Monex Morning Report – Fri 21 Aug 2020

OVERNIGHT HIGHLIGHTS

U.S. stocks rise as tech gain offset weak U.S. data, Nasdaq closes at record high; Asia stocks to follow U.S. higher

China, United States agree to hold trade talks; Trump threatens tariffs for U.S. companies that won’t move jobs back

Top Market News

Trump threatens tariffs for U.S. companies that won’t move jobs back

President Donald Trump threatened Thursday that if he’s re-elected, he’ll impose tariffs on U.S. companies that refuse to move jobs back to the country from overseas. “We will give tax credits to companies to bring jobs back to America, and if they don’t do it, we will put tariffs on those companies, and they will have to pay us a lot of money,” Trump said during a campaign event in Pennsylvania. “So what are they going to do? They are going to bring the jobs back,” Trump said. He offered no explanation about how such a system of tax credits and tariffs would work, and it isn’t clear if the White House is developing such a policy.

Originating Source

Kudlow says U.S. remains engaged with China over trade

White House economic adviser Larry Kudlow on Thursday said the Trump administration remains engaged on the Phase 1 trade deal with China and is pleased with the agreement’s progress so far, especially Beijing’s purchases of U.S. commodities. Kudlow, speaking to reporters at the White House, did not have any specific comment on when any possible upcoming trade-related talks with China would be held. Chinese officials have said discussions would be held in coming days.

Originating Source

As White House pushes ‘skinny’ COVID-19 bill, Democrat sees September action

The White House on Wednesday pushed for Congress to take up a narrow coronavirus economic relief bill that Democrats have long rejected, while a leading Senate Democrat said real action may come soon after the Sept. 7 U.S. Labor Day holiday. With the breakdown of talks between the White House and top congressional Democrats now in its 12th day, Senate Republicans are floating a “skinny” version of the $1 trillion bill proposed by Senate Majority Leader Mitch McConnell for a possible vote in the Republican-led chamber.

Originating Source

European Central Bank in ‘wait and see’ mode

Policymakers at the European Central Bank cautioned against expanding its €1.35 trillion bond-buying programme, minutes from the July meeting show. The ECB left monetary policy unchanged after last month’s meeting the board decided to use up existing stimulus before launching new measures. Analysts said that the bank opted for a “wait and see” approach, allowing it to assess the speed of the bloc’s economic recovery before increasing its support.Christine Lagarde, president of the ECB, said that the outlook had brightened in the month since the ECB expanded its pandemic emergency purchase programme (PEPP) from €750 billion to €1.35 trillion and extended its timespan until at least the end of 2022.

Originating Source

China’s outstanding loans to small businesses up 27.5% year-on-year by end-July

China’s outstanding loans to small businesses stood at 13.7 trillion yuan ($1.98 trillion) by the end of July, up 27.5% from a year earlier, the central bank said on Thursday. Interest rates on those loans averaged 5.27% in July, 0.91 percentage points lower than a year ago, the People’s Bank of China said in a statement handed out ahead of a news conference in Beijing. Prudent monetary policy will be more flexible and appropriate, the PBOC said, while market rates would be guided towards the rates on the medium-term lending facility (MLF) and open market operation (OMO).

Originating Source

Fed to cut one-week dollar swap operations with major central banks

The U.S. Federal Reserve will cut the number of seven-day swap operations with major central banks to one tender per week from three from Sept. 1 as funding conditions have improved, the European Central Bank said in a statement on Thursday. The Fed will, however, maintain its schedule for 84-day tenders with the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank at one per week, the ECB said. The Fed increased the frequency of its dollar liquidity operations at the height of the coronavirus crisis earlier this year but has already reduced the frequency once before.

Originating Source

Fed Chair Powell to speak on Fed’s framework review next Thursday

Federal Reserve Chair Jerome Powell could deliver a sneak peak into the U.S. central bank’s efforts to revamp its approach to monetary policy next Thursday when he addresses the Kansas City Fed’s annual central banking conference. Powell will discuss the Fed’s monetary policy framework review at 9:10 EDT (1310 GMT) on the opening day of the conference, the Fed said on Thursday. It will be Powell’s first public appearance since the central bank’s policy meeting in late July, when the Fed reiterated its commitment to use all its tools to support an economy whose outlook is very much dependent on the course of the novel coronavirus. Investors have been eagerly awaiting details on possible changes to how the Fed targets inflation that, in the current environment, could mean the Fed sticks with aggressive stimulus measures longer than under its previous rubric.

Originating Source

Former Fed staffers urge U.S. Senate to reject Shelton nomination

A group of former Federal Reserve staffers, including economists, lawyers and bank presidents, sent a letter to U.S. senators Thursday asking them to reject the nomination of Judy Shelton, one of President Donald Trump’s picks for the Federal Reserve Board. The Fed alumni said Shelton, who has advocated for a return to the gold standard and questioned the need for the central bank, has “a decades-long record of writings and statements that call into question her fitness for a spot on the Fed’s Board of Governors.” The letter was signed by 38 former Fed staffers, including two former Fed bank presidents.

Originating Source

Top Trump News

Steve Bannon

“President Donald Trump said on Thursday he felt “very badly” about the arrest of his former White House strategist Steve Bannon but said he was not in touch with the former campaign aide and knew nothing about the organization involved in the case. Bannon, an architect of the nationalist populism that has defined Trump’s presidency, has been charged with defrauding Trump supporters in a campaign to help build the president’s signature wall along the U.S.-Mexico border.“I feel very badly. I haven’t been dealing with him for a long period of time,” Trump said when asked about the case. “I do think it’s a sad event,” he told reporters in the Oval Office. “I haven’t dealt with him at all now for years, literally years.” Bannon was an influential part of Trump’s inner circle during his presidential campaign and later at the White House. He was fired as Trump’s chief White House strategist in August 2017. ”

Originating Source

Trump, Fed

“A group of former Federal Reserve officials and staffers, including former Vice Chairman Alan Blinder, published an open letter Thursday calling on the U.S. Senate to reject President Donald Trump’s nomination of Judy Shelton to the central bank’s Board of Governors. “Ms. Shelton’s views are so extreme and ill-considered as to be an unnecessary distraction from the tasks at hand,” the letter said. The letter was also signed by two former reserve bank presidents and three former division directors on the board’s staff. It has 38 current signatories, all of whom worked at the central bank at some point. ”

Originating Source

Trump’s Demand on Iran Sanctions

“Mark it down, Iran will never have a nuclear weapon,” Trump said at a White House news conference on Wednesday. “We paid a fortune for a failed concept, a failed policy that would have made it impossible to have peace in the Middle East.” Pompeo arrived in New York to notify the head of the Security Council of the U.S. effort to reimpose international sanctions that were eased under the 2015 nuclear deal with Iran. It’s an attempt to kill off what’s left of the accord and force Tehran back to the negotiating table.

Originating Source

Economic Indicators

China Loan Prime Rate 1YR

The People’s Bank of China (PBoC) held its benchmark interest rates steady for the fourth straight month at its August fixing, amid signs that the economy is recovering from the shock caused by the COVID-19 crisis, and in line with market expectations. The one-year loan prime rate (LPR) was left unchanged at 3.85 percent from the previous monthly fixing while the five-year remained at 4.65 percent.

Germany Producer Prices Change YoY

Germany’s producer prices decreased by 1.7 percent year-on-year in July 2020, the sixth consecutive month of declines and compared to market forecasts of a 1.8 percent fall. Energy prices were down 5.8 percent, led by lower cost for petroleum products (-16.7 percent) and natural gas distribution (-14.1 percent), while prices of intermediate goods decreased 2.3 percent due mainly to basic iron, steel and ferro-alloys (-9.0 percent) and basic chemicals (-7.0 percent). Meanwhile, there were rises in prices of non-durable consumer goods (0.5 percent) boosted by food cost, capital goods (1.1 percent) and durable consumer goods (1.6 percent). Excluding energy, producer prices fell 0.5 percent in July, following a 0.4 percent decline in June. On a monthly basis, producer prices went up 0.2 percent, beating market consensus of a 0.1 percent rise.

United States Initial Jobless Claims

The number of Americans filling for unemployment benefits rose by 1.1 million in the week ended August 15th, above market expectations of 925 thousand, as a resurgence in new COVID-19 cases hit the labor market. The latest number brought the total reported since March 21st to 57.4 million. The 4-week moving average, which removes week-to-week volatility, eased to 1.18 million from 1.25 million, the lowest since March. Continuing jobless claims decreased to 14.84 million in the week ended August 8th, below market forecasts of 15.0 million and the lowest since first week of April.

United States Philadelphia Fed Manufacturing Index

The Philadelphia Fed Manufacturing Index in the US decreased to 17.2 in August of 2020 from 24.1 in July, below market forecasts of 21. It is the lowest reading in 3 months. The indicators for new orders (19 vs 23), shipments (9.4 vs 15.3), and employment (9 vs 20.1) remained positive, although all decreased from their readings in July. The survey’s future indexes suggest that firms continue to expect growth in manufacturing activity over the next six months (38.8 vs 36).

Euro Area Construction Output YoY

The Eurozone construction output fell by 5.9 percent from a year earlier in June 2020, following a revised 10.5 percent plunge in the previous month and a record 31.0 percent contraction in April, as the economy reopened following a coronavirus-induced lockdown. Building activity dropped by 6.6 percent (vs -11.4 percent in May) and civil engineering works declined by 2.6 percent (vs -5.2 percent in May).

Economic Calendar

Friday

U.K. Retail Sales (MoM) (Jul)

Friday

German Manufacturing PMI (Aug)  

Friday

U.K. Composite PMI