Monex Morning Report – Fri 2 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow clings to gains in choppy session as hopes for new fiscal stimulus dim; Tokyo Stock Exchange aims to reopen after Thursday problem, while markets in China and Hong Kong remain shut for a holiday

Pelosi-Mnuchin calls yield no deal yet on U.S. virus stimulus; U.S. labor market, income data point to drawn-out economic recovery

Top Market News

Pelosi-Mnuchin calls yield no deal yet on U.S. virus stimulus

Talks Thursday between Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin brought no immediate breakthrough on a deal for a new pandemic relief package, while the House prepared to vote on a Democrat-only plan. Pelosi told reporters that she had spoken with Mnuchin a number of times during the day by phone and that she didn’t expect an agreement Thursday night. She said she would review documents the Treasury chief had sent her to determine next steps. She also said they are wranging over “language” of any agreement. Pelosi said earlier in the day on Bloomberg Television that she won’t accept whatever the White House offers just to get a deal done. “This isn’t half a loaf. What they’re offering is the heel of the loaf,” Pelosi said. “It’s no use going into a negotiation just saying you’ll take the path of least resistance.”The speaker expressed skepticism to her colleagues earlier Thursday of the chances of a deal. At a morning news conference, Pelosi said the two sides are still far apart on the total amount of stimulus and how it would be apportioned. Many of the same sticking points that have resulted in the current stalemate, including aid to state and local government, remain.

Originating Source

Australian PM pledges $1 billion for manufacturing in push to rebuild economy

Australia will spend A$1.5 billion ($1 billion) to revitalise manufacturing across six sectors, Prime Minister Scott Morrison said, as the government pushes to get the economy out of the deep slump triggered by the coronavirus pandemic. The move to put manufacturing at the centre of a long-term recovery plan comes amid a realisation that Australia has been too reliant on Asia for the supply of essential goods. Sour relations with top trading partner, China, and the pandemic’s impact on global supply chains have also strengthened that view. “We make things in Australia. We do it well. We need to keep making things in Australia. And under our plan we will,” Morrison said in a speech in Canberra on Thursday, as he outlined the plan to spend on manufacturing over a decade.

Originating Source

Pandemic shows need to rework bank capital buffers, says EU

The COVID-19 pandemic has highlighted flaws in the process by which banks can draw down from their capital buffers in a crisis to avoid crimping the flow of credit, a senior European Union official said on Thursday. When economies went into lockdown in March to fight the pandemic, lenders were encouraged by European regulators to tap their capital buffers to help struggling businesses ride the storm. Banks, however, found this would mean breaching other minimum requirements that act as a backstop to the main buffers, such as their leverage ratios. “In terms of lessons learned, buffer usability is clearly an issue,” Martin Merlin, director for banking at the European Commission, the EU’s executive, told a European Banking Federation online event on banking and the pandemic.

Originating Source

EU takes action over UK’s blow to Brexit bill

The European Union launched a legal case against the United Kingdom on Thursday for undercutting their earlier divorce deal and a senior UK minister said differences remained in talks on a post-Brexit trade agreement. Controversy over the UK’s new Internal Market Bill has thrown the tortuous Brexit process into a fresh crisis while disagreements over corporate subsidies, fisheries and ways to solve disputes are overshadowing parallel trade negotiations. “We had invited our British friends to remove the problematic parts of their draft Internal Market Bill by the end of September,” the head of the EU’s executive Commission, Ursula von der Leyen said. “The deadline lapsed yesterday.” With London not budging, she said the Commission started a so-called infringement, an EU legal procedure against countries that violate the bloc’s laws, while continuing to work towards implementing the divorce deal, or Withdrawal Agreement.

Originating Source

50 U.S. senators call for talks on trade agreement with Taiwan

Fifty U.S. senators from both parties called on Thursday for President Donald Trump’s administration to begin negotiating a bilateral trade agreement with Taiwan, part of a push by lawmakers for stronger U.S. action to counteract China. The group of 42 Republicans and eight Democrats sent a letter to Trade Representative Robert Lighthizer citing Taiwan’s record as a U.S. economic partner and security ally, and encouraging him to begin the formal process of negotiating a comprehensive trade agreement. Taiwan has long sought a free trade agreement with the United States, its most important supporter on the international stage, but Washington has complained about barriers to access for U.S. pork and beef. In August, Taiwan paved the way for an eventual deal by announcing an easing of restrictions on the import of U.S. beef and pork that is expected to go into effect on Jan. 1.

Originating Source

Trump executive order targets rare earths minerals and China

U.S. President Donald Trump on Wednesday signed an executive order declaring a national emergency in the mining industry, aimed at boosting domestic production of rare earth minerals critical for military technologies while reducing the country’s dependence on China. Trump ordered his Cabinet secretaries to study the matter, with an eye toward government grants for production equipment, as well as tariffs, quotas or other import restrictions against China and other non-market foreign adversaries. The order states that the county’s “undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States.”

Originating Source

US targets only 1 per cent of Chinese students over security: Donald Trump adviser

US authorities are targeting only about 1 per cent of the 400,000 Chinese students in the United States over China’s bid to gather American technology and other information, a top White House official said on Wednesday. Matt Pottinger, the deputy White House national security adviser who has been a leading figure in the development of President Donald Trump’s China policy, said the vast majority of Chinese students were welcome. “It’s a surgical approach,” Pottinger said during an online event hosted by the Ronald Reagan Institute, referring to the administration’s policy of denying student visas to Chinese nationals it considers a security risk. President Trump has taken action to target roughly 1 per cent of that massive number, to target military-affiliated Chinese researchers who are in some cases here under false pretences or even false identities,” he said.

Originating Source

Tokyo Stock Exchange to resume trading Friday after outage debacle

The Tokyo Stock Exchange said normal trading would resume on Friday morning as planned, a day after the worst-ever outage brought the world’s third-largest equity market to a standstill. The TSE said on Thursday the glitch was the result of hardware problem at its “Arrowhead” trading system, and a subsequent failure to switch to a back-up. It caused the first full-day suspension since the exchange switched to all-electronic trading in 1999.

Originating Source

Top Trump News

U.S.-Mexico trade

Mexican Economy Minister Graciela Marquez on Thursday said the Latin American nation does not foresee major changes in trade relations with the United States if Democratic challenger Joe Biden wins the U.S. presidential elections.

Originating Source

Changing debate rules

US President Donald Trump has rejected calls to tweak the rules of the next two presidential candidate debates between him and Democratic challenger Joe Biden after a first match-up was marred by constant interruptions and outbursts. Following this week’s debate during which Mr Trump regularly interrupted and talked over both Mr Biden and the moderator, the Commission on Presidential Debates said it would adopt changes to allow for a “more orderly discussion”.

Originating Source

Trump administration

Prominent US human rights lawyers are suing the Trump administration over an executive order they say has gagged them and halted their work pursuing justice on behalf of war crimes victims around the world. As a result of the order in June threatening “serious consequences” for anyone giving support to the work of the international criminal court (ICC) in The Hague, the lawyers say they have had to cancel speeches and presentations, end research, abandon writing ICC-related articles and dispensing advice and assistance to victims of atrocities.

Originating Source

Economic Indicators

Australia Manufacturing PMI

The AIG Australian Performance of Manufacturing Index declined 2.6 points from the previous month to 46.7 in September of 2020, contracting for the second consecutive month as renewed coronavirus-induced restrictions in Victoria resulted in a slowdown of orders and lack of new enquiries for manufacturers.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit/BME Germany Manufacturing PMI was revised slightly lower to 56.4 in September 2020, from a preliminary estimate of 56.6 and compared to August’s 52.2. Still, the latest reading pointed to the steepest expansion in the sector since July 2018 as the economy continued to recover from the pandemic shock. New order growth was among the strongest recorded since data collection began in 1996, with new export orders rising the most since December 2017 amid reports of improved demand across Europe, China and Turkey. In addition, output increased the most in more than two-and-a-half years, while the rate of job shedding eased for the second month in a row. Purchasing activity growth was the fastest seen since February 2018. On the price front, both input costs and output charges fell. Looking ahead, business optimism reached the highest since January 2018, amid signs of clients upping spending and growing hopes of a post COVID-19 recovery in market demand.

U.K. Manufacturing Purchasing Managers Index (PMI)

The IHS Markit/CIPS UK Manufacturing PMI was revised lower to 54.1 in September 2020, from a preliminary estimate of 54.3 and compared with August’s two-and-a-half year high of 55.2. The latest reading pointed to a fourth consecutive month of growth, its longest sequence in expansion territory since early-2019. Output increased for the fourth month in a row, helped by improved inflows of new work, companies reopening and staff returning to work. New export business rose the most for 21 months due to stronger demand from Europe, Asia and North America. Meanwhile, job losses were registered for the eighth straight month, although the rate of reduction eased to its lowest since February. On the price front, input cost inflation accelerated to a 21-month high, leading manufacturers to raise selling prices. Looking ahead, business confidence remained close to July’s 28-month high on hopes of continued recovery.

U.S. Core PCE Price Index MoM

The personal consumption expenditure price index in the United States rose 0.3 percent month-over-month in August of 2020, following an upwardly revised 0.4 percent gain in July. It was the fourth consecutive gain in PCE prices. Excluding food and energy, PCE prices went up 0.3 percent, in line with market expectations. Year-on-year, the PCE price index advanced 1.4 percent and the core index increased 1.6 percent.

U.S. Initial Jobless Claims

The number of Americans filling for unemployment benefits rose by 837 thousand in the week ended September 26th, compared to an upwardly revised 873 thousand in the previous period and slightly below market expectations of 850 thousand. It was the fifth consecutive week with claims stuck at the 800 thousand level, pointing to a slowdown in the labor market recovery. Since mid-March when the coronavirus crisis started, nearly 63 million people have asked for jobless benefits.

United States ISM Purchasing Managers Index (PMI)

The ISM Manufacturing PMI for the United States fell to 55.4 in September of 2020 from 56 in August, below market forecasts of 56.4. The reading pointed to the 4th consecutive month of expansion in factory activity, although the growth rate eased from August’s near 2-year high. A slowdown was seen in new orders (60.2 vs 67.6), production (61 vs 63.3) and supplier deliveries (59 vs 58.2) while employment was nearly stable (49.6 vs 46.4). Inventories contracted at a slower pace (47.1 vs 44.4) and new export orders rose faster (54.3 vs 53.3). Price pressures intensified (62.8 vs 59.5). “After the coronavirus pandemic brought manufacturing activity to historic lows, the sector continued its recovery in September. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output.

United States Crude Oil Stocks Change

US crude oil stocks fell by 1.980 million barrels in the week ended September 25th, 2020, the third consecutive week of decline and compared to market expectations of a 1.569 million rise, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were up by 0.683 million barrels, while markets had forecast a 1.083 million drop.

Economic Calendar

Friday

“US Nonfarm Payrolls (Sep) ”