Monex Morning Report – Fri 11 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow sheds more than 400 points, Nasdaq leads market selloff as tech rebound fades; Aisa stocks to drop after U.S. retreat

ECB keeps its crisis support steady with recovery still fragile; U.S. Senate defeat of ‘skinny’ coronavirus aid bill puts it on ‘dead-end street’

Top Market News

ECB keeps its crisis support steady with recovery still fragile

The European Central Bank kept its emergency monetary stimulus unchanged as the region enters a critical phase in its recovery from the coronavirus crisis. President Christine Lagarde and her colleagues held their pandemic bond-buying program at 1.35 trillion euros ($1.6 trillion) and the deposit rate at -0.5% on Thursday, maintaining the flood of liquidity that has calmed markets and kept borrowing costs low. Follow the ECB decision and press conference on our live blog. While officials are becoming more confident in the rebound from the worst economic shock in living memory, the upturn has slowed and new risks lie ahead. Infections are rising again and the stronger euro could weigh on inflation. Economists expect the ECB to increase and extend bond purchases later this year.

Originating Source

U.S. Fed buys $29.7 billion of mortgage bonds, sells $8 billion

The Federal Reserve bought $29.69 billion of agency mortgage-backed securities in the week from Sep. 3 to Sep. 9, compared with $24.768 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday. In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS. The New York Fed said on its website the Fed sold $8 billion in mortgage securities guaranteed by Fannie Mae (OB:FNMA), Freddie Mac (OB:FMCC) or the Government National Mortgage Association, or Ginnie Mae, in the latest week. It sold none the prior week.

Originating Source

Pelosi says U.K. can forget U.S. trade deal if Irish pact broken

House Speaker Nancy Pelosi said that the U.K. can forget about Congressional approval for a free-trade deal with the U.S. if Britain’s withdrawal from the European Union imperils an agreement that ended conflict in Northern Ireland. U.K. Prime Minister Boris Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it’s making plans to break its commitments to the bloc over the Irish border. Pelosi said that the U.K. must ensure the free flow of goods across the border, as agreed in Britain’s deal with the EU last year. Last year’s accord gave Northern Ireland the same trade rules as the EU to avoid customs checks at the land border between Ireland and Northern Ireland, a key part of the Good Friday Agreement two decades go that ended years of bloodshed. A U.K. bill published on Wednesday would allow ministers to override parts of that accord.

Originating Source

Pompeo tells Southeast Asia to stand up to China, shun its firms

The United States’ top diplomat on Thursday urged Southeast Asian countries to stand up to maritime bullying by China and to reassess business deals with its state firms, adding to heated exchanges between two powers jostling for influence. Speaking remotely to foreign ministers of the 10-member Association of South East Asian Nations (ASEAN), Secretary of State Mike Pompeo said the region should be confident in the United States and know it can bank on its support. “Today, I say keep going. Don’t just speak up but act,” Pompeo said. “Reconsider business dealings with the very state-owned enterprises that bully ASEAN coastal states in the South China Sea. Don’t let the Chinese Communist Party walk over us and our people.”

Originating Source

U.S. Senate defeat of ‘skinny’ coronavirus aid bill puts it on ‘dead-end street’

The U.S. Senate on Thursday killed a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding prevented it from advancing. By a vote of 52-47, the Senate failed to get the 60 votes needed in the 100-member chamber to advance the partisan bill toward passage, leaving the future of any new coronavirus aid in doubt. “It’s a sort of a dead-end street,” veteran Republican Senator Pat Roberts told reporters following the vote. “Along with a pandemic — the COVID-19 — we have a pandemic of politics” in Congress, he added.

Originating Source

Some ECB Officials Pushed for More Optimistic Economic View

Some European Central Bank officials wanted President Christine Lagarde to take a more optimistic view on the economy in her remarks following the Governing Council’s meeting on Thursday, according to people familiar with the discussion. Those officials suggested describing the recovery so far from the pandemic-induced recession as a bit better than anticipated, the people said. The final statement said the euro-area’s economic performance has been “broadly in line with previous expectations.” France’s Francois Villeroy de Galhau was particularly upbeat about the outlook for his economy, said the people, who asked not to be identified because the deliberations were confidential. Spokesmen for the ECB and Bank of France declined to comment.

Originating Source

EU demands UK drop a planned law that breaches Brexit deal

Instead of closing in on a future trade deal, the European Union and Britain have entered a bitter fight over a planned British law the EU says would constitute a serious violation of the Brexit divorce agreement. The 27-nation bloc says the planned law dealing with Northern Ireland trade would destroy what little trust remains between the two sides. The EU said Britain must withdraw the planned law by the end of the month or face legal action even before the transition period following Britain’s EU departure ends on December 31. “By putting forward this bill, the UK has seriously damaged trust between the EU and the UK,” European Commission Vice-President Maros Sefcovic said after talks with Britain’s Chief Brexit Minister, Michael Gove, at a hastily arranged meeting in London.

Originating Source

Australia revokes Chinese scholar visas and targets media officials, prompting furious China response

Senior Chinese media officials in Australia have been targeted and the visas of two leading Chinese scholars have been revoked in an unprecedented foreign interference investigation into a NSW political staffer, provoking a furious response from the Chinese Government. The Chinese Government has sensationally used state media to accuse Australian authorities of secretly raiding the homes of four Chinese journalists in Australia in late June, after receiving questions from the ABC yesterday about the investigation. The Chinese embassy did not reply to the ABC’s questions yesterday, but several state media organisations published articles overnight reporting details of the alleged raids and accusing Australia of “severely infring[ing] on the legitimate rights of Chinese journalists” and “hypocrisy in upholding so-called ‘freedom of the press'”.

Originating Source

Top Trump News

TikTok

President Donald Trump said he won’t extend his Sept. 15 deadline for ByteDance Ltd. to sell the U.S. operations of its popular TikTok video-sharing app. “We’ll either close up TikTok in this country for security reasons, or it will be sold,” Trump told reporters Thursday before boarding the presidential aircraft for a campaign trip to Michigan. “There will be no extension of the TikTok deadline.” Administration officials had been considering whether to give more time to TikTok’s Chinese owner to arrange a sale of the app’s U.S. operations to an American buyer, though a decision hadn’t yet been presented to Trump, according to people familiar with the matter. TikTok’s owner, Beijing-based ByteDance, is likely to miss Trump’s Sept. 15 deadline to strike a deal to divest its U.S. operations after new Chinese regulations complicated negotiations with bidders Microsoft Corp. and Oracle Corp..

Originating Source

Jobless benefit payments

Funding is drying up for the supplemental weekly jobless benefit payments authorized by President Donald Trump at the start of August. Funding for the Lost Wages Assistance program, which authorized an extra $300 a week from the federal government to most jobless benefit recipients, will not extend beyond the benefit week ending Sept. 5, according to statements by government officials from Montana, Texas and New Mexico. The states said they were informed Wednesday. Trump signed an executive action Aug. 8 as a stopgap measure for jobless Americans after lawmakers failed to reach a deal before the added $600 a week in jobless benefits expired at the end of July. The program authorizes eligible claimants to receive supplemental payments backdated to the week ended Aug. 1. With the latest announcement, that would mean six weeks worth of supplemental assistance.

Originating Source

Republicans

Half of Americans believe media reports that President Donald Trump referred to U.S. soldiers as “suckers” and “losers,” despite his denials, but the alleged comments do not appear to have hurt his standing among Republicans, a Reuters/Ipsos poll shows. The national public opinion poll, released Thursday, found that 50% of U.S. adults said they found the reports to be credible, while 37% said they did not and 13% said they were not sure. Yet most Republicans still hold favorable views of Trump, and a majority of Republicans say the recent news has not influenced their choice for president. Trump has denounced multiple news reports that he repeatedly disparaged American servicemen, including a report in The Atlantic magazine that he had once called dead U.S. marines “suckers” for getting killed, and that a cemetery of fallen American servicemen in Europe was filled with “losers.”

Originating Source

Economic Indicators

United States Initial Jobless Claims

The number of Americans filling for unemployment benefits was unchanged at 884K in the week ended September 5th, the same as an upwardly revised 884K in the previous week and above market forecasts of 846 thousand. It is the first time since March that claims stay below 1 million for two straight weeks although the number still remains elevated. The 4-week moving average was 970,750, a decrease of 21,750 from the previous week. Based on non-seasonally adjusted data, biggest increases in claims were seen in California (17.95K), Texas (9.65K) and Puerto Rico (9.4K) while main decreases were seen in Florida (-9K), Kentucky (-7.5K) and Michigan (-5.6K). Meanwhile, continuing claims went up to 13.38 million from 13.29 million, above forecasts of 12.925 million.

Euro Area Interest Rate

The ECB kept its main refinancing rate unchanged at 0% and pledged to buy up to €1.35 trillion worth of debt through June 2021 under its Pandemic Emergency Purchase Programme on September 10th. The interest rates on the marginal lending facility and the deposit facility will also remain steady at 0.25% and -0.50% respectively. President Lagarde said during the regular press conference the ECB discussed the recent appreciation of the Euro but the bank does not target the exchange rate. Regarding the pandemic programme, policymakers consider it has been efficient and effective but did not announce any changes. Under the new economic projections, the Euro Area economy is seen contracting 8% in 2020, a slight improvement from its June forecast of an 8.7% plunge. The outlook for both 2021 (+5%) and 2022 (+3.2%) was unchanged. Inflation forecasts for 2020 were left at 0.3% but the outlook for 2021 was raised slightly up to 1%. In 2022, inflation is seen at 1.3%, also unchanged from June.

United States Crude Oil Stocks Change

US crude oil stocks increased by 2.032 million barrels in the week ended September 4th 2020, the first rise in seven weeks and compared to market expectations of a 1.887 million drop, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 2.954 million barrels, while markets had forecast a smaller 2.384 million decline.

United States PPI MoM

Producer prices index for final demand in the US increased 0.3 percent from a month earlier in August 2020, following a 0.6 percent rise in July and above market expectations of a 0.2 percent gain. Cost of goods advanced 0.1 percent, after increasing 0.8 percent in the prior month, led by plastic resins and materials. Prices of services went up 0.5 percent, the same pace as in July. Year-on-year, producer prices dropped 0.2 percent, after falling 0.4 percent in the prior month and compared to forecasts of a 0.3 percent decline. The core index which excludes food and energy went up 0.4 percent month-over-month, easing from a 0.5 percent rise in July. The annual rate increased 0.6 percent, following a 0.3 percent gain in the previous month.

Japan Machinery Orders MoM

Machinery orders in Japan excluding volatile orders climbed 6.3 percent in July on a seasonally-adjusted basis after dropping 7.6 percent in June. Manufacturing orders rose by 5 percent, slowing from a 5.6 percent increase in the previous month mainly affected by a 21.2 percent decline in foods & beverages. Meanwhile, non-manufacturing orders increased by 3.4 percent after declining 10.4 percent. On an annual basis, machinery orders declined 16.2 percent after plunging 22.5 percent in the previous month and compared to expectations of an 18.3 percent decrease.

Economic Calendar

Friday

UK Gross Domestic Product (GDP) MoM

Friday

US Core Consumer Price Index (CPI) MoM