Monex Morning Report – Fri 9 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends at five-week high as election uncertainty dims, offsetting lack of fiscal stimulus progress; Futures were little changed in Japan, and rose in Hong Kong and Australia.

Pelosi rejects idea of a stand-alone fiscal stimulus measures; Trump rejects virtual debate with Biden, who announces solo event instead

Top Market News

Pelosi rejects idea of a stand-alone fiscal stimulus measures

Hopes for a restart of talks over a large-scale U.S. economic stimulus package, or even more targeted aid for the troubled airline industry, took a big hit Thursday after Democrat House Speaker Nancy Pelosi said she still wanted a bigger bargain. “There is no stand-alone bill without a bigger bill. There is no bill,” Pelosi told reporters at her weekly press conference at the U.S. Capitol. Pelosi was responding to a question asking if she would accept a stand-alone bill aimed at providing a second round of grants to passenger and cargo airlines to help them retain workers. She softened the stance slightly later in an interview with Bloomberg Television, allowing that an airline bill could possibly move at a different time than a more comprehensive measure but only if that companion piece of legislation was also agreed. ” We can do that separately, but we cannot do it unless there’s a big bill,” she said. “So, it can be part of a big bill or it could be separate from a big bill from a timing standpoint, but there won’t be anything unless we crush the virus, put money in the pockets of the American people. ”

Originating Source

U.S. budget deficit topped a record $3 trillion for 2020 fiscal year

The federal budget deficit was $3.1 trillion for the 2020 fiscal year, the Congressional Budget Office estimated on Thursday. The deficit is a record for the United States in terms of total dollars and is a direct result of the federal response to the coronavirus pandemic. Driving the spike in borrowing were a drop in tax revenues as the economy contracted this spring amid the pandemic recession and a surge in government spending to reinvigorate growth, including enhanced benefits for unemployed workers and widespread aid to large and small businesses. Federal spending from April through the end of September was $4.2 trillion, nearly double the same period in 2019, the budget office reported. Individual and corporate income tax receipts fell by $191 billion, or about 17 percent, in April through September, compared with the year before. The 2020 fiscal year concluded at the end of September. The official budget deficit figures will be released by the Treasury Department later this month. The budget office estimates are based on daily figures released by the department.

Originating Source

Fed Officials Maintain Calls for Fiscal Aid to Protect Recovery

Federal Reserve officials kept up pressure for Washington to renew fiscal support for the virus-ravaged economy even as hopes of a deal between Democrats and Republicans continued to look dim. “Fiscal policy is the right tool for this time,” Boston Fed President Eric Rosengren said during remarks Thursday after a speech he delivered at an online event hosted by Marquette University. “I think it’s tragic that it has not been employed already.” President Donald Trump on Tuesday walked away from talks with Democrats amid differences over the size of another fiscal relief package. House Speaker Nancy Pelosi has since rebuffed his calls to pass relief legislation piecemeal. “It looks like it won’t happen until after the election,” Rosengren said. “But hopefully, whoever is elected will nonetheless argue and get through Congress a significant stimulus package.” The election is on Nov. 3.

Originating Source

Fed’s Kaplan sees U.S. economy shrinking just 2.5% this year

Dallas Federal Reserve President Robert Kaplan on Thursday said he expects the U.S. economy to contract 2.5% this year, an upgrade from just over a week ago when he forecast a 3% contraction this year. But, he also said in a virtual event held by the San Antonio Chamber of Commerce, people will likely need to continue to wear masks through all of next year, delaying until 2022 and 2023 any economic rebound in currently “depressed” sectors that depend on person-to-person contact and large groups.

Originating Source

Fed’s George: Framework ‘less’ a promise to engineer inflation than ‘tolerance’ of it

The U.S. Federal Reserve’s new framework for managing monetary policy shows a “tolerance” for higher inflation, but not necessarily a full-blown promise to engineer it, Kansas City Federal Reserve president Esther George said Thursday. The Fed last month, as part of applying a new strategy to let inflation run higher in hopes of encouraging further job gains in a “hot” economy, said it would not raise rates until inflation has both reached its 2% target and is on track to “moderately exceed 2% for some time.” “I interpret the revised consensus statement as a tolerance – and less as a promise to engineer,” higher inflation, George said, adding her voice to the disparate views among Fed officials about how the new framework will be applied in practice.

Originating Source

ECB more concerned about growth than earlier feared: minutes

The European Central Bank may be more concerned about the pandemic-hit economy than analysts had previously thought, based on its September policy meeting minutes issued on Thursday, suggesting it could roll out more stimulus later this year. Arguing for a “free hand” to fight the economic malaise, policymakers fretted that a long list of risks ranging from a strong euro and higher coronavirus infection rates to the U.S. presidential election were all weighing on growth and consumer prices. This was in stark contrast to the relatively benign view presented by ECB President Christine Lagarde after the bank’s policy meeting last month, where she upgraded some economic projections and played down concerns over the euro’s strength. “The case was made for keeping a ‘free hand’ in view of the elevated uncertainty, underpinning the need to carefully assess all incoming information, including the euro exchange rate, and to maintain flexibility in taking appropriate policy action if and when needed,” the ECB said in its accounts of the Sept 9-10 meeting.

Originating Source

Bank of England’s Bailey ready to use policy firepower, sees downside risks

Bank of England Governor Andrew Bailey said on Thursday that risks to Britain’s economy were “very much on the downside” and that the central bank was ready to use its policy firepower to limit the impact of a second wave of COVID cases. “We must use policy actively and aggressively, and we have done that,” Bailey told a European Union banking conference. Britain’s central bank cut interest rates to a record-low 0.1% at the start of the crisis and has announced 300 billion pounds of extra government bond purchases. It is also considering whether it could or should cut rates below zero. “We are by no means out of firepower … in terms of our policy tools, and we will use that firepower as appropriate, properly and strongly in response to second and third waves, where we think it is necessary,” Bailey said.

Originating Source

Seeing the barrell half full, OPEC rolls out oil forecast

World oil demand will plateau in the late 2030s and could by then have begun to decline, the Organization of the Petroleum Exporting Countries (OPEC) said on Thursday. While the forecast marks a major shift for the cartel and reflects the lasting effect of the coronavirus crisis on the economy and consumer habits, it is still much rosier than peak oil forecasts by some major oil companies. BP released a report last month that said demand for oil may have peaked last year, noting the market for crude may never recover from the blow delivered by the coronavirus. As recently as July, Royal Dutch Shell said it sees oil demand peaking in the early 2030s. In its 2020 World Oil Outlook, OPEC sees oil use rising to 107.2 million barrels per day (bpd) in 2030 from 90.7 million bpd in 2020. That is 1.1 million bpd below its 2030 forecast last year and more than 10 million bpd below its 2007 prediction of 2030 demand.

Originating Source

Top Trump News

Trump rejects virtual debate

President Donald Trump added more turbulence on Thursday to the U.S. presidential race by refusing to participate in an Oct. 15 debate with Democratic rival Joe Biden after it was changed to a virtual event to guard against the spread of COVID-19, prompting Biden to book a solo televised town hall-style event instead. Trump, who was hospitalized for three days after disclosing last Friday that he had tested positive for the coronavirus, blasted the format change announced by the nonpartisan commission in charge of the debates and expressed concern that his microphone could be cut off. Trump, still receiving COVID-19 treatment, also said he wanted to resume campaign rallies.

Originating Source

Voting numbers

Americans are rushing to cast ballots ahead of the Nov. 3 election at an unprecedented pace, early voting numbers show, indicating a possible record turnout for the showdown between President Donald Trump and Democratic challenger Joe Biden. With less than four weeks to go before Election Day, more than 6.6 million Americans already have voted, more than ten times the number who had at this time in 2016, according to the United States Elections Project, which compiles early voting data. The shift has been driven by an expansion of early and mail-in voting in many states as a safe way to cast a ballot during the coronavirus pandemic and an eagerness to weigh in on the political future of Trump, said Michael McDonald of the University of Florida, who administers the project.

Originating Source

VP debate

U.S. Vice President Mike Pence’s debate with Democratic challenger Kamala Harris attracted 57.9 million television viewers, a sizeable increase from a similar pre-election debate in 2016, according to Nielsen data released on Thursday. The viewership figure for the Wednesday evening matchup in Salt Lake City included people watching across 18 networks. The tally came in 36% higher than four years ago, when 37 million people tuned in to see Pence debate Democrat Tim Kaine. During the policy-heavy 90-minute event, Pence and Harris clashed over the Trump administration’s handling of the coronavirus pandemic.

Originating Source

Economic Indicators

Japan’s current account

Japan’s current account surplus shortened modestly to JPY 2103 billion in August 2020 from JPY 2135 billion in the same month of the previous year and compared to market expectations of JPY 1984 billion, owing to the coronavirus pandemic. The goods account posted a JPY 413.2 billion surplus from a JPY 30.4 billion surplus last year, with exports falling 8.8 percent and imports plunging 12.5 percent. Meanwhile, the services account gap widened to a JPY 316.6 billion deficit from a JPY 1.5 billion shortfall a year ago, while the primary income surplus dropped to JPY 2248.7 billion from JPY 2291.6 billion, whereas the secondary income gap widened to JPY 242.5 billion from JPY 185.5 billion.

German Trade Balance (Aug)

Germany’s trade surplus declined to EUR 12.8 billion in August 2020, from EUR 16.4 billion in the same month of the previous year, as the coronavirus pandemic hit global demand. Exports dropped 10.2 percent due to lower sales to the European Union (-7 percent) and to third countries (-13.6 percent), in particular the UK (-7.3 percent), the US (-21.1 percent) and China (-1.1 percent). Imports fell at a softer 7.9 percent, as purchases from the EU dropped 5.4 percent and those from third countries tumbled 10.5 percent. Among these, imports fell from the UK (-22.2 percent) and the US (-5.2 percent), while imports from China were unchanged. On a seasonally adjusted basis, exports rose 2.4 percent from a month earlier, beating expectations of 1.4 percent, while imports were up 5.8 percent, compared to forecasts of a 1.4 percent gain.

U.S. Initial Jobless Claims

The number of Americans filling for unemployment benefits rose by 840 thousand in the week ended October 3rd, compared to an upwardly revised 849 thousand in the previous period and above market expectations of 820 thousand. It was the sixth consecutive week with claims stuck at the 800 thousand level, pointing to a slowdown in the labor market recovery. On a non-seasonally adjusted basis, the number of initial claims rose to 804 thousand, from 799 thousand in the previous week. Also, more than 464 thousand people applied for help from the Pandemic Unemployment Assistance scheme, which covers workers that do not qualify for initial claims.

Economic Calendar

Friday

Japan Gross Domestic Product (GDP) QoQ

Friday

China Composite Purchasing Managers’ Index (PMI)