Monex Morning Report 18/08/20

OVERNIGHT HIGHLIGHTS

Nasdaq books record close, Dow ends lower as Wall Street investors await fresh spark; Asian Stocks Set for Modest Gains

Japan’s second quarter GDP shrinks at record 27.8% amid pandemic; China central bank injects 700 billion yuan of MLF loans, rates steady for fourth month

Top Market News

China central bank injects 700 billion yuan of MLF loans, rates steady for fourth month

China’s central bank on Monday rolled over maturing medium-term loans while keeping borrowing costs unchanged for the fourth straight month. The People’s Bank of China (PBOC) said in a statement it was keeping the rate on 700 billion yuan ($100.74 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions steady at 2.95% from previous operations. Analysts also expect no change for the country’s benchmark loan prime rate (LPR) on Thursday. The fresh fund injection well exceeds two batches of MLF loans that are set to expire in August, with a total volume of 550 billion yuan. The PBOC said in the statement that the rollover was a one-off MLF operation for the whole month to “fully meet market demand”.

Originating Source

U.S. tightens restrictions on Huawei access to technology and chips

The Trump administration announced it will further tighten restrictions on China’s Huawei Technologies, aimed at cracking down on its access to commercially available chips. The Commerce Department actions will expand restrictions announced in May aimed at preventing the Chinese telecommunications giant from obtaining semiconductors without a special license. The administration added 38 Huawei affiliates to the U.S. government’s economic blacklist raising the total to 152 affiliates since Huawei was first added in May 2019.

Originating Source

Trump’s Stimulus Stalemate With Democrats Leaves Economy Limping

Chances for a deal in Congress on a new, comprehensive stimulus package before September diminish with each passing day, leaving the U.S. economy limping and many businesses and millions of consumers coming up short. Democrats and Republicans are focused on their party presidential nominating conventions this week and next. House Speaker Nancy Pelosi headed to California after rebuffing an overture from President Donald Trump’s Treasury secretary, Steven Mnuchin, to restart talks on a virus relief package without concessions.

Originating Source

OPEC+ compliance with oil output cuts in July around 97%: Sources

Compliance with OPEC+ oil output cuts is seen at around 97% in July, two OPEC+ sources told Reuters on Monday, two days ahead of a meeting of key OPEC+ producers to review adherence with their production pact as demand slowly recovers. The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, have been cutting output by a record volume since May to tackle the fallout from the COVID-19 pandemic which has hit oil demand. July’s compliance figure has not yet been finalised by a technical panel of key OPEC and non-OPEC producers, known as the JTC, which is holding a meeting on Monday, the sources said.

Originating Source

G7 ministers to consider extending debt freeze for low-income countries: Treasury

Finance ministers from the Group of Seven rich countries on Monday noted improved economic conditions in their economies, but underscored their concerns about the debt problems facing low-income countries, a U.S. Treasury spokesperson said. During a teleconference hosted by U.S. Treasury Secretary Steven Mnuchin, the ministers repeated their call for all official bilateral creditors to fully implement the G20 debt freeze for the poorest countries, and agreed to consider additional options, including extending the initiative into 2021, the spokesperson said.

Originating Source

China approves 11 fixed-asset investment projects worth $5.5 billion in July

China’s top economic planner, the National Development and Reform Commission (NDRC), said it approved 11 fixed-asset investment projects worth 38.2 billion yuan ($5.50 billion) in July. The record high power output and consumption in August was related to hot weather, which leads to more power usage and also reflects a recovering economy, Meng Wei, spokeswoman with the NDRC told a news briefing on Monday.

Originating Source

New Zealand new wage subsidy scheme expected to cost $333 million

New Zealand’s Finance Minister Grant Robertson said on Monday that the new wage subsidy scheme is forecast to cost about NZ$510 million ($333.80 million) and cover 470,000 jobs. The scheme was announced last week after New Zealand locked down its biggest city, Auckland, following new cases of coronavirus. “The new wage subsidy will help support cashflow and confidence,” Grant Robertson said in a statement. He said the mortgage deferral scheme was also being extended to March 31 next year from its current end-date of Sept 27.

Originating Source

Japan calls for G7 coordination to spur global growth, combat pandemic, finance minister Aso says

Japan hopes to coordinate with its Group of Seven partners in seeking a swift containment of the coronavirus pandemic and a strong recovery in the global economy, Japanese Finance Minister Taro Aso said on Monday. Aso made the remark to reporters after attending a phone meeting with finance leaders of the G7 advanced economies. “I told the G7 meeting that we must seek a balance between the need to contain the pandemic and keep the economy moving,” Aso said.

Originating Source

Top Trump News

Trump plans arctic drilling rights sale

The Trump administration on Monday authorized a sweeping plan to sell drilling rights and spur oil development in Alaska’s rugged Arctic refuge, setting up a possible auction by the end of 2020 and a political clash if the president loses the November election. The Interior Department’s decision approves oil leasing across the Arctic National Wildlife Refuge’s entire 1.56-million-acre coastal plain — an area the size of Delaware that’s home to polar bears and caribou. Though Congress earmarked the area for possible energy development in 1980, it has remained off-limits to oil drilling for decades.

Originating Source

Trump attempts to blame Amazon

President Donald Trump on Monday repeated his belief that Amazon is to blame for the U.S. Postal Service’s demise. “Amazon and other companies like it, they come and they drop all of their mail into a post office,” Trump said in an interview with “Fox & Friends.” “They drop packages into the post office by the thousands and then they say, ‘Here, you deliver them.’ We lose $3 and $4 a package on average. We lose massive amounts of money.” Trump’s comments echoed similar remarks by him in April and launched a series of attacks in 2018, when he claimed Amazon was costing the post office “billions.” Trump is right that the Postal Service is losing money, but Amazon and other internet e-commerce companies aren’t necessarily to blame for that. Previous analysis conducted by CNBC found Amazon may be saving the post office from financial demise, due to growth in package shipping from online retailers like Amazon.

Originating Source

Tax credits

U.S. President Donald Trump on Monday vowed to create 10 million jobs in 10 months, in part by setting up tax credits for U.S. companies that relocate manufacturing facilities to the United States from China. Trump, seeking to build support ahead of the Nov. 3 election, told supporters during a visit to Mankato, Minnesota, his administration would also strip federal contracts from companies that outsourced work to China. “We will create tax credits for companies that bring jobs from China back to America,” Trump said during an hourlong speech. He also predicted the U.S. economy would bounce back strongly from the economic shock caused by the coronavirus pandemic – as long as he was re-elected.

Originating Source

Economic Indicators

Japan GDP Growth Rate QoQ

The Japanese economy shrank 7.8 percent on quarter in the three months to June 2020, compared with market forecasts of a 7.6 percent decline, and after a 0.6 percent fall in the previous period, a preliminary estimate showed. This was the third straight quarter of contraction and the steepest on record, amid the severe impact of the COVID-19 crisis. There were declines in private consumption (-8.2 percent vs -0.8 percent in Q1), capital expenditure (-1.5 percent vs 1.7 percent), and government spending (-0.3 percent vs flat reading). In addition, net external demand subtracted 3.0 percentage points off growth, with exports falling the most since Q1 2009 (-18.5 percent vs -5.4 percent) and imports dropping for a third straight quarter (-0.5 percent vs -4.2 percent). On an annualized basis, the economy collapsed 27.8 percent in the June quarter, the deepest on record, compared to consensus of a 27.2 percent slump.

Canada Foreign Stock Investment

Foreign investors sold CAD 13.5 billion of Canadian securities in June 2020, after buying CAD 22.4 billion in May. It was the first divestment in three months and the biggest since December 2018, as foreign investors reduced their holdings of Canadian debt securities by CAD 7.8 billion and equity securities by CAD 5.7 billion. The foreign divestment was primarily in debt securities issued by Canadian provinces and federal government enterprises, as retirements exceeded new issues in the month. Foreign investors reduced their holdings of federal government debt securities by CAD 1.1 billion, mainly in bonds. The overall debt issuance activity by the federal government was down significantly in June. Canadian long-term interest rates were unchanged at 0.54%, while short-term interest rates edged down to 0.21%, their lowest level since February 2010. Meanwhile, Canadian investors bought CAD 10.6 billion of foreign securities to their holdings led by acquisitions of US equities.

United States Net Long-term Tic Flows

There was 127046 million of dollars worth of Treasury International Capital (TIC) flowing into the United States in May of 2020.

Japan Industrial Production MoM

Industrial production in Japan rose by 1.9 percent month-over-month in June 2020, compared with a preliminary figure of a 2.7 percent gain and after an 8.9 percent fall in May. This was the first increase in industrial output since February as the economy recovers from the COVID-19 shock. Production rebounded for motor vehicles (28.6 percent vs -24.3 percent in May), production machinery (10.2 percent vs -11.8 percent), and plastic products (6.1 percent vs -11.3 percent). On an annual basis, industrial output tumbled 18.2 percent in June, after a 26.3 percent slump in May.

Economic Calendar

Tuesday

US JOLTs Job Openings (Jun)

Tuesday

Germany German ZEW Economic Sentiment (Aug)

Tuesday

US PPI (MoM) (Jul)

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)