Monex Morning Report – Fri 16 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends lower for third day as investors eye rising coronavirus cases and lack of fiscal stimulus; Asian stocks set for muted start

Trump says U.S. to strike harder if EU starts $4 billion tariffs; McConnell plans coronavirus aid vote as Pelosi says White House stimulus plan falls short

Top Market News

Trump says U.S. to strike harder if EU starts $4 billion tariffs

The U.S. will “strike much harder” if the European Union goes ahead with tariffs on $4 billion worth of American products, President Donald Trump said. The EU this month won the World Trade Organization’s permission to hit U.S. goods with tariffs in its ruling over illegal state aid American provided to Boeing Co. “If they strike back, then we’ll strike much harder,” Trump told reporters Thursday. “They don’t want to do anything, I can tell you that.” The EU — which has drawn up a list of products that will face tariffs — will likely hold fire until after the Nov. 3 U.S. presidential election, according to three officials familiar with the bloc’s thinking. The award is lower than the $7.5 billion judgment granted to the U.S. last year in a parallel dispute against Boeing’s European rival, Airbus SE. The EU is mulling a list of U.S. industries to target that includes: aircraft, coal, farm products and seafood.

Originating Source

McConnell plans coronavirus aid vote as Pelosi says White House stimulus plan falls short

The Senate will vote on a limited coronavirus stimulus bill this month, Majority Leader Mitch McConnell said Tuesday, as lawmakers stumble in their push to send aid to Americans before the 2020 election. In a statement, the Kentucky Republican said the Senate would take up aid legislation after the full chamber returns on Monday. McConnell called the plan “targeted relief for American workers, including new funding” for Paycheck Protection Program small business loans. Speaking at an event in his home state, he said the bill would also include money for schools, an unemployment insurance boost and liability protections for businesses. McConnell said in his statement that the Senate would have enough time to both pass the relief proposal and confirm Supreme Court nominee Amy Coney Barrett “unless Democrats block this aid for workers.” Democrats have in recent days targeted Republicans for moving forward with Barrett’s nomination while millions of Americans left jobless by the virus outbreak await federal assistance. Democrats, who blocked a roughly $500 billion Republican plan in the Senate last month, could dismiss the latest GOP proposal as inadequate. A spokesman for Senate Minority Leader Chuck Schumer did not immediately respond to a request to comment on whether Democrats would support the new Republican bill.

Originating Source

Fed’s Kashkari: Recovery will be grinding and slow without more stimulus

The U.S. economic recovery will slow down if unemployed Americans and struggling businesses do not receive more assistance, Minneapolis Federal Reserve President Neel Kashkari said on Thursday. Thousands more businesses could fail if they do not get more support, Kashkari said during a virtual discussion organized by New York University Stern Center for Global Economy and Business. The financial pain felt by jobless consumers who are struggling to pay their bills could also spill over to other parts of the economy, Kashkari said.

Originating Source

Fed’s Barkin says hiring could recover slowly as companies streamline

Spending by consumers and businesses could increase as people become more confident about the economy, but it could take longer for the labor market to recover because of mismatches in the labor force between the jobs lost and the jobs in higher demand, Richmond Federal Reserve Bank President Thomas Barkin said on Thursday. Some people who lost jobs at retailers or in restaurants may not see a clear path to figuring out their next role, Barkin said during a virtual discussion organized by the Economic Club of New York. “You’ve got a lot of companies that have chosen, even though they’re doing fine, to streamline,” Barkin said. “I think there’s real value to thinking about how we help people who have been displaced (move) into their next job or their next career.” Many households and businesses have built up savings during the pandemic, when many businesses shut down to limit the spread of the virus, Barkin noted. That cash could boost the recovery as people begin to spend it, but consumers and businesses may need to feel better about the virus and about the economy before they make big investments, he said.

Originating Source

Fed’s Daly: Monetary policy is in a good place, more fiscal help needed

Monetary policy, including interest rates and the pace of asset purchases by the Federal Reserve are in a good place, but more fiscal stimulus may be needed to ensure that households and state and local governments are able to recover, San Francisco Fed President Mary Daly said Thursday. “These two things need to come together or else we will have an incomplete solution,” Daly said during a webcast interview with the Wall Street Journal. Daly declined to say which conditions she thinks should be met before the Fed should adjust the pace of its asset purchases, adding that she didn’t want to “front run any deliberations” that could take place during policy setting meetings.

Originating Source

Coronavirus: France reports more than 30,000 new infections

France has reported a large jump in new Covid-19 cases ahead of a night-time curfew being imposed on Paris and eight other cities on Saturday. A further 30,621 infections were confirmed on Thursday, up from 22,591 the day before. The World Health Organization (WHO) has warned that tough restrictions are “absolutely necessary” to save lives. Millions in Europe have been told they must live under strict new measures as governments battle a second wave. From Saturday, socialising indoors will be banned in London, as the UK capital and other areas of England will be put under a higher Covid alert. As well as France, Italy, Poland and Germany all recorded their largest daily rise in new cases on Thursday since mass testing began. Russia recorded its highest number of daily fatalities since the start of the epidemic with 286 people reported to have died from the virus. The WHO urged European governments “to step up” and take action as the continent passed a threshold of 1,000 deaths reported daily.

Originating Source

Merkel breaks ranks and urges EU climb down to secure Brexit deal ‘Must profit both sides’

Angela Merkel called on European Union leaders to broker a Brexit compromise that “both sides can profit from”. The German Chancellor insisted the any future relationship deal with Britain cannot come at “any cost”. The influential leader is set to play an influential role in brokering any UK-EU trade agreement in the coming weeks with both sides still at a loggerheads over future fishing opportunities. She will be forced to push French President Emmanuel Macron to compromise on his hardline demands to secure continued access to Britain’s. Mrs Merkel said: “We will talk about the exit of Great Britain from the EU and confirm our common position. “We want an agreement, but, of course, not at any cost. It has to be a fair agreement from which both sides can profit. But all the effort is worth it and we will, of course, support the negotiations of Michel Barnier, Ursula von der Leyen and the Commission.” But France hit back, insisting it would need a “good agreement” for its fishermen before accepting a Brexit deal with Britain.

Originating Source

OPEC+ confronts bearish oil outlook, as talk of extending output cuts grow

With the oil market’s recovery from the coronavirus pandemic slower than hoped, some OPEC+ members are acknowledging that the alliance’s production cuts may need to be extended, rather than eased as planned, at the end of the year. A key OPEC+ monitoring committee is scheduled to meet Oct. 19. While delegates say they expect no decisions on the cuts to be made at the meeting, as the committee is only advisory, some say the bearish market outlooks can not be ignored. “There is no recommendation, as of now” for any changes to the OPEC+ production cut accord, one delegate told S&P Global Platts on condition of anonymity. “But the trend of the [market] says to extend the cut.” The OPEC+ alliance is in the midst of a 7.7 million b/d production cut accord that is set to ease to 5.8 million b/d from January. Many countries are reimposing travel restrictions and lockdown measures as COVID-19 cases rise again, which could depress oil demand. Libya’s return to the market after a ceasefire between rival groups, where production could surge to 700,000 b/d by December from 300,000 b/d, according to the International Energy Agency, is also pressuring oil prices.

Originating Source

Top Trump News

Barrett Has Enough Votes for Senate Confirmation

Senate Majority Leader Mitch McConnell said Judge Amy Coney Barrett has enough support to win Senate confirmation to the Supreme Court and he expects to bring her nomination to the floor on Oct. 23. Senate Republicans are powering ahead with their plan to place Barrett on the Supreme Court before Election Day. After three days of hearings, the GOP-led Senate Judiciary Committee on Thursday set an Oct. 22 vote to advance her nomination to the full Senate. Speaking at an event in his home state of Kentucky, McConnell said he will bring the nomination to the full Senate the next day, confident that Barrett has the backing of at least 51 Republicans. “We have the votes,” he said. McConnell’s timetable sets up a final vote on Barrett about a week before the Nov. 3 election, completing the entire confirmation process in a little more than 30 days since President Donald Trump formally announced her as his choice to replace the late Justice Ruth Bader Ginsburg on the court.

Originating Source

Raise stimulus offer over $1.8T

“Absolutely, I would. I would pay more. I would go higher. Go big or go home, I said it yesterday. Go big or go home,” Trump said during a phone interview on Fox Business Thursday morning, despite the likelihood of a larger offer encountering pushback from congressional Republicans. Trump, who did not specify a dollar amount, said that he had directed Treasury Secretary Steven Mnuchin to offer a larger figure to Speaker Nancy Pelosi (D-Calif.) before taking an extraordinary swipe at a member of his own Cabinet by complaining that Mnuchin “hasn’t come home with the bacon.” Trump also said that he was not willing to agree to Pelosi’s own $2.2 trillion offer, claiming as he has repeatedly that the top Democrat is seeking to “bail out” cities and states run by Democrats that are cash-strapped for reasons unrelated to the coronavirus pandemic.

Originating Source

Rival TV town halls

US President Donald Trump and Democratic challenger Joe Biden are set to hold rival televised town halls instead of their second presidential debate. Both candidates are expected to field direct questions from voters in the separate events, to be broadcast on different TV channels. The originally scheduled debate was called off after Trump refused to participate in a remote duel. The debates commission had announced that the match-up would take place remotely due to concerns over the coronavirus after Trump disclosed in early October that he had tested positive and spent three nights in hospital. A third and final presidential debate is scheduled for October 22, less than two weeks before the November 3 election. Trump is trailing Biden in the polls, and the gap is widening, as early voting is already underway.

Originating Source

Economic Indicators

Australia Unemployment Rate

Australia’s seasonally adjusted unemployment rate edged up to 6.9% in September 2020 from 6.8% in August but below market consensus of 7.1%, amid the coronavirus crisis. The number of unemployed increased by 11,300 to 937,400 people, as people looking for full-time work went up by 8,900 to 703,200 and those looking for only part-time work rose by 2,300 to 234,200. Employment fell by 29,500 to 12,571,900, less than estimates of a 35,000 decrease, as full-time employment dropped by 20,100 to 8,540,300, and part-time employment declined by 9,400 to 4,031,700. The participation rate inched down to 64.8% in September from a five-month high of 64.9% in August, in line with forecasts. The underemployment rate ticked higher to 11.4% from 11.3% in August, and the underutilization rate rose 0.2 points to 18.3%. Monthly hours worked in all jobs gained 8.7 million hours, or 0.5% to 1,688 million hours.

China Consumer Price Index (CPI) YoY

China’s annual inflation rate eased to 1.7 percent in September 2020 from 2.4 percent in the previous month and slightly below market expectations of 1.8 percent. It was the lowest reading since February 2019, amid a marked slowdown in prices of food (7.9 percent vs 11.2 percent in August). Meantime, cost of non-food products was flat, after a 0.1 percent gain in August. There were declines in cost of transport (-3.6 percent vs -3.9 percent in August); rent, fuel, and utilities (-0.8 percent vs -0.7 percent); household goods and services (-0.1 percent vs -0.1 percent); and clothing (-0.4 percent vs -0.5 percent). At the same time, prices increased for health (1.5 percent vs 1.5 percent); other goods and services (4.3 percent vs 6.1 percent); and education, culture & recreation (0.7 percent vs a flat reading). On a monthly basis, consumer prices edged up 0.2 percent in September, the lowest in three months, following a 0.4 percent gain in August.

China Producer Price Index (PPI) YoY

China’s producer prices declined by 2.1 percent year-on-year in September 2020, compared with market estimates of a 1.8 percent drop and after a 2 percent decrease in August. This was the eighth straight month of falling factory prices, amid the prolonged impact of the COVID-19 crisis. Means of production continued to fall (-2.8 percent vs -3 percent in August), due to extraction (-4.8 percent vs -5.8 percent), raw materials (-6.2 percent vs -6.4 percent) and processing (-1.3 percent vs -1.4 percent). At the same time, prices of consumer goods fell by 0.1 percent, after a 0.6 percent gain in August, as cost decreased further for clothing (-1.7 percent vs -1.3 percent), daily use goods (-0.8 percent vs -0.4 percent), and consumer durables (-1.9 percent vs -1.5 percent). Inflation also eased for food production (2.1 percent vs 3.1 percent).

U.S. Initial Jobless Claims

The number of Americans filling for unemployment benefits rose by 898 thousand in the week ended October 10th, the highest level in almost two months and well above market expectations of 825 thousand. The unexpected increase in jobless claims added to concerns about the labor market recovery, a day after Treasury Secretary Steven Mnuchin said that getting a deal on coronavirus aid before the November election would be unlikely. On a non-seasonally adjusted basis, the number of initial claims rose to 886 thousand, from 809 thousand in the previous week. Also, more than 373 thousand people applied for help from the Pandemic Unemployment Assistance scheme, which covers workers that do not qualify for initial claims.

U.S. Philadelphia Fed Manufacturing Index

The Philadelphia Fed Manufacturing Index in the US jumped to 32.3 in October of 2020 from 15 in September, beating market forecasts of 14 and pointing to the strongest increase in manufacturing in Philadelphia since February, before the coronavirus crisis. The survey’s current indicators for general activity, new orders, and shipments all showed notable improvement. Most future indexes increased and continue to reflect optimism among firms about growth over the next six months.

U.S. Export Price Index MoM

Export prices in the US rose 0.6 percent from a month earlier in September of 2020, following a 0.5 percent increase in August and above market expectations of a 0.4 percent gain. It was the fourth straight monthly rise in export prices, driven by higher cost of both agricultural and nonagricultural exports. Cost of agricultural export increased 2.7 percent, the most since December 2018, rebounding from a 2.3 percent fall in the prior month as higher prices for soybeans, corn, fruit, cotton, wheat, nuts, and meat more than offset lower prices for dairy products and eggs. Also, nonagricultural exports went up 0.3 percent, after rising 0.8 percent in August, led by nonagricultural industrial supplies and materials; consumer goods; capital goods; and nonagricultural foods. Year-on-year, export prices dropped by 1.8 percent.

U.S. Import Price Index MoM

Import prices in the US went up 0.3 percent month-over-month in September 2020, following an upwardly revised 1 percent rise in August, the fifth consecutive monthly gain and in line with market expectations. Nonfuel imports advanced 0.6 percent (vs 0.7 percent in August) driven by higher prices for nonfuel industrial supplies and materials. Rising prices for foods, feeds, and beverages; automotive vehicles; consumer goods; and capital goods also contributed to the advance. On the other hand, import fuel cost fell 2.9 percent (vs 3.9 percent in August), the first monthly drop since April led by lower petroleum prices, which more than offset rising natural gas prices. Year-on-year, import prices declined 1.1 percent, easing further from a 1.4 percent fall in the previous month.

US crude oil inventories dropped by 3.818 million barrels in the week ended October 9th, 2020, following a 0.501 million increase in the previous period and compared to market expectations of a 2.835 million fall, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 1.626 million barrels, while markets had forecast a smaller 1.607 million decline.

Economic Calendar

Thursday

Australia HIA New Home Sales MoM

Friday

U.S. Retail Sales MoM

Friday

Australia Employment Change