Monex Morning Report – Fri 30 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow gains 139 points, snaps 4-day losing streak, as stock market takes back chunk of Wednesday rout; Asia stocks look mixed

Pelosi and Mnuchin clash as stimulus talks falter; U.S. GDP booms at 33.1% rate in Q3, better than expected

Top Market News

Pelosi and Mnuchin clash as stimulus talks falter

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin, the two top negotiators for a new round of coronavirus relief, are engaged in a public war of words after weeks of private negotiations — casting new doubt on whether congressional Democrats and the Trump administration will be able to reach agreement on stimulus legislation even after next week’s election. On Thursday afternoon, Mnuchin slammed Pelosi in their highest-profile clash so far, saying the speaker is refusing to compromise to get much-needed aid to Americans. “Your ALL OR NONE approach is hurting hard-working Americans who need help NOW,” Mnuchin wrote in a letter. His remarks came after Pelosi sent her own letter to Mnuchin earlier Thursday that emphasized just how divided the two sides remain on the details of a potential stimulus bill and hit the Trump administration for not accepting Democratic demands on key issues including funding for state and local governments, school safety provisions, childcare and unemployment insurance. “The American people are suffering, and they want us to come to an agreement to save lives, livelihoods and the life of our American Democracy as soon as possible,” Pelosi wrote. Mnuchin said he first learned of Pelosi’s letter from reports in the press Thursday morning, and he “can unfortunately only conclude that it is a political stunt.”

Originating Source

ECB signals December stimulus likely amid European lockdowns

The European Central Bank gave a strong indication that it will likely boost its emergency bond-buying program to stabilize the euro-area economy after governments imposed a spate of new restrictions to control the coronavirus. For now, Governing Council held its pandemic bond-buying program at 1.35 trillion euros ($1.6 trillion), reiterating that it will run until at least June 2021 and won’t be stopped until the “crisis phase” of the pandemic is past. The ECB’s deposit rate stayed at -0.5%. The policy statement also said though that new economic forecasts in December will set the stage for more support. “The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation.”

Originating Source

German economy to reach pre-crisis level only in 2022, says minister

“Europe’s biggest economy will be dealing with the coronavirus crisis and its consequences for months and can only in 2022 expect to again reach output levels seen before the pandemic, Economy Minister Peter Altmaier said on Thursday. To mitigate the impact of a month-long partial lockdown in November, which includes the closure of bars and restaurants, the government is offering targeted financial aid to those hit hardest, especially small businesses. Under a 10-billion-euro ($11.82 billion) aid package, firms with up to 50 employees will receive 75% of their year-earlier revenues for the month of November. “”This can help cushion the economic consequences as much as possible,”” Finance Minister Olaf Scholz told reporters, adding funding for this was covered in the existing budget so he would not have to ask parliament for more money. In addition, self-employed workers, such as artists and stage hands, will get access to emergency loans, and the government will expand a liquidity programme to give small firms with fewer than 10 employees access to very cheap loans. ”

Originating Source

BOJ cuts growth forecast but flags policy pause on recovery prospects

The Bank of Japan trimmed its economic growth and inflation forecasts for the current fiscal year on Thursday but offered a more upbeat view on the recovery outlook, signalling that it has delivered enough stimulus for the time being. The central bank, however, warned the outlook was highly uncertain as the pandemic weighs on service-sector spending and a resurgence of infections in Europe dampen prospects for a sustained global recovery. BOJ Governor Haruhiko Kuroda said the bank was ready to extend the March 2021 deadline of its crisis-response programme to help struggling companies, and take additional monetary easing steps if necessary. “We will extend the deadline, if we deem it necessary and appropriate,” he told a briefing, without clarifying when the BOJ could make the decision. “There’s also plenty of room to expand the scale of easing for each element of our crisis-response programme,” he added.

Originating Source

China aims for sustained, healthy growth in the five years to 2025

China is targeting sustained and healthy economic development in the five years to 2025, with an emphasis on a higher quality of growth, the official Xinhua news agency said on Thursday, citing the ruling Communist Party’s Central Committee. President Xi Jinping and members of the Central Committee, the largest of the ruling party’s elite decision-making bodies, met behind closed doors from Monday to lay out the 14th five-year plan, a blueprint for economic and social development. China’s external environment “is getting more complicated”, the agency said, adding, “There is a significant increase in instabilities and uncertainties.” However, the country’s development was still in a period of important strategic opportunities, despite new challenges, it said.

Originating Source

Apple stock pulled down by weak iPhone sales, China

Apple Inc’s AAPL.O announcement Thursday that iPhone sales were weaker than expected sent shares down 5.9% even as the tech company’s revenue and profit did better than Wall Street expected thanks to booming Mac and AirPods sales. Investors expected lower revenue from the Cupertino, California company’s bestselling product after delays left loyal fans clasping wallets shut while waiting weeks longer than usual to upgrade. But the hold-back was even worse than analyst had expected, with iPhone sales dropping 20.7% to $26.4 billion. Despite those delays, Apple has mostly beaten sales expectations this year and released a slew of new products and services that its customers have embraced while largely homebound during the pandemic. That carried over into the company’s top and bottom lines. Apple said revenue and profits for the fiscal fourth quarter ended on Sept. 26 was $64.7 billion and 73 cents per share, compared with analyst estimates of $63.7 billion and 70 cents per share, according to IBES data from Refinitiv.

Originating Source

Amazon forecasts jump in holiday sales – and pandemic costs

Amazon.com Inc on Thursday forecast a jump in holiday sales – and costs related to COVID-19 – as consumers continued to shop more online during the pandemic. Shares initially rose 2% before paring gains and remaining 1% lower in after-hours trading. Since the start of the virus outbreak in the United States eight months ago, consumers have turned increasingly to Amazon for delivery of groceries, home goods and medical supplies. Brick-and-mortar shops closed their doors; Amazon by contrast moved to recruit over 400,000 workers and earned $6.3 billion in the just-ended quarter, its second consecutive record profit. That has kept the world’s largest online retailer at the center of workplace and political tumult. Democratic politicians this month accused Amazon of holding “monopoly power” over merchants on its platform, which the company disputes. Meanwhile, more than 19,000 of Amazon’s U.S. employees contracted COVID-19, and some staff protested for site closures. Amazon’s response now includes an estimated $4 billion in costs related to COVID-19 this holiday, up from $2.5 billion last quarter.

Originating Source

Alphabet sales growth revived as advertisers flock back to Google

Google parent Alphabet Inc GOOGL.O on Thursday powered back to sales growth in the third quarter, beating analysts’ estimates as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet’s biggest supplier of ads. Alphabet shares rose 8% after ending regular trading at $1,556.88, up 13% on the year. Wall Street had expected a rebound from Alphabet because the company said in July that advertiser spending was inching back following a March plummet due to lockdowns. Google competitors Snap Inc SNAP.N and Microsoft Corp MSFT.O also reported third quarter revenue ahead of expectations in recent days. Alphabet’s third quarter revenue growth reflected a bump in spending across each of its key ads businesses, including search, YouTube and partner properties.

Originating Source

Top Trump News

Final economic pitch

President Donald Trump’s campaign is touting the blockbuster Gross Domestic Product figure released Thursday morning as evidence that the U.S. economy is healing quickly, while his Democratic opponent Joe Biden is focused on the “deep hole” the economy is still in because of the pandemic.

Originating Source

Student Visas

Every year, students from around the world pump about $40 billion into U.S. colleges and their home towns — akin to spending Harvard University’s massive endowment — while helping subsidize the cost of education for Americans nationwide.But now the annual infusion is shrinking: Enrollment of freshmen from abroad is down 14% this fall, a drop set off by the coronavirus pandemic and spurred on by an onslaught of Trump administration proposals. Whether that money rebounds will heavily depend on next week’s election.Colleges and universities have been sounding alarms in the final months of the presidential contest between Donald Trump and Joe Biden, pushing back on the government’s recent proposal to limit how long foreign students can stay. That move followed a threat over the summer to deport international students who attend classes online, as well as suggestions by administration officials to limit students from specific countries including China.

Originating Source

Covid-19

Democratic presidential candidate Joe Biden says President Donald Trump’s administration has “just given up” on fighting the coronavirus. Speaking in Wilmington on Oct. 28, Biden said, Trump “makes a lot of big pronouncements, but they don’t hold up. He gets his photo op and he gets out.”

Originating Source

Economic Indicators

Japan Interest Rate

The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent and maintained the target for the 10-year Japanese government bond yield at around 0 percent during its October meeting, by an 8-1 vote. Meanwhile, in its quarterly report, the central bank revised its GDP projection for the current fiscal year ending in March 2021 to a contraction of 5.5 percent from an estimate of a 4.7 percent decline made in July, as the pandemic weighs on service sector output. However, the BOJ revised up its GDP forecast for the 2021 fiscal year to a 3.6 percent growth, against a 3.3 percent expansion seen earlier. Regarding inflation, the central bank expects core consumer prices to fall 0.6 percent in the current fiscal year, slightly more than a 0.5 percent drop seen in July. The central bank made no changes to a package of steps aimed at easing corporate funding strains.

Germany Unemployment Rate

Germany’s seasonally adjusted harmonized unemployment stood at 4.5 percent in September 2020, unchanged from an upwardly revised figure in the previous month and remaining at the highest level since December 2015. The number of unemployed people increased by 0.5 percent from the previous month to 2.0 million while employment was almost unchanged at 42.14 million. Youth unemployment rate, measuring job-seekers under 25 years old, edged down 0.1 percentage points to 6.0 percent in September.

Germany Consumer Prices

Consumer prices in Germany are expected to decrease 0.2 percent from a year earlier in October 2020, the same as in the previous month and compared to market expectations of a 0.3 percent fall, a preliminary estimate showed. It remained the largest decline since January 2015 pressured by the government’s announcement in July of a temporary VAT rate cut until the end of the year as part of a stimulus package to help Europe’s largest economy recover from the coronavirus shock. Goods prices should fall 1.5 percent (vs -1.7 percent in September) led by a decline in energy cost (-6.8 percent vs -7.1 percent) while food inflation advanced (1.4 percent vs 0.6 percent). At the same time, service inflation is seen steady at 1.0 percent. On a monthly basis, consumer prices are expected to increase 0.1 percent, after a 0.2 percent drop in September

United States Pending Home Sales

Contracts to buy previously owned homes in the US jumped surged 20.5 percent over a year earlier in September of 2020, following a 24.3 percent rise in August. On a monthly basis however, pending home sales dropped 2.2 percent, compared to forecasts of a 3.4 percent gain, and after four consecutive months of contract activity growth. While all four major regions recorded notable year-over-year increases, only the Northeast achieved month-over-month gains. “The demand for home buying remains super strong, even with a slight monthly pullback in September, and we’re still likely to end the year with more homes sold overall in 2020 than in 2019. With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected in the near future”,

United States GDP Growth Rate

The US economy expanded by an annualized 33.1% in Q3 2020, beating forecasts of a 31% surge. It is the biggest expansion ever, following a record 31.4% plunge in Q2, as the economy rebounds from the coronavirus pandemic. Personal spending surged and was the main driver of growth, helped by checks and weekly unemployment benefits from the federal CARES Act. Growth also reflects increases in private inventory investment, exports, nonresidential fixed investment, and residential fixed investment that were partly offset by decreases in federal government spending (reflecting fewer fees paid to administer the Paycheck Protection Program loans). However, GDP is still 3.5% below its pre-pandemic level and the outlook for Q4 and 2021 remains uncertain as the pandemic is far from controlled and a vaccine is not ready yet. Also, out of more than 22 million jobs lost in March and April only around 11.3 million were recovered so far while a new stimulus bill hasn’t been approved yet

United States Initial Jobless Claims

The number of Americans filing for unemployment benefits declined to 751 thousand in the week ended October 24th, from the previous week’s revised level of 791 thousand and below market expectations of 775 thousand. Initial claims were at their lowest level since late March, but remained well above pre-pandemic levels. On a non-seasonally adjusted basis, the number of claims dropped to 732 thousand, from 761 thousand in the previous week. Also, almost 360 thousand people applied for help from the Pandemic Unemployment Assistance scheme, which covers workers that do not qualify for initial claims, compared with 345 thousand in the previous period

Euro Area Interest Rate

The European Central Bank left monetary policy unchanged during its October meeting, as policymakers took a wait-and-see approach until a new round of economic projections is unleashed in December, which will allow a thorough reassessment of the economic outlook and the balance of risks. The central bank pledged to recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path. The main refinancing rate was held at 0 percent while the deposit rate remained at a record low -0.5 percent. In addition, the ECB will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1.35 trillion

Economic Calendar

Friday

U.S. Pending Home Sales MoM

Friday

Germany Gross Domestic Product (GDP) QoQ