Monex Morning Report – Mon 14 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow ends 131 points higher Friday, but Nasdaq registers worst week since March; Asian stocks looked set for a muted start

ECB’s Lagarde shifts burden to governments to aid recovery; Microsoft says its bid for TikTok was rejected in U.S.-China standoff

Top Market News

ECB’s Lagarde shifts burden to governments to aid recovery

Euro zone governments must keep spending heavily to aid the bloc’s recovery from its historic pandemic-induced recession, complementing already super-easy monetary policy, European Central Bank President Christine Lagarde said on Sunday. With debt levels blowing past 100% of GDP this year, concerns are rising that politicians will struggle to push through more support and some subsidies, raising the risk that employment and income schemes could abruptly end. “Confidence in the private sector rests to a very large extent on confidence in fiscal policies,” Lagarde said in a speech. “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”

Originating Source

Euro zone ministers pledge lasting fiscal support for economy

Euro zone finance ministers pledged continued fiscal support on Friday to get their economies running again after the COVID-19 crisis, chairman of the Eurogroup Paschal Donohoe said after they met in Berlin. At their first in-person meeting since February, finance ministers from the 19 countries that share the euro talked informally about the fiscal response to the pandemic that has savaged the European economy since March. “There will be no sudden stop, no policy cliff-edge and overall budgetary policy will continue to support the economy,” Donohoe, who is Ireland’s finance minister, told a news conference after the meeting. While the ministers did not pledge any addition to the vast sums already promised to keep the economy going, they made clear there would not be fiscal tightening any time soon and that they would keep their foot on the accelerator as long as needed.

Originating Source

European economy is recovering better than we had feared: Scholz

The European economy is recovering much better than many had feared at the beginning of the COVID-19 pandemic, German Finance Minister Olaf Scholz said on Saturday, adding that governments should nonetheless continue to support companies and consumers. “The pandemic is not over, but the indicators … show that the economy is recovering much better than we feared some time ago, and that is something that applies to the European Union as a whole but also to the individual member states,” Scholz told reporters at the end of an informal meeting of the 27 EU finance ministers in Berlin.

Originating Source

Microsoft says its bid for TikTok was rejected in U.S.-China standoff

The owner of the Chinese app TikTok rejected an offer on Sunday from Microsoft to take over the firm’s U.S. operations, according to Microsoft officials and other people involved in the negotiations, as time runs out on an executive order from President Trump threatening to ban the popular app unless its American operations are sold. Microsoft was seen as the American technology company with the deepest pockets to buy TikTok’s U.S. operations from its parent company, ByteDance, and with the greatest ability to address national security concerns that led to Mr. Trump’s order. The move leaves Oracle — one of the few Silicon Valley firms to publicly ally with Mr. Trump — as the sole publicly known remaining bidder for TikTok.

Originating Source

China Claps Back With Reciprocal Restrictions On US Diplomats Following Trump’s Sanctions

In a growing diplomatic spat, Chinese Foreign Ministry Spokesperson Zhao Lijian announced that Beijing has sent a note detailing ‘reciprocal restrictions’ on the US Embassy and consulates on Friday, September 11. The move comes in response to US sanctions on Chinese individuals. As per reports, even the consulate-general in Hong Kong and its personnel have been included in the Chinese restrictions. Lijian stated that these reciprocal restrictions were meant to urge the US to repeal its own restrictions which China has deemed as ‘wrong decisions’.

Originating Source

U.S. federal budget deficit in 2020 exceeds $ 3 trillion

As of the end of August, the United States federal budget deficit exceeded $ 3 trillion. This was reported by Ukrinform, referring to the latest statistics from the US Treasury Department. It is noted that the budget deficit of the largest economy in the world reached $ 3,007 trillion. Revenues are almost $ 3,047 trillion, and expenditures are about $ 6,054 trillion. The overall U.S. budget deficit is expected to reach $ 3,3 trillion in 2020 as the country’s fiscal year ends on September 30. In 2019 this figure was about $ 984 billion.

Originating Source

Japan’s Suga says no limit to bonds government can issue

Japan’s Chief Cabinet Secretary Yoshihide Suga, who is set to become prime minister this week, said on Sunday there was no limit to the amount of bonds the government can issue to support an economy hit by the coronavirus pandemic. He also indicated he could look to a third extra budget to fight the downturn caused by the COVID-19 pandemic if needed, adding the government had enough resources to tap at present. “Only when we have economic growth can we push through fiscal reform. What’s most important is to create jobs and protect businesses,” Suga said on a television programme. “I don’t think so,” he said, when asked if there was a limit to bond issuance. “What’s important now is to improve current (economic) conditions,” he added.

Originating Source

SoftBank is said to renew talks to go private after Arm deal

SoftBank Group Corp. is set to revive talks about taking the group private after reaching a deal to sell chipmaker Arm Ltd., according to people familiar with the matter. The Japanese conglomerate’s senior executives will be revisiting a management buyout plan, which had earlier met with internal opposition, the people said, asking not to be named as the information isn’t public. SoftBank is set to announce the sale of Arm to Nvidia Corp. soon, one of the people said. The cash-and-stock sale is expected to value Arm at about $40 billion, people familiar with the deal told Bloomberg on Saturday. Deliberations about taking the company, valued at more than $115 billion, private are at an early stage and may not lead to a transaction. Senior management within SoftBank have various viewpoints on the plan, and many veterans are against the idea, said one of the people.

Originating Source

Top Trump News

Latin American development bank

U.S. President Donald Trump’s nominee on Saturday won election as president of the Inter-American Development Bank, the region’s main economic development lender, making him the first U.S. citizen to lead the institution in its 61-year history. Mauricio Claver-Carone, Trump’s senior Latin America adviser, told the bank’s governors before voting began that he would be “a passionate advocate” for the bank, its staff and the region. He will take office on Oct. 1 and has pledged to serve only one five-year term. Trump’s decision to nominate a U.S. candidate to head the bank broke with a tradition for the president to come from the region and sparked criticism from some Latin American countries, development groups and the European Union.

Originating Source

Canada

Ottawa to announce planned multibillion-dollar retaliation against U.S. aluminum levies. Canada will retaliate within days against American aluminum tariffs, with plans to announce a series of counter-tariffs early next week. Officials in Ottawa and at the Canadian embassy in Washington confirmed previously threatened counter-tariffs will proceed by Wednesday. The government had said during the summer that unless the U.S. dropped its latest round of aluminum tariffs, Canada would impose $3.6 billion in countermeasures by then. The Canadian ambassador to the U.S., Kirsten Hillman, said in an interview Friday that the move is imminent. “Absent any change in [the U.S.] policy, they will take effect next week,” the ambassador said. “And they will remain in effect until the U.S. eliminates its tariffs against Canada.” Canada is responding to a 10 per cent tariff announced by President Donald Trump in August, a move that struck just over half of Canada’s aluminum exports to the U.S.

Originating Source

Lower drug prices

U.S. President Donald Trump said on Sunday he had signed a new executive order aimed at lowering drug prices in the United States by linking them to those of other nations. “My Most Favored Nation order will ensure that our Country gets the same low price Big Pharma gives to other countries. The days of global freeriding at America’s expense are over,” Trump said in a Twitter post. The Republican president in July signed an executive order that, among other things, would require Medicare to tie the prices it pays for drugs to those paid by other countries. Its implementation, however, was delayed as the administration sought to work out a solution with the industry.

Originating Source

Economic Indicators

China New Yuan Loans

Chinese banks extended CNY 1.28 trillion in new yuan loans in August of 2020, beating market forecasts of CNY 1220 billion, and above CNY 992.7 billion in July. Figures were in line with CNY 1.21 trillion a year earlier, a sign the Chinese economy continues to recover from the pandemic. Household loans, mostly mortgages, rose to CNY 841.5 billion from CNY 757.8 billion in July and corporate loans surged to CNY 579.7 billion from CNY 264.5 billion. Outstanding yuan loans grew 13 percent from a year earlier, the same as in July and in line with forecasts. Total social financing, a broad measure of credit and liquidity in the economy, jumped to CNY 3.58 trillion, the highest since March. However, the broad M2 money supply went up at a slower 10.4 percent year-on-year, below 10.7 percent in July and forecasts of 10.7 percent.

United Kingdom Manufacturing Production

Manufacturing production in the UK contracted 9.4 percent year-on-year in July of 2020, less than forecasts of a 10.4 percent plunge and marking the sixth straight decline in factory output. On a monthly basis, manufacturing went up 6.3 percent, above forecasts of 5 percent, led by transport equipment, which rose by 18.5 percent although all of the 13 subsectors displayed upward contributions.

United Kingdom Balance of Trade

The UK trade surplus narrowed to GBP 1.07 billion in July of 2020 from a downwardly revised GBP 3.90 billion in the previous month. Exports edged up 1.2 percent to GBP 50.22 billion, boosted by a 3.5 percent rise in services exports while those of goods decreased 0.9 percent. Meantime, imports climbed at a faster 7.5 percent to GBP 49.14 billion boosted by increases in both goods (5.8 percent) and services (11.5 percent).

Germany CPI

Consumer prices in German were unchanged from a year earlier in August 2020, after a 0.1 percent fall in the previous month and matching preliminary estimates. Services inflation slowed to 1.0 percent from 1.2 percent in July, led by growing rent prices (1.4 percent), while goods prices dropped 1.3 percent (vs -1.4 percent in July) due to a fall in energy prices (-6.3 percent vs -6.7 percent) and a slowdown in food inflation (0.7 percent vs 1.2 percent). The harmonised index of consumer prices edged down 0.1 percent from a year earlier and by 0.2 percent fall from the previous month. The government announced in July a VAT cut until the end of the year as part of a stimulus package to help Europe’s largest economy recover from the coronavirus shock.

United States CPI

Annual inflation rate in the US increased to 1.3% in August of 2020 from 1% in July, beating market forecasts of 1.2%. It is the highest rate since March. Cost for used cars and trucks rebounded (4% vs -0.9% in July), prices for new vehicles increased faster (0.7% vs 0.5%), and energy cost dropped less (-9% vs -11.2%). At the same time, inflation for food (4.1%) and shelter (2.3%) was steady. In contrast, prices slowed for medical care commodities (0.8% vs 1.1%) and medical care services (5.3% vs 5.9%) and the deflation deepened for apparel (-5.9% vs -6.5%) and transportation services (-4% vs -3.7%). On a monthly basis, consumer prices went up 0.4%, also above forecasts of 0.3%: a sharp rise in the used cars and trucks index was the largest factor, but the indexes for gasoline, shelter, recreation, and household furnishings and operations also contributed. Excluding food and energy, annual core inflation edged up to 1.7% from 1.6%.

Economic Calendar

Monday

Japan Exports YoY

Tuesday

China Gross Domestic Product (GDP) QoQ

Tuesday

Australia EIA Short-Term Energy Outlook

Wednesday

UK Interest Rate Decision

Wednesday

US Deposit Facility Rate

Thursday

US Initial Jobless Claims

Thursday

US Producer Price Index (PPI) MoM

Thursday

US Crude Oil Inventories

Thursday

Australia Gross Domestic Product (GDP) MoM

Friday

UK Core Consumer Price Index (CPI) MoM