Monex Morning Report – Mon 19 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow adds 100 points, U.S. stocks manage weekly gains as retail sales, consumer sentiment rise; U.S. and Asia futures climb on stimulus

House Speaker Pelosi ‘optimistic’ on coronavirus relief deal before U.S. election; Britain tells businesses to step up plans for no-deal EU exit

Top Market News

House Speaker Pelosi ‘optimistic’ on coronavirus relief deal before U.S. election

House Speaker Nancy Pelosi said on Sunday differences remain with President Donald Trump’s administration on a wide-ranging coronavirus relief package but she was optimistic legislation could be pushed through before Election Day. Pelosi, the top elected Democrat, said she wanted a bill passed before the Nov. 3 presidential election between Republican Trump and Democrat Joe Biden but acknowledged an agreement would have to come within 48 hours for that to happen. “I’m optimistic because, again, we’ve been back and forth on all of this,” Pelosi said. However, with her negotiating partner, Treasury Secretary Steve Mnuchin, in the Middle East until Tuesday, a deal appears to be a long shot. The White House proposed a $1.8 trillion stimulus last week to help Americans struggling with the economic ravages of the coronavirus pandemic. Pelosi said the offer fell short in a range of areas including tax credits for poor people, aid to state and local governments, worker protections and rent help. She has stuck to her demand for a $2.2 trillion aid and stimulus package. The Republicans who control the Senate, however, are loath to pass another giant relief bill. Senate Majority Leader Mitch McConnell said the Senate would vote on Wednesday on a pared-down $500 billion proposal to target specific areas of need.

Originating Source

Britain tells businesses to step up plans for no-deal EU exit

Britain is urging businesses to step up preparations for a no-deal exit from the European Union when transitional arrangements end, telling them in a campaign that “time is running out”. Talks between Britain and the EU on a trade deal ended in recrimination last week, with both sides saying the other needed to compromise. British Prime Minister Boris Johnson said on Friday there was no point in continuing discussions and it was now time to prepare for an exit without a trade deal. Senior minister Michael Gove, however, said on Sunday the door was still ajar for talks to continue. Johnson and Gove will hold a call with business leaders this week, the government said, while 200,000 traders will receive a letter setting out new customs and tax rules. “Make no mistake, there are changes coming in just 75 days and time is running out for businesses to act,” Gove said in a statement.

Originating Source

BOJ has no plan to change inflation target, forward guidance: Kuroda

Bank of Japan Governor Haruhiko Kuroda said on Sunday there was no need to change the central bank’s inflation target or forward guidance, even though the United States and Europe are reviewing their policy frameworks to seek better ways to prop up growth. By committing to increase the monetary base until inflation stably overshoots its 2% target, the BOJ already has a framework “quite similar” to the U.S. Federal Reserve’s average inflation target, Kuroda said. “We have no intention to change our inflation targeting policy and forward guidance,” Kuroda said in an online International Banking Seminar of the Group of 30. Kuroda maintained his fairly upbeat view on Japan’s economy, saying it was likely to follow an improving trend though risks were skewed to the downside due to uncertainty regarding the fallout from COVID-19.

Originating Source

BoE’s Bailey sees economic risks skewed ‘very heavily’ to downside

Bank of England Governor Andrew Bailey said there is a significant risk of further disappointments to UK economic growth, and that the country faced unprecedented uncertainty as coronavirus cases began to climb again. Britain’s economy shrank by 20% in the three months to June, the biggest drop of any large advanced economy, and Bailey reiterated that he expected output at the end of the third quarter was 10% below its level at the end of 2019. “Ten percent is still a huge gap, let’s be clear on that,” Bailey told an online seminar for central bank governors hosted by the Group of Thirty, a panel of economic policymakers and senior bankers on Sunday. “We’re operating at an unprecedented level of economic uncertainty. Of course, that is heightened now by the return of COVID…. The risks remain very heavily skewed towards the downside,” he added.

Originating Source

Fed’s Bullard says U.S. could see rapid decline in unemployment

The U.S. labor market is likely to bounce back quickly as more temporarily furloughed workers return to jobs and the coronavirus pandemic comes under control, said Federal Reserve Bank of St. Louis President James Bullard. “It’s very different labor market dynamics than what you are used to thinking about for recession,” Bullard said Friday as he took part in a virtual panel discussion with other central bankers. “There is a lot of prospect you can get fairly good labor market outcomes, continuing relatively rapid declines in unemployment and a good outlook therefore for the U.S. economy.” The U.S. Treasury yield curve has been steepening in recent months, reflecting optimism of investors on the outlook for the economy, Bullard said. About $3 trillion in U.S. fiscal stimulus as well as ultra-easy monetary policy have helped support the recovery, while health-care outcomes have improved over time, he said. As the economy picks up, “that will affect our crucial 10-year benchmark,” he said. “We’ll see if we get yield curve steepening going forward.”

Originating Source

The federal deficit balloons to $3.1 trillion, underscoring the challenges to the economy

The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year, official figures showed on Friday, as the coronavirus pandemic fueled enormous government spending while tax receipts plunged as households and businesses struggled with economic shutdowns. The shortfall underscores the long-term economic challenge facing the United States as it tries to emerge from the sharpest downturn since the Great Depression. Interest rates are low — meaning it costs less for the government to borrow money — but the ballooning deficit is already complicating policy choices as Republicans resist another large stimulus package, citing concerns about the U.S. debt burden. The deficit — the gap between what the U.S. spends and what it earns through tax receipts and other revenue — was $2 trillion more than what the White House’s budget forecast in February. It was also three times as large as the $984 billion deficit in the 2019 fiscal year.

Originating Source

China passes export-control law following U.S. moves

China passed a law restricting exports of controlled items, allowing the government to act against countries that abuse export controls in a way that harm’s China’s interests, state media said. The Xinhua news report late on Saturday did not name any target countries, but the United States last month angered Beijing with curbs on exports to Semiconductor Manufacturing International Corp, China’s biggest chipmaker, and it has taken various steps against Huawei Technologies Co and other companies. China and the United States have clashed over issues including trade, human rights, technology and the new coronavirus, which was first detected in China. Controlled items include military and nuclear products, as well as other goods, technologies and services and relevant data, according to a statement on the National People’s Congress website.

Originating Source

Italy unveils new COVID-19 restrictions as daily infections climb

Italian Prime Minister Giuseppe Conte gave mayors the power to shut public squares from 9 p.m. to halt gatherings as he unveiled a further package of measures on Sunday to try to halt a sharp rise in COVID-19 cases. As daily cases in Italy hit a new record 11,705 on Sunday, Conte said the situation had become critical but his government has been determined to avoid a repeat of the lockdown imposed at the start of the crisis in March. “The situation is critical. The government is there but everyone must do their part,” he told a news conference. As well as ordering betting shops to close from 9 p.m. and halting amateur sporting competitions and local fairs, he said the government would consider closing gyms and swimming pools after further checks on security protocols this week.

Originating Source

Top Trump News

Thousands protest Trump’s Supreme Court pick

Thousands marched to the U.S. Supreme Court in Washington on Saturday to commemorate the late Justice Ruth Bader Ginsburg and protest President Donald Trump’s rush to push through Amy Coney Barrett as her replacement. The U.S. Senate Judiciary Committee has scheduled an Oct. 22 vote on the nomination of Barrett, a conservative appellate judge, over objections from Democrats that the confirmation process comes too close to the Nov. 3 presidential election. More than 26 million Americans have already cast their ballots for who they want to sit in the White House for the next four years, Trump or his Democratic rival Joe Biden. Demonstrators at the Women’s March said they were angry that Republicans appear ready to confirm Barrett’s nomination so close to Election Day after refusing to move forward Merrick Garland, the pick of former President Barack Obama, a Democrat, more than six months ahead of the 2016 election.

Originating Source

Nevada and North Carolina

President Donald Trump and Democratic challenger Joe Biden were courting early voters on Sunday in the competitive states of Nevada and North Carolina, as the final presidential debate looms later this week. Some 27.7 million Americans have already cast ballots either by mail or in person ahead of the Nov. 3 election, according to the U.S. Elections Project at the University of Florida. The record-shattering figure is being driven in part by concerns about crowds at polling sites on Election Day amid the coronavirus pandemic. In North Carolina, a battleground where 1.4 million, or 20%, of the state’s registered voters had already voted as of Sunday morning, Biden urged residents to cast ballots as soon as possible. “We gotta keep the incredible momentum going; we can’t let up,” he said at a “drive-in rally” in Durham, as attendees sitting in their cars honked in approval. “Don’t wait – go vote today.” Biden also criticized Trump for saying over the weekend that the United States had “turned the corner” in the coronavirus pandemic, noting that the rate of new cases across the country has risen to the highest level in months.

Originating Source

Israeli and Arab

Donald Trump’s Middle East envoy said on Sunday the U.S. President’s push for an Israeli-Arab rapprochement was gaining momentum and he hoped more accords would follow even if Trump loses next month’s election. Avi Berkowitz, who accompanied an Israeli delegation which visited Bahrain on Sunday, said the so-called “Abraham Accords” had bipartisan support in the United States and were designed to bear long-term fruit by encouraging grassroots engagement between Israel and its new Arab partners. “Peace is something everybody should celebrate and see as a positive thing for the world,” Berkowitz said in an interview. “It’s our sincere hope that, no matter who wins the election, the Abraham Accords will continue to grow.”

Originating Source

Economic Indicators

Eurozone Consumer Price Index (CPI) YoY

The Eurozone consumer prices dropped 0.3 percent from a year earlier in September 2020, the steepest decline since April 2016. Prices fell for both energy products (-8.2 percent vs -7.8 percent in August) and non-energy industrial goods (-0.3 percent vs -0.1 percent). At the same time, services inflation slowed to 0.5 percent from 0.7 percent. The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, eased further to 0.2 percent, the lowest on record.

U.S. Retail Sales MoM

Retail sales in the US jumped 1.9% month-over-month in September of 2020, following a 0.6% gain in August and beating forecasts of a 0.7% increase. It is the biggest rise in three months, with sales at clothing stores (11%); department stores (9.7%); sporting goods (5.7%); and auto dealers (4% ) recording the highest increases. Sales also went up at food services and drinking places (2.1% ); health and personal care stores (1.7%); gasoline stations (1.5%); miscellaneous store retailers (1.1%); building material and garden equipment (0.6%); nonstore retailers (0.5%); and furniture stores (0.5%). In contrast, sales fell at electronics and appliance stores (-1.6%). Retail sales excluding food services, car dealers, building-materials stores and gasoline stations, the so-called control group sales seen as a more reliable gauge of demand, increased 1.4%. Year-on-year, retail sales went up 5.4%, the strongest annual gain so far in 2020.

U.S. Industrial Production MoM

Total industrial production in the United States fell 0.6 percent in September 2020, its first decline in five months, and missing market expectations of 0.5 percent growth. With the September decline, the production remained 7.1 percent below its pre-pandemic February level. Manufacturing output decreased 0.3 percent and was 6.4 percent below February’s level while the output of utilities dropped 5.6 percent, as demand for air conditioning fell by more than usual in September. Meanwhile, mining production increased by 1.7 percent.

U.S. Michigan Consumer Sentiment

The University of Michigan’s consumer sentiment increased to 81.2 in October of 2020 from 80.4 in September but still remains way below pre-coronavirus levels. Expectations subindex improved (78.8 vs 75.6) as all respondents see Biden’s advantage growing to 7 in the early October survey from 1 percentage point from July to September. In contrast, the gauge for current conditions declined (84.9 vs 87.8), amid slowing employment growth, the resurgence in covid-19 infections, and the absence of additional federal relief payments. On the price front, inflation expectations for the year ahead edged up to 2.7 percent from 2.6 percent and those for the next 5 years slowed to 2.4 percent from 2.7 percent.

U.S. Overall Net Capital Flow

Overseas investors bought USD 86.3 billion of US assets, including short-dated instruments, in August 2020 after selling an upwardly revised USD 89.5 billion in the previous month. Meanwhile, foreigners sold USD 33.1 billion of long-term US securities, including government and corporate after dumping USD 22.8 billion in July. Overseas investors bought USD 27.8 billion of Treasuries in August after purchasing an upwardly-revised USD 11.3 billion in the previous month.

Economic Calendar

Monday

China Gross Domestic Product (GDP) QoQ

Monday

China Industrial Production YoY

Tuesday

Reserve Bank of Australia Meeting Minutes

Tuesday

U.S. Building Permits

Tuesday

Germany Producer Price Index (PPI) MoM

Wednesday

U.K. Consumer Price Index (CPI) YoY

Thursday

U.S. Cushing Crude Oil Inventories

Thursday

U.S. Initial Jobless Claims

Friday

Existing Home Sales (Sep)

Friday

U.S. Markit Composite PMI