Monex Morning Report – Fri 6 Nov 2020

OVERNIGHT HIGHLIGHTS

Dow surges for 4th day in post-election rally despite uncertain outcome; S&P 500 jumped more than 1% for a fourth consecutive day and is headed for the best week since April

Federal Reserve officials kept interest rates near zero and made no change to asset purchases; Biden inches nearer to victory; Trump launches lawsuits and rages about ‘fraud’

Fed stays in holding pattern with rates and asset purchases unchanged

Federal Reserve Chair Jerome Powell stressed that the economy needs more fiscal and monetary policy support, and warned that mounting coronavirus infection rates are a risk. “I think we’ll have a stronger recovery if we can just get at least some more fiscal support,” Powell told reporters Thursday after the Fed kept interest rates near zero and made no change to its pace of asset purchases. “The recent rise in new Covid-19 cases, both here in the United States and abroad, is particularly concerning.” The Fed earlier kept the federal funds target rate in a range of zero to 0.25%, where it’s been since March, and maintained bond purchases at $120 billion a month. Powell spoke about the outlook for the economy as the results of the U.S. Presidential election remain uncertain. “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the Federal Open Market Committee said in a statement following its two-day meeting, largely repeating language on the economy they’ve employed since July. “The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the FOMC said in language identical to the prior statement in September.

Originating Source

Biden inches nearer to victory; Trump launches lawsuits and rages about ‘fraud’

Democrat Joe Biden crept nearer to victory over Donald Trump on Thursday in an exceedingly close U.S. election that hinged on razor-thin margins in a handful of states, while the Republican president escalated his legal efforts to influence vote counting and made fresh unsubstantiated claims of voting fraud. Biden, the former U.S. vice president, was chipping away at Trump’s leads in Pennsylvania and Georgia while retaining slim margins in Nevada and Arizona. Ballot tabulation dragged on in those battleground states two days after polls closed, while protesters from both sides staged demonstrations in major cities over the vote counting. After an acrimonious campaign waged during the coronavirus pandemic, the election appeared to be moving toward a nail-biting conclusion in the coming hours and perhaps days. There is still a narrow path for Trump to win if he holds on in Georgia, where he leads by 12,800 votes, and Pennsylvania, where he is ahead by 108,600 votes, and overtakes Biden in Arizona, where he trails by 68,100 votes, or Nevada, where he is 11,400 votes behind. But many of the outstanding votes in Georgia and Pennsylvania were clustered in places expected to lean Democratic, such as the Atlanta and Philadelphia areas. Trump, who attacked the integrity of the U.S. voting system during the campaign, again on Thursday alleged voting fraud without providing evidence and accused Democrats of aiming to “steal” the election. His campaign has filed several lawsuits in battleground states and called for a recount in Wisconsin, though some legal experts said the court challenges were a long shot unlikely to affect the election outcome. Meanwhile, in brief remarks from his hometown of Wilmington, Delaware, on Thursday afternoon, Biden again urged patience and called for every vote to be counted.

Originating Source

Trump campaign loses legal fights in Georgia and Michigan, vows Nevada lawsuit

President Donald Trump’s campaign lost court rulings in the closely-contested states of Georgia and Michigan on Thursday, even as it vowed to bring a new lawsuit challenging what it called voting irregularities in Nevada. In the Georgia case, the campaign alleged 53 late-arriving ballots were mixed with on-time ballots. In Michigan, it had sought to stop votes from being counted and obtain greater access to the tabulation process. State judges tossed out both the suits on Thursday. Judge James Bass, a superior court judge in Georgia, said there was “no evidence” that the ballots in question were invalid. In the Michigan case, Judge Cynthia Stephens said: “I have no basis to find that there is a substantial likelihood of success on the merits.” Trump allies alleged that there had been voting irregularities in Nevada’s populous Clark County, which includes Las Vegas. A Trump campaign spokeswoman did not respond to requests for comment on the Michigan and Georgia rulings.

Originating Source

Democrats’ hopes of gaining control of Senate fade

Democrats are rapidly losing hope of gaining control of the US Senate after underperforming in key states. Controlling the Senate would have allowed them to either obstruct or push through the next president’s agenda. The party had high hopes of gaining the four necessary seats in Congress’s upper chamber, but many Republican incumbents held their seats. The Democrats are projected to retain their majority in the lower chamber, the House, but with some key losses. With many votes still to be counted, the final outcome for both houses may not be known for some time. Among the disappointments for the Democrats was the fight for the seat in Maine, where Republican incumbent Susan Collins staved off a fierce challenge from Democrat Sara Gideon.

Originating Source

Dozen U.S. states report record increase in COVID-19 cases

A dozen U.S. states reported record one-day increases in COVID-19 cases on Thursday, a day after the country set a record with nearly 105,000 new infections reported on Wednesday, according to a Reuters tally. The outbreak is spreading in every region of the country but is hitting the Midwest the hardest, based on new cases per capita. Illinois reported nearly 10,000 new cases on Thursday and along with Texas is leading the nation in the most cases reported in the last seven days. Other Midwestern states with record increases in cases on Thursday were Indiana, Iowa, Minnesota, Missouri, North Dakota and Ohio. Arkansas, Maine, Oklahoma, Rhode Island, Utah and West Virginia also set records for rises in new infections. Some cities and states have announced new measures such as curfews or reduced gathering sizes to combat the spread of the virus, but the United States has taken no action at the federal level. Seventeen out of 50 states do not require masks. Many countries in Europe are shutting high-risk businesses and even ordering national or regional lockdowns as a second wave sweeps over the Continent. In addition to rising cases, U.S. hospitalizations of COVID-19 patients rose to over 52,500 on Thursday, up for an 11th day in a row and getting closer to the record of 58,370 set in July.

Originating Source

Bank of England Increases QE Program; Holds Key Rate at 0.1%

The Bank of England became the second major central bank this week to inject fresh monetary stimulus into a weakening economy, increasing its bond-buying program by 150 billion pounds to 875 billion pounds. However, it kept its key interest rate unchanged at 0.1%, despite having examined the possibility of cutting it to zero or even below in recent weeks. The move is a response to the sharp slowdown in the U.K. economy coming from the second wave of the Covid-19 pandemic. The country recorded nearly 500 deaths – the most since May – and over 25,000 new cases of the coronavirus on Wednesday. The Bank said it expects gross domestic product to contract again in the fourth quarter, having rebounded in the summer from the initial Covid-19 blow. It also expects GDP in the first quarter to be “materially lower” than it was in the quarter before the pandemic erupted. “Since the Committee’s previous meeting, there has been a rapid rise in rates of Covid infection,” the Bank said in a statement. “The U.K. Government and devolved administrations have responded by increasing the severity of Covid restrictions. All restrictions announced up to and including 31 October have been reflected in the Committee’s judgements.” The Bank said it expects a further steep rise in unemployment despite the extensive wage support measures laid out by the government. The jobless rate will peak at 7.5% next year before a recovery feeds through into the labor market, it added.

Originating Source

EU edges towards agreement on multi-year budget

The European Union edged towards finalising its next 1.8 trillion euro ($2.12 trillion) budget and COVID recovery package on Thursday after an agreement that countries breaching rule of law commitments risk losing EU funds. Negotiators from the European Parliament and of the German presidency of the bloc struck a deal after weeks of talks on the budget that will run from 2021 to 2027, parliament and German representatives said on Thursday. Finnish European lawmaker Petri Sarvamaa, who sits on the parliament’s budget committee, called the agreement a milestone for protecting EU values. “For the first time, we have established a mechanism that enables the EU to stop funding governments that disrespect our values such as the rule of law,” he said in a statement. Both the European Parliament and the European Council, the body representing the 27 EU countries, will have to approve the agreement.

Originating Source

China considers 5% annual GDP growth target for next five years: sources

China’s policymakers are close to setting an average annual economic growth target of around 5% for the next five years, at the lower end of ranges previously considered as global risks cloud the outlook, policy sources said. Beijing is looking to set a more flexible growth target for the 14th five-year plan to hedge against external risks caused by the pandemic and rifts with the United States, three people involved in internal discussions said following last week’s agenda-setting leadership meeting. No decisions have yet been made as the government is still drafting detailed economic and social development goals under the five-year plan, taking their guidance from top Communist Party leaders, they said. At last week’s meeting, President Xi Jinping and others laid out a blueprint for China’s five-year plan and key objectives for the next 15 years. They include a goal to turn China into a “high income” nation by 2025 and advance to a “moderately developed” nation by 2035, which implies income of more than $20,000 per person.

Originating Source

Top Trump News

Trump lawsuits

President Donald Trump called in his lawyers to shore up his dimming re-election prospects, but legal experts said the flurry of lawsuits had little chance of changing the outcome but might cast doubt on the process. As Trump’s paths to victory narrowed, his campaign on Thursday was ramping up legal challenges and said it was planning to file its latest case in Nevada. On Wednesday, the campaign sued in Michigan, Pennsylvania and Georgia and asked to join a pending case at the U.S. Supreme Court. Experts said the litigation serves to drag out the vote count and postpone major media from declaring Biden the victor, which would have dire political implications for Trump. “The current legal maneuvering is mainly a way for the Trump campaign to try to extend the ball game in the long-shot hope that some serious anomaly will emerge,” said Robert Yablon, a professor at the University of Wisconsin-Madison Law School. “As of now, we haven’t seen any indication of systematic irregularities in the vote count.” Trump campaign manager Bill Stepien said in a statement Wednesday the lawsuits were aimed at ensuring legal votes were counted.

Originating Source

Trump, Biden supporters

A second day of sometimes dueling demonstrations over the integrity of the U.S. presidential election started early on Thursday in Philadelphia and other cities as ballot counting dragged on in a handful of states that will decide the outcome. Supporters of Joe Biden have rallied around the slogan to “count every vote,” believing a complete tally would show the Democratic former vice president had beaten Republican President Donald Trump. Some ardent Trump backers have countered with cries to “protect the vote” in support of his campaign’s efforts to have some categories of ballots, including some votes submitted by mail, discarded. Both factions appeared outside a vote-counting center in Philadelphia on Thursday morning, where election staff steadily worked through a mountain of still-uncounted mail-in ballots that will determine whether Biden or Trump will take Pennsylvania’s crucial 20 Electoral College votes. A group of Trump supporters held Trump-Pence flags and signs saying: “Vote stops on Election Day” and “Sorry, polls are closed.” Across the street were Biden supporters, who danced to music behind a barricade.

Originating Source

Joe Biden

Joe Biden cast an optimistic outlook about the outcome of the yet-to-be-called presidential election as votes continue to be counted and urged unity after a bruising campaign that was roiled by the coronavirus pandemic and a summer of unrest. “Every vote must be counted. No one is going to take our democracy away from us. Not now, not ever,” Biden said in remarks from the Chase Center in Wilmington, Delaware. “America’s come too far, America’s fought too many battles, America’s endured too much for that to happen. We the people will not be silenced. We the people will not be bullied. We the people will not surrender.” Joined by running mate Kamala Harris, Biden stopped short of declaring victory, but said that after a long night of vote counting in key battleground states, “I am here to report that when the count is finished, we believe we will be the winners.”

Originating Source

Economic Indicators

Australia Trade Balance

Australia recorded a trade surplus of 5630 AUD Million in September of 2020.

U.S. Fed Interest Rate Decision

The Federal Reserve left the target range for its federal funds rate unchanged at 0-0.25% during its November meeting, as policymakers took a wait-and-see approach amid US presidential election uncertainty. The central bank also said it will increase its holdings of Treasury securities and agency mortgage-backed securities over coming months, to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Officials warned that the ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. Looking ahead, the Fed reiterated its commitment to keep rates at record low levels until labor market conditions reach levels consistent with maximum employment and inflation rises to 2 percent and is on track to moderately exceed 2 percent for some time.

U.S. Initial Jobless Claims

The number of Americans filing for unemployment benefits declined to 751 thousand in the week ended October 31st, from the previous week’s revised level of 758 thousand but above market expectations of 732 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 were almost unchanged at 738 thousand, compared with 739 thousand in the previous week. Also, almost 363 thousand people applied for help from the Pandemic Unemployment Assistance scheme, which covers workers that do not qualify for initial claims, compared with 359 thousand in the previous period.

U.K. Interest Rate Decision

The Bank of England left its Bank Rate at a record low of 0.1% on November 5th 2020 and increased the size of its bond-buying program by a larger-than-expected £150 billion to £875 billion, as the country entered a new coronavirus lockdown. Policymakers noted that there has been a rapid rise in rates of Covid infection and the UK Government has responded by increasing the severity of Covid restrictions. Also, consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak. The central bank sees the economy shrinking by 11% in Q4 2020, much worse than a 5.4% drop projected in August and to grow by a stronger 11% in Q4 2021. Inflation is expected higher at 0.6% in Q4 2020 (vs 0.3% in August) and the unemployment rate is seen lower at 6.3% (vs 7.5%). The key bank rate is expected to remain steady at 0.1% through the rest of 2020 but is likely to be cut to -0.1% next year.

Germany Factory Orders MoM

New orders for German manufactured goods edged up 0.5% month-over-month in September of 2020, below an upwardly revised 4.9% jump in August and market forecasts of a 2% gain. It is the smallest increase in 5 months as domestic orders rose by 2.3% while foreign ones dropped by 0.8%, mainly due to a 6% slump in purchases from the Euro Area. New orders for intermediate goods went up 4% and those for consumer goods 2.6% but orders for capital goods decreased 2%. Compared to February 2020, before the coronavirus pandemic, new orders were still 2.6 percent lower. Orders for machinery and equipment were still 8.2% below pre-pandemic levels but orders in the automotive industry, the largest manufacturing sector were 5.8% above the pre-crisis level.

IHS Markit Germany Construction PMI

The IHS Markit Germany Construction PMI edged down to 45.2 in October of 2020 from 45.5 in September, pointing to the 8th straight month of contraction in the construction sector and the biggest fall since June. Lower levels of activity were recorded across both the commercial and civil engineering categories while housing activity was once again the only category to see growth, rising for the fourth month in a row, albeit only modestly. October saw sustained declines in activity and new orders. With firms’ expectations also deteriorating, there were further cutbacks to both employment and purchasing activity during the month.

Economic Calendar

Friday

U.S. Initial Jobless Claims

Friday

U.S. Nonfarm Productivity QoQ

Friday

Fed Interest Rate Decision