Monex Morning Report – Fri 18 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow snaps four-day winning streak as stocks finish day with modest losses; Asian futures edge higher

Bank of England looks harder at negative rates in case troubles deepen; BOJ backs new premier’s focus on jobs, signals readiness to ease more; U.S. Senate Democrats offer $350 million own China plan

Top Market News

Bank of England looks harder at negative rates in case troubles deepen

The Bank of England said it was looking more closely at how it might cut interest rates below zero as Britain’s economy faces a triple whammy of rising COVID-19 cases, higher unemployment and a possible new Brexit shock. The BoE’s monetary policymakers said the world’s sixth-biggest economy was recovering faster than they had thought as recently as last month, and they voted unanimously to keep their main stimulus programmes on hold for now. But the BoE said its Monetary Policy Committee had been briefed on how a negative Bank Rate “could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates”. Governor Andrew Bailey and some of his colleagues have previously said that they were looking at the pros and cons of following the lead of other central banks, including those in the euro zone and Japan, and taking rates negative. The BoE said on Thursday that it would “begin structured engagement on the operational considerations in 2020 Q4”, a sign that it would look at how to take rates below zero without hurting banks’ ability to lend and damaging the recovery.

Originating Source

BOJ backs new premier’s focus on jobs, signals readiness to ease more

The Bank of Japan will monitor not just inflation trends but job growth in guiding policy, its governor Haruhiko Kuroda said, signalling the BOJ’s readiness to ramp up stimulus if job losses from the coronavirus crisis heighten the risk of deflation. With the immediate hit from the pandemic easing, the central bank kept monetary policy steady earlier on Thursday and upgraded its view on the economy to say it was starting to pick up. But Kuroda said the BOJ would work closely with new Prime Minister Yoshihide Suga’s administration to shield the economy from the pandemic’s pain including by loosening policy further. The remark echoes that of Suga, who was officially elected prime minister on Wednesday, that protecting jobs was a top priority of his administration. “Our foremost target is our inflation goal. But we obviously are also striving to achieve healthy economic growth, including job conditions,” Kuroda told a news conference.

Originating Source

Fed’s Powell sees a long road to ‘maximum employment’

he way Federal Reserve Chair Jerome Powell sees it, the U.S. labor market has a long way to go to meet the central bank’s maximum employment goal and a lot of boxes to tick along the way. In his most extensive effort to explain how the Fed will measure progress toward a goal prioritized last month under the Fed’s new framework, Powell was clear on Wednesday that he and other policymakers were not focused on any single number, such as the unemployment rate. “Maximum employment is not something that can be reduced to a number the way inflation can,” Powell told a news conference after the Fed announced its commitment to keep interest rates low until they are convinced of the job market’s strength and that inflation is on track to run above the Fed’s 2% goal for some time. “It’s a range of factors,” he said. “We’re not looking at a rule. We’re looking at a judgmental assessment.”

Originating Source

OPEC and non-OPEC allies urge ‘full conformity’ with production cuts as oil prices falter

A group of some of the world’s most powerful oil-producing nations on Thursday met to review production policy, amid a faltering recovery from the pandemic-driven rout and a bleak outlook for energy demand. During the meeting between OPEC and non-OPEC allies, sometimes referred to as OPEC+, ongoing flexibility was emphasized as oil prices continue to trade at depressed levels. “The JMMC [Joint Ministerial Monitoring Committee] observed that the recovery has not been even across the world and an increase in COVID-19 cases has appeared in some countries,” a statement from OPEC read. “In the current environment, the JMMC emphasised the importance of being pro-active and pre-emptive and recommended that participating countries should be willing to take further necessary measures when needed.” OPEC+ did not announce additional output cuts at Thursday’s meeting, which was in-line with analyst expectations.

Originating Source

U.S. Senate Democrats offer $350 million own China plan

U.S. Senate Democrats announced their own program to counter China’s global influence on Thursday, unveiling a sweeping $350 million package of legislation seeking to boost U.S. competitiveness and recast diplomacy with Beijing. The plan was backed by 11 Democrats, including Senate Democratic Leader Chuck Schumer, but its prospects were unclear because President Donald Trump’s fellow Republicans control the Senate and determine which legislation it considers. However, Senator Jim Risch, chairman of the Senate Foreign Relations Committee, said he hoped the Democrats’ ideas could be combined with Republican proposals for a bipartisan plan. “This is an American issue. This is not a partisan issue,” Risch told a committee hearing at which State Department officials testified about China’s global influence, with one calling Beijing a “lawless bully.”

Originating Source

India’s economy heads for double-digit decline as virus spikes

India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections. Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread. Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%. The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.

Originating Source

Oracle, ByteDance accept new treasury terms on TikTok

“The Treasury Department, TikTok owner ByteDance Ltd. and Oracle Corp. have tentatively agreed to terms for Oracle’s bid for the U.S. operations of the social-media service, according to people familiar with the matter. Treasury Secretary Steven Mnuchin sent Bytedance a revised terms sheet late Wednesday and the company and Oracle accepted it, the people said. They described the changes as addressing national security concerns about the transaction and asked not to be identified because of the sensitivity of the matter. Bytedance is trying to win U.S. approval for a transaction with Oracle that would leave the Chinese-headquartered parent company with majority ownership of TikTok. President Donald Trump demanded the sale of the service in August, declaring in executive orders that the popular video-sharing app is a national security threat. ”

Originating Source

Tencent’s gaming stakes draw U.S. national security scrutiny

The Trump administration has asked gaming companies to provide information about their data-security protocols involving Chinese technology giant Tencent Holdings Ltd., people familiar with the matter said. The Committee on Foreign Investment in the U.S., which is chaired by the Treasury Department, has sent letters to companies, including Epic Games Inc., Riot Games and others, to inquire about their security protocols in handling Americans’ personal data, said the people, who asked not to be named because the discussions are private. Tencent, the world’s largest gaming company, owns Los Angeles-based Riot and has a 40% stake in Epic, which is the maker of the popular video game Fortnite. Representatives for the companies declined to comment or didn’t immediately respond. The Treasury Department declined to comment.

Originating Source

Top Trump News

Facebook

In late 2019, during one of Mark Zuckerberg’s many trips to Washington to defend Facebook in front of Congress, he stopped for a private dinner with Donald Trump and offered the president a titillating statistic. “I’d like to congratulate you,” Zuckerberg said. “You’re No. 1 on Facebook.” At least that’s the story as told by Trump, on Rush Limbaugh’s radio show in January. Trump is technically not the top politician by followers on Facebook. That would be former President Barack Obama. But as the country’s most powerful newsmaker and the person in charge of a government that’s been aggressively pursuing antitrust cases against big tech companies, he does have leverage over Zuckerberg. So the chief executive officer could be forgiven for flattering Trump. Any moment that the president is happy with Facebook is a moment he’s not pursuing hostile regulation—or more likely, sparking a bad news cycle.

Originating Source

Farm aid

U.S. President Donald Trump will announce a new round of aid to farmers of about $13 billion at a campaign rally in Wisconsin on Thursday night, a source familiar with the situation told Reuters. Wisconsin, whose dairy and farming sector has been hard hit by both the White House’s trade policies and the COVID-19 pandemic, is a battleground state in the presidential race. Trump’s upset victory over Democrat Hillary Clinton in Wisconsin in 2016 was by less than 1% of the vote – and marked the first time the state had voted for a Republican in a presidential election since 1984. Trump in April announced a $19 billion relief program to help U.S. farmers cope with the impact of the coronavirus, including $16 billion in direct payments to producers and mass purchases of meat, dairy, vegetables and other products.

Originating Source

Trade with Iran

U.S. President Donald Trump plans to issue an executive order allowing him to impose U.S. sanctions on anyone who violates a conventional arms embargo against Iran, four sources familiar with the matter said on Thursday. The sources, who spoke on condition of anonymity, said the executive order was expected to be issued in the coming days and would allow the president to punish violators with secondary sanctions, depriving them of access to the U.S. market. Neither the White House nor the Iranian mission to the United Nations immediately responded to requests for comment. The proximate cause for the U.S. action is the impending expiry of a U.N. arms embargo on Iran and to warn foreign actors – U.S. entities are already barred from such trade – that if they buy or sell arms to Iran they will face U.S. sanctions.

Originating Source

Economic Indicators

Australia Unemployment Rate

Australia’s seasonally adjusted unemployment rate unexpectedly fell to 6.8% in August 2020 from a near 22-year high of 7.5% in July and below market consensus of 7.7%. This was the lowest jobless rate since April as COVID-19 restrictions eased across most states. The number of unemployed declined by 86,500 to 921,800 people. People looking for full-time work fell by 40,300 to 689,600 and those looking for only part-time work dropped by 46,200 to 232,200. Employment rose by 111,000 to 12,583,400, beating estimates of a 50,000 decrease, as full-time employment went up by 36,200 to 8,584,500, and part-time employment advanced by 74,800 to 3,998,900. The participation rate rose to a five-month high of 64.8%, above forecasts of 64.7%. The underemployment rate was steady at 11.2%, and the underutilization rate declined 0.7 points to 18%. Monthly hours worked in all jobs rose 1.6 million hours, or 1.6% to 1,683.4 million hours.

Euro Area CPI YoY

The Eurozone consumer prices dropped 0.2 percent from a year earlier in August 2020, the first decline since May 2016, due to lower cost for energy products (-7.8 percent vs -8.4 percent in July) and non-energy industrial goods (-0.1 percent vs 1.6 percent). At the same time, inflation slowed for both services (0.7 percent vs 0.9 percent) and food, alcohol & tobacco (1.7 percent vs 2.0 percent). The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, was confirmed at an all-time low of 0.4 percent in August.

United Kingdom Interest Rate

The Bank of England voted unanimously to maintain Bank Rate at a record low of 0.1% and the size of its bond-buying program at £745 billion during its September meeting. Policymakers noted that domestic economic data have been a little stronger than expected in August, while the outlook for the economy remains unusually uncertain due to the coronavirus pandemic and recent Brexit developments, leaving the door open to negative interest rates and more QE. CPI inflation is expected to remain below 1% until early 2021 and unemployment will probably remain elevated for some time. The central bank also said it does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

United States Initial Jobless Claims

The number of Americans filling for unemployment benefits rose by 860 thousand in the week ended September 12th, compared to 893 thousand in the previous period and above market expectations of 850 thousand. It was the third consecutive week with claims below 1 million, but the number remained well above 665 thousand filed at the peak of the Great Recession in March 2009, suggesting the labor market recovery was stalled amid a spike in COVID-19 cases. Initial claims started to fall in May from a record 6.867 million reached back in March as many non-essential businesses started to reopen following weeks of closure due to the pandemic.

United States Building Permits

Building permits in the United States went down 0.9 percent from a month earlier to a seasonally adjusted annual rate of 1.470 million in August of 2020, after hitting a six-month high in July and compared with market expectations of 1.52 million. Permits for buildings with five units or more declined 17.4 percent to a rate of 381 thousand while single family authorizations increased 6 percent to a rate of 1,036. Across regions, permits decreased in the Northeast (-13.1 percent to 119 thousand); the Midwest (-16.1 percent to 188 thousand) and the West (-1.1 percent to 368 thousand), while they rose in the South (6 percent to 795 thousand).

United States Philadelphia Fed Manufacturing Index

The Philadelphia Fed Manufacturing Index in the US decreased to 15 in September of 2020 from 17.2 in August, in line with market forecasts. It is the lowest reading since May. The average workweek subindex slowed (7.8 vs 11.3) and price pressures increased for both prices paid (25.1 vs 15.3) and received (18.4 vs 12.4). Inventories also fell more (-10.8 vs -1.9). On the other hand, indicators for new orders (25.5 vs 19), shipments (36.6 vs 9.4), and employment (15.7 vs 9) grew further. Nearly all of the future indexes increased, suggesting more widespread optimism among firms about growth over the next six months.

Economic Calendar

Friday

U.K. Retail Sales MoM