 percent year-on-year in the second quarter of 2020, the biggest contraction on record and entering a recession, a second estimate showed.

U.S. Core Retail Sales MoM

US retail sales rose 1.3 percent from a month earlier in July 2020, easing from an upwardly revised 8.3 percent growth in June and missing market expectations of 1.9 percent advance. The latest reading suggested that a resurgence in COVID-19 infections and a reduction in unemployment benefit checks likely weighed on domestic demand. There were increases in sales at electronics & appliance stores (22.9 percent vs 37.6 percent in June), gasoline stations (6.2 percent vs 14.8 percent), miscellaneous store retailers (6.2 percent vs 21.7 percent), restaurants & bars (5.0 percent vs 26.7 percent), and health & personal care stores (3.6 percent vs 6.9 percent). At the same time, declines were seen in trade at motor vehicle & parts dealers (-1.2 percent vs 9.1 percent), building materials stores (-2.9 percent vs 0.8 percent) and sporting goods, hobby, musical instrument, & book stores (-5.0 percent vs 27.6 percent).

U.S. Industrial Production MoM

Total industrial production in the United States rose 3.0 percent from a month earlier in July 2020 after increasing 5.7 percent in June, matching market expectations. Still, the activity remained 8.4 percent below its pre-pandemic February level. Manufacturing output advanced 3.4 percent, beating market forecasts, with major industries posting increases, though they were much smaller in magnitude than the advances recorded in June. The largest gain in July was registered by motor vehicles and parts (28.3 percent); factory production elsewhere advanced 1.6 percent. Mining production rose 0.8 percent after decreasing for five consecutive months, while the output of utilities increased 3.3 percent, as unusually warm temperatures increased the demand for air conditioning.

U.S. Michigan Consumer Expectations

The University of Michigan’s consumer sentiment for the US stood at 72.8 in August 2020, little-changed from the previous month’s 72.5 and compared to market expectations of 72.0, a preliminary estimate showed. The gauge for consumer expectations increased to 66.5 from 65.9, while the current economic conditions sub-index edged down to 82.5 from 82.8. “The policy gridlock has acted to increase uncertainty and heightened the need for precautionary funds to offset lapses in economic relief programs and to hedge against fears about the persistence and spread of the coronavirus as the school year gets underway. Bad economic times are anticipated to persist not only during the year ahead, but the majority of consumers expect no return to a period of uninterrupted growth over the next five years.”, Surveys of Consumers chief economist, Richard Curtin, said.

Economic Calendar

Monday

Japan GDP (QoQ) (Q2)

Tuesday

Australia RBA Meeting Minutes

Tuesday

U.S. Building Permits (Jul)

Wednesday

U.K. CPI (YoY) (Jul)

Thursday

U.S. Crude Oil Inventories

Thursday

U.S. FOMC Meeting Minutes

Thursday

U.S. Initial Jobless Claims

Thursday

U.S. Philadelphia Fed Manufacturing Index (Aug)

Friday

U.K. Retail Sales (MoM) (Jul)

Friday

U.K. Composite PMI