Monex Morning Report – Mon 12 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow closes 160 points higher, posts best week since August as investors monitor stimulus talks; Asian stocks set for a mixed start

U.S. sees highest number of new coronavirus cases in nearly two months; Democrats and Republicans dismiss Trump’s coronavirus stimulus offer, dimming hopes for a deal

Top Market News

U.S. sees highest number of new coronavirus cases in nearly two months;

The United States reported 57,420 new cases of the coronavirus on Friday, the highest daily totals since mid-August, according to data compiled by Johns Hopkins University. New cases are rising in 33 states across the South, East and Midwest. Cases continue to surge in the nation’s Great Plains region, with Montana, North Dakota, South Dakota and Wyoming reaching record highs for average new cases, among other states. Coronavirus outbreaks have been on the rise in the nation’s Great Plains after they were largely concentrated first on the East Coast and then in America’s Sun Belt states. Earlier this week, North Dakota and South Dakota reported more new Covid-19 cases per capita than any other state across the nation, while Wisconsin’s outbreak showed signs of taking a “dire” turn. On Friday, the state’s hospitalizations hit record highs, according to Hopkins data. Officials have grown increasingly concerned about rising coronavirus cases across the country as the nation enters its fall and winter seasons. Health experts have also warned that the coming flu season could further challenge the U.S. response to the coronavirus pandemic.

Originating Source

Trump raises coronavirus stimulus offer to $1.8 trillion, then says he wants bigger bill than Dems or GOP

The White House on Friday took a new coronavirus stimulus offer to Democrats, believed to cost $1.8 trillion, as the sides work to strike a deal before the 2020 election. The plan would mark an increase from the $1.6 trillion the Trump administration previously proposed. House Democrats passed a $2.2 trillion bill earlier this month, and the sides have struggled to find a consensus in between those figures. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke for more than 30 minutes Friday afternoon, the California Democrat’s spokesman, Drew Hammill, said. Mnuchin offered a proposal “that attempted to address some of the concerns Democrats have,” he added. “Of special concern, is the absence of an agreement on a strategic plan to crush the virus. For this and other provisions, we are still awaiting language from the Administration as negotiations on the overall funding amount continue,” Hammill said in a tweeted statement.

Originating Source

Democrats and Republicans dismiss Trump’s coronavirus stimulus offer, dimming hopes for a deal

“Democrats in the House and Republicans in the Senate expressed opposition to President Donald Trump’s $1.8 trillion coronavirus stimulus offer over the weekend, with White House negotiators now calling for a separate vote on small business loans until the deadlock on a broader package is broken. The White House’s offer nearly doubles the original proposal from Republicans when talks began in late summer but is about $400 billion less than the $2.2 trillion bill Democrats previously passed, leaving party leaders in Congress on both sides unhappy. “This proposal amounted to one step forward, two steps back,” House Speaker Nancy Pelosi said of the Trump administration’s stimulus offer in a letter to her members Saturday. “When the President talks about wanting a bigger relief package, his proposal appears to mean that he wants more money at his discretion to grant or withhold, rather than agreeing on language prescribing how we honor our workers, crush the virus and put money in the pockets of workers,” Pelosi said. Congress has failed to pass new aid for months as the virus continues to spread across the country and economic recovery slows. ”

Originating Source

Second presidential debate cancelled after Trump refuses virtual format

The Commission on Presidential Debates has cancelled the second debate between Donald Trump and Joe Biden after the President declined to do a virtual debate despite concerns over his COVID-19 diagnosis, a source familiar with the plans told CNN. The cancellation is the culmination of a furious 48-hour back-and-forth between the commission and both campaigns and means what would have been the third debate in Nashville on October 22 will likely be the final meeting between the two candidates. The Wall Street Journal was first to report on the commission’s decision. The commission, with the backing of their health advisers, announced on Thursday morning that — because Trump tested positive for the coronavirus — the debate that was scheduled for Miami would be held virtually, with the two candidates appearing from remote locations. Trump swiftly rejected that plan, saying he would not show up and setting off a series of events that put the future of all general election debates into question.

Originating Source

ECB’s Lane braces for tougher phase for euro zone economy

The euro zone zone economy is entering a tougher phase as a surge in coronavirus cases puts a question mark over the recent rebound, the European Central Bank’s chief economist Philip Lane said in an interview published on Sunday. With a second wave of the COVID-19 pandemic sweeping Europe, governments across the region have started to implement fresh restrictions, albeit mostly localised and focused on leisure activities. “The next phase is going to be tougher,” Philip Lane told the Wall Street Journal. “The big question, and this is why there is so much uncertainty, is: how quickly can the current dynamic, with rising cases, be stabilised.” Lane reaffirmed his line that the 1.3% inflation rate currently expected in 2022 was “far away” from the central bank’s goal of just under 2%.

Originating Source

ECB’s Visco says bank needs symmetrical inflation target, more transparency

Board member Ignazio Visco said the European Central Bank should set a clearer inflation target and should attribute the opinions published in its minutes to the relevant policymakers for greater transparency. Visco, who is governor of the Bank of Italy, told daily newspaper Il Corriere della Sera that the ECB’s current target of inflation below but close to 2% in the medium term was “vague and difficult to understand”. “I think the target must be symmetrical,” he said in an interview published on Sunday. “Levels of one percent or 1.5% are too low as we need flexibility margins to face crisis,” he said. Visco said the ECB was studying a recent shift in U.S. central bank strategy which puts more focus on bolstering the labour market and less on lowering inflation.

Originating Source

China to maintain ‘normal’ monetary policy, PBOC chief says

China will maintain “normal” monetary policy for as long as possible, according to the People’s Bank of China Governor Yi Gang. Policy makers plan to encourage a “reasonable” increase in household savings and incomes, Yi wrote in an article published Saturday in the central bank’s biweekly magazine China Finance. The country will also make sure its liquidity stays somewhat ample, and will facilitate reasonable growth of money supply and social financing, while avoiding excess liquidity flooding the economy in order to reduce fluctuations, he said. Most of the world’s major economies have rolled out fiscal and monetary measures to counter the effects of the coronavirus pandemic. Yi cautioned that excessive stimulus could lead to debt expansion and create asset bubbles that will increase longer-term systemic risks. The governor also said financial institutions and their shareholders, local governments and regulators should take prime responsibility in dealing with risks. When unexpected events occur, shareholders at the respective financial institutions should assume the losses, and insolvent institutions should exit the market according to law, he said. The central bank said last month it will make monetary policy more precise and targeted after the quarterly policy meeting. The PBOC called on lenders to make full use of structured monetary tools to increase the “directness” of its policies, and vowed to achieve a long-term balance between stabilizing growth and preventing risks.

Originating Source

Bank of Japan to begin test of digital currency in 2021

The Bank of Japan has said that it will start testing a central bank digital currency (CBDC) in early fiscal 2021. The BOJ said Friday it will create a system on the internet, where the basic functions of the CBDC, including its issuance and circulation, will be tested. The central bank will then work on more advanced experiments. Although the BOJ has said that it has no plans to issue a CBDC, it will step up preparations in response to moves by China, which is ahead of other countries in the field, and Prime Minister Yoshihide Suga’s policy focus on digitalization. The BOJ assumes that private financial institutions will take an intermediary function for a CBDC that may be issued by the Japanese central bank, and that the digital currency will be used widely by general consumers, companies and others.

Originating Source

Top Trump News

No risk

Less than two weeks after President Donald Trump revealed that he had tested positive for Covid-19, the president’s physician said Trump is no longer considered a transmission risk and does not have to continue self-isolating. “Now at day 10 from symptom onset, fever-free for well over 24 hours and all symptoms improved, the assortment of advanced diagnostic tests obtained reveal there is no longer evidence of actively replicating virus,” said Dr. Sean Conley in a memo. “Moving forward, I will continue to monitor him clinically as he returns to an active schedule.” Conley added that Trump had demonstrated “decreasing viral loads.” Viral load refers to how much virus is present in any sample taken from a patient, whether it’s blood or — in the case of Covid-19 — secretions collected during a deep nasal swab.

Originating Source

Coronavirus vaccine

President Trump touted progress toward a coronavirus vaccine in his first public event since he was diagnosed with COVID-19 last week as questions remain over whether he’s still shedding the virus. “I’m feeling great,” a maskless Trump said from a White House balcony as he addressed hundreds of supporters gathered on the South Lawn on Saturday afternoon. “The nation is going to defeat this terrible China virus,” Trump said. “The vaccine is coming out very, very quickly, in record time.” Trump delivered the roughly 20-minute campaign speech just nine days after being diagnosed with COVID-19 as questions remained over when the president had last been tested for the virus. “It’s going to disappear,” Trump said of the virus that’s now killed 214,000 Americans and infected 7.6 million, according to the Johns Hopkins University tracker. “It’s disappearing.”

Originating Source

Trump returns to public events

Defiant in the face of slipping opinion polls, and determined to justify his implausible claim of a swift and full recovery from his encounter with Covid-19, Donald Trump returned to public events on Saturday with a brief “law and order” speech from a White House balcony. In a closely watched first public appearance at a live event just six days after he left Walter Reed medical center following a three-night stay, the president delivered an 18-minute scripted address to a crowd on the South Lawn. It had been billed as “2,000 invited guests” but in reality a gathering of about 500 mostly young flag-waving supporters, some of whom appeared to be not properly wearing masks. Trump was maskless during the speech, during which he appeared to show no lingering signs of coronavirus. Hours after the address, the White House released a memo from Trump’s doctor saying the president was no longer at risk of transmitting the coronavirus, but not whether he had tested negative for it.

Originating Source

Economic Indicators

Japan Household Spending (YoY) (Aug)

Household spending in Japan dropped 6.9 percent in real terms in August from the previous year following a 7.6 percent decline in the previous month to match consensus. The sharpest contractions were observed in culture & recreation (-23.4 percent vs -21 percent in July), clothing & footwear (unchanged at -20.2 percent), transportation & communication (-12.5 percent vs -19.6 percent). Also, expenditures of food fell further (-3.9 percent vs -2.6 percent). In contrast, spending in housing rebounded 1.1 percent after plummeting 13.9 percent in July, while expenditures in medical care rose sharply (11.7 percent vs 4.2 percent). On a monthly basis, spending plummeted rebounded 1.7 percent after plunging 6.7 percent in the previous, missing expectations of a 3.2 percent increase.

China Caixin Services PMI (Sep)

The Caixin China General Services PMI rose to 54.8 in September 2020 from 54.0 a month earlier. This was the fifth straight month of growth in the sector and the steepest since June, amid a further recovery from the COVID-19 pandemic. New orders expanded faster, mainly led by domestic demand; and employment grew for the second month in a row. Meanwhile, new export orders remained in contractionary territory for seven of the last eight months. At the same time, backlogs of work have risen in three of the past four months. As for prices, input cost inflation dipped to a three-month low, while prices charged rose for the second straight month, but at a softer rate. Looking ahead, confidence remained strongly positive.

UK Monthly GDP 3M/3M Change

Britain’s gross domestic product grew by 8.0 percent in the three months to August 2020, recovering from five consecutive periods of contraction but missing market expectations of an 8.2 percent expansion. The services sector grew by 7.1 percent, production by 9.3 percent and construction by 18.5 percent, as lockdown measures continued to ease. On a monthly basis, the economy grew by 2.1 percent, the fourth consecutive monthly increase following a record fall of 19.5 percent in April. Still, output remained 9.2 percent below the levels seen in February, before the full impact of the coronavirus pandemic.

UK Industrial Production (MoM) (Aug)

Industrial production in the UK edged up 0.3 percent month-over-month in August of 2020, following a 5.2 percent jump in July and well below market forecasts of a 2.5 percent rise. It is the lowest gain in four months, with manufacturing providing the largest upward contribution, rising by 0.7 percent, and led by other manufacturing and repair. 8 of the 13 manufacturing subsectors showed upward contributions. Production of electricity and gas also rose (1.6 percent), partially offset by a fall in mining and quarrying (4.1 percent). Still, industrial output is 6 percent below February 2020, the previous month of “normal” trading conditions, prior to the coronavirus pandemic.

US Wholesale Inventories MoM AUG

Wholesale inventories in the US rose 0.4 percent month-over-month in August 2020, below a 0.5 percent gain in preliminary estimate. Still, it is the first rise in four months and the strongest since April of 2019. Inventories rebounded for durable goods (0.6 percent vs -0.7 percent in July), with autos rising 4.3 percent, but stalled for nondurables (following a 0.7 percent rise in July). Year-on-year, wholesale inventories fell 5.2 percent.

Economic Calendar

Tuesday

U.K. Average Earnings Index +Bonus

Tuesday

U.K. Claimant Count Change

Tuesday

Germany ZEW Economic Sentiment

Tuesday

U.S. Core Consumer Price Index (CPI) MoM

Wednesday

Australia Employment Change

Wednesday

China Industrial Production YoY

Thursday

U.S. Import Price Index MoM

Thursday

Australia HIA New Home Sales MoM

Friday

U.S. Retail Sales MoM

Friday

Australia Employment Change