Monex Morning Report – Mon 21 Dec 2020

OVERNIGHT HIGHLIGHTS

Dow ends 124 points lower as Congress races to avert government shutdown, pass economic relief package; Asian stocks set to mixed start

U.S. Congress finalizing COVID-19 aid package, but votes not yet set; Federal Reserve frees up US banks to resume share buybacks

Top Market News

U.S. Congress finalizing COVID-19 aid package, but votes not yet set

Republican and Democratic leaders in the U.S. Congress on Sunday said they were close to finalizing a $900 billion package to provide the first new aid in months to an economy hammered by the pandemic, but it remained unclear when they would vote to seal the deal. Their remarks followed late-night negotiations in which senators from both parties struck a compromise to clear one of the final hurdles, a dispute over Federal Reserve pandemic lending authority. The package would be the second-largest economic stimulus in U.S. history, following a $2.3 trillion aid bill passed in March. The deal comes as the pandemic accelerates, infecting more than 214,000 people in the country each day. More than 317,000 Americans have already died. The package would give $600 direct payments to individuals, boost unemployment payments by $300 per week, and give hundreds of billions of dollars in additional aid to small businesses. It also would provide $25 billion for rental assistance, sources said.

Originating Source

Congress funds government until Sunday as Covid relief talks drag

The US Congress approved a stopgap measure to fund the government just hours before a shutdown was due to take effect on Friday night, buying time for frustratingly slow endgame negotiations on an almost $1tn coronavirus relief package. The House passed the temporary funding bill, followed almost immediately by an approval in the Senate. Afterwards, Donald Trump signed the measure into law. The stopgap bill will fund the government for two more days as protracted negotiations continue over the new economic aid package. The talks remain on track, both sides said, but closing out final disagreements is proving difficult. Lawmakers appear to be stuck on restrictions for the Federal Reserve and funding for state and local governments, though Democrats and Republicans seem to be set on most of the bill’s major components. The Senate majority leader, Mitch McConnell, projected confidence Friday about the state of negotiations over coronavirus relief.

Originating Source

BOJ to look at more effective ways to resolve inflation conundrum, extends fund scheme

The Bank of Japan on Friday unveiled a plan to examine more effective ways to achieve its 2% inflation target, following in the foot steps of its U.S. and European peers as a renewed spike in infections threatened to derail a fragile recovery. As widely expected, the central bank kept monetary policy steady and extended by six months a range of measures aimed at easing funding strains of companies hit by COVID-19. In a surprise move, the BOJ said it will look at ways to make its policy “more effective and sustainable,” as the blow to growth from the pandemic pushes inflation further away from its target and forces it to maintain its massive stimulus longer. BOJ Governor Haruhiko Kuroda said the review will be more a fine-tuning of its market operations and asset purchases, rather than an overhaul of its yield curve control (YCC) policy. But he said the central bank was open to introducing new tools and reviewing the way it buys exchange-traded funds (ETF) to address the potential side-effects of prolonged easing. “We will examine operations under yield curve control and our asset purchases,” Kuroda told a briefing.

Originating Source

Fed’s Clarida sees strong U.S. rebound on vaccine, no double dip

Federal Reserve Vice Chairman Richard Clarida, voicing optimism on the economic outlook thanks to coronavirus vaccines, said the U.S. will likely avoid slipping back into recession as growth rebounds next year. “I don’t think we will have a double dip,” Clarida said Friday in an interview on CNBC. “We’ve said we could have a rough couple of months in the data but on the other side of this of course we’ve gotten very, very positive news on multiple vaccines.”Fed officials earlier this week forecast their benchmark lending rate would be held around zero for at least the next three years. They also revised up their economic growth forecast for next year to 4.2% from 4% and lowered their unemployment forecast to 5% from 5.5%. Policy makers also said they would continue asset purchases at a monthly pace of at least $120 billion “until substantial further progress” had been made on their full employment and inflation goals.

Originating Source

Kaplan says he’s not in favor of Fed increasing bond purchases

Dallas Federal Reserve President Robert Kaplan said he wouldn’t be in favor of changing the central bank’s bond-purchasing program even though he sees some rocky times ahead for the U.S. economy. Speaking Wednesday to CNBC, Kaplan said financial conditions are such that the Fed probably doesn’t need to do more than its current pace of at least $120 billion a month in Treasurys and mortgage-backed securities. “I would not want to do that at this point,” he said during a “Closing Bell” interview. “I’ll go into the December meeting with an open mind. But I think we’ve got very accommodative financial conditions, we’ve got historically low rates on the long end, and so I don’t know that increasing the size or extending maturities of our bond purchases would help address this situation that I’m concerned about over the next three or six months.” During that period, Kaplan expects a “challenging” economy where growth could slow considerably or stop due primarily to surging coronavirus cases.

Originating Source

Federal Reserve frees up US banks to resume share buybacks

“The Federal Reserve has given America’s most profitable banks the green light to resume share buybacks for the first quarter of next year, even though it found that the country’s biggest lenders could face pandemic-related loan losses of more than $600bn.  The US central bank’s decision to lift a six-month ban on buybacks followed months of public protests by profitable lenders, including Morgan Stanley and JPMorgan Chase, several of whom immediately signalled their intention to restart purchases.  Many analysts and investors expected the Fed to hold firm to its restrictions, as the US continues to suffer record coronavirus cases and deaths and lawmakers struggle to agree stimulus measures to boost the economy through another round of shutdowns. But the Fed said it was giving banks more freedom on payouts because they had already significantly increased their capital buffers and all 33 in the exercise would be above minimum capital levels even under the most severe stress they were tested against.  ”

Originating Source

U.S. bans technology exports to Chinese semiconductor and drone companies, calling them security threats

The Trump administration has added prominent Chinese semiconductor and drone manufacturers to an export blacklist, an attempt to continue exerting pressure on Beijing in the final weeks of the Trump presidency. The Commerce Department said it has placed Semiconductor Manufacturing International Corp., or SMIC; drone maker DJI; and dozens of other Chinese companies and universities on the Entity List, which bans the export of U.S. technology to the entities unless the exporter receives a government license. But national security experts and some lawmakers said that the semiconductor export control is virtually meaningless because of the way Commerce wrote the rule governing its application.

Originating Source

Moderna COVID-19 vaccine second to get FDA sign-off in US

The Food and Drug Administration authorized the COVID-19 vaccine developed by Moderna, which joins the Pfizer and BioNTech product as the second shot available for use in the United States. The vaccine can now be given to adults 18 years of age and older in the US. It was 94 percent effective against symptomatic COVID-19 in clinical trials. The Moderna vaccine also protects against cases of severe disease: there were 30 cases of severe disease among trial participants, and all were in the placebo group. Initial data on the Pfizer and BioNTech vaccine also indicated that it could protect against severe disease, but data was too limited to reach a definite conclusion. “With the availability of two vaccines now for the prevention of COVID-19, the FDA has taken another crucial step in the fight against this global pandemic that is causing vast numbers of hospitalizations and deaths in the United States each day,” said FDA Commissioner Stephen Hahn in a press release.

Originating Source

Top Trump News

Tensions flare between Pentagon, Biden team over transition meetings

The tension between the Trump administration and President-elect Joe Biden’s team spilled out into the open on Friday, as officials traded accusations over the status of a series of Defense Department transition meetings that a Biden spokesperson called “invaluable” for national security. Biden transition executive director Yohannes Abraham directly contradicted acting Defense Secretary Chris Miller’s claims that the two teams “mutually agreed” to pause the interviews until after the holiday, after Axios reported that Miller had abruptly ordered a department-wide halt to cooperation with the transition team. “Let me be clear, there was no mutually agreed upon holiday break,” Abraham said, adding that the team hopes the Pentagon will resume meetings and answering requests for information “immediately.” “That our agency review teams will be able to have access to the sort of information that is invaluable for keeping the homeland safe.” Miller said earlier in the day that the Pentagon had rescheduled roughly 20 meetings planned for Friday with members of the transition team until after Jan. 1, but insisted that the Department of Defense is continuing to cooperate with the transition.

Originating Source

Trump signs bill that could remove Chinese stocks from US markets

President Donald Trump on Friday signed legislation that could kick Chinese companies off of U.S. exchanges unless American regulators can review their financial audits, a move likely to further escalate tensions between the two countries. The measure, which could affect corporate giants like Alibaba Group Holding Ltd. and Baidu Inc., serves as another parting shot at Beijing before Trump leaves office in January. The president has long railed against China for what he calls unfair trading practices, and slapped tariffs on billions of dollars in imports. But his rhetoric sharpened this year as he blamed Beijing for the global coronavirus pandemic — a central issue in his electoral loss to Joe Biden as Trump was widely criticized for his handling of the outbreak. The de-listing law won bipartisan support in the House early this month after easily clearing the U.S. Senate in May. While it applies to any foreign company, the bill’s sponsors have said their goal was to target China. Chinese firms for years have used American capital markets and dollar-based finance as a key funding component to grow their businesses. While the measure includes a phase-in period, with penalties kicking in after three straight years of noncompliance, it could impose real damage on Chinese companies that fail to meet the audit standards.

Originating Source

Trump downplays government hack after Pompeo blames it on Russia

Not long after Mike Pompeo became the first member of the Trump administration to blame Russia for wide-ranging hacks of US government agencies and private companies which have sent Washington scrambling to fill the breach, the president sought to play the hack down. In response, one senior congressional Democrat accused Trump of “another scandalous betrayal of our national security”. “The Cyber Hack is far greater in the Fake News Media than in actuality,” Trump tweeted on Saturday morning. “I have been fully briefed and everything is well under control. Russia, Russia, Russia is the priority chant when anything happens because [US media] is, for mostly financial reasons, petrified of discussing the possibility that it may be China (it may!)”

Originating Source

Economic Indicators

Japan CPI

Japan’s consumer prices declined 0.9 percent year-on-year in November of 2020, after falling 0.4 percent in the previous month, as the pandemic continued to drag consumption heavily. The decline was bigger than expected and was the sharpest since August of 2010. Prices were mainly dragged by utilities (-5.4 percent vs -2.9 percent in October), food (-0.2 percent vs 1.1 percent), education (-2.2 percent vs -2.1 percent), transportation & communication (-1.1 percent vs -0.9 percent), and culture & recreation (-3.8 percent vs -4.0 percent). Meanwhile, prices for medical care fell again by 0.5 percent. On a monthly basis, consumer prices dropped 0.4 percent after edging down 0.1 percent. Core consumer prices, which exclude fresh food, dropped 0.9 percent on the year.

Germany Producer Prices

Producer Prices in Germany increased to 103.90 points in November from 103.70 in October 2020.

Germany Ifo Business Climate Index

The Ifo Business Climate indicator for Germany went up to 92.1 in December of 2020 from an upwardly revised 90.9 in the previous month, beating market forecasts of 90. Companies became more optimistic about current conditions (91.3 vs 90) and expectations (92.8 vs 91.8). “Companies were satisfied with their business situation. They are looking at the first half of the year with less skepticism. But the lockdown is hitting some branches hard. The German economy is on the whole showing its resilience”, Ifo President Clemens Fuest said. Still, the reading remains below pre-pandemic levels.

United States Current Account

The current account gap in the US widened by $17.2 billion, or 10.6 percent, to $178.5 billion in the third quarter of 2020, slightly less than forecasts of a $189 billion gap. It is equivalent to 3.4% of the GDP, up from 3.3% in the second quarter, amid an expanded deficit on goods that was partially offset by an expanded surplus on primary income. Exports of goods increased $68.4 billion, to $357.1 billion, led by parts and engines and passenger cars. Exports of services increased $2.8 billion, to $164.8 billion, mainly due to licenses for the use of outcomes of research and development, that was partly offset by a decrease in travel, primarily education-related travel. Imports of goods increased $94.4 billion, to $602.7 billion and services increased $6.5 billion, to $107.7 billion. The rises in both receipts and payments in the primary income account mainly reflected increases in direct investment income, primarily earnings.

Economic Calendar

Monday

AU Mid-Year Economic and Fiscal Outlook

Monday

CN PBoC Loan Prime Rate

Tuesday

AU Retail Sales MoM

Wednesday

UK Gross Domestic Product (GDP) QoQ

Thursday

UK Gross Domestic Product (GDP) QoQ

Thursday

US Existing Home Sales

Thursday

US Initial Jobless Claims

Thursday

US New Home Sales (Nov)

Thursday

US Crude Oil Inventories

Friday

US Christmas Day