Monex Morning Report – Mon 24 Aug 2020

OVERNIGHT HIGHLIGHTS

S&P500, Nasdaq set fresh records, Dow adds 200 points as investors cheer economic data;Asia set for a muted start

UK-EU trade talks are going backward and time is running out; US and EU hatch mini-deal to cut lobster, other tariffs

Top Market News

U.S. and EU hatch mini-deal to cut lobster, other tariffs

“The United States and the European Union on Friday announced a mini-deal valued at around $200 million to cut import tariffs on a small range of products, including U.S. lobsters, in a sign of easing transatlantic trade tensions. The two, who have been at odds over aircraft subsidies and U.S. President Donald Trump’s imposition of punitive tariffs on EU steel and aluminum, announced the deal in a joint statement. “”The importance of the deal is that it has unleashed positive results elsewhere,”” an EU official said. Under the agreement, the EU will remove tariffs of 8%-12% on imports of lobsters, while the United States will halve its duties on imports of certain glassware, ceramics, disposable lighters and prepared meals. ”

Originating Source

Trump says could ‘decouple’ and not do business with China

“U.S. President Donald Trump, in a Fox News interview airing Sunday, raised the possibility of decoupling the U.S. economy from China, a major purchaser of U.S. goods. In a video excerpt, Trump initially told interviewer Steve Hilton “”we don’t have to”” do business with China, and then later said about decoupling: “”Well it’s something that if they don’t treat us right I would certainly, I would certainly do that.”” Trump entered into a high-stakes trade war with China before reaching a partial Phase 1 trade deal in January. Trump has since shut the door on Phase 2 negotiations, saying he was unhappy with Beijing’s handling of the pandemic. ”

Originating Source

Republican convention begins

Markets will continue to follow developments in Washington as the Republican nominating convention for President Donald Trump gets underway on Monday. The convention is expected to culminate in a live acceptance speech from Trump on Thursday night on the South Lawn of the White House. At last week’s Democratic convention speaker after speaker characterized Trump’s four years in office as chaotic. Trump countered on Friday that Democrats, not he, would bring chaos to the United States if Joe Biden wins the White House in November. The conventions are happening against a background of a stalemate in talks between House Democrats and the White House over the next coronavirus aid bill as about 28 million Americans continue to collect unemployment checks.

Originating Source

Australia says effective unemployment to exceed 13% by end of September

“Effective unemployment in Australia will climb above 13% by the end of September, Treasurer Josh Frydenberg said on Sunday, as nearly half a million people lose their jobs due to a full lockdown of the country’s second most populous city. Releasing modelling from Australia’s Treasury Department, Frydenberg said effective unemployment totalled 9.9% at the end of July, down from the record high of 14% in April when large parts of the country’s economy were ordered to close to slow the spread of COVID-19. But demonstrating the economic impact of Australia’s second wave of COVID-19 infections, Frydenberg said the number of people out of work will swell by 450,000 during August and September amid a lockdown of nearly five million people in Victoria state capital, Melbourne. ”

Originating Source

UK-EU trade talks are going backward and time is running out

“The latest round of trade talks between Britain and the European Union has concluded without a breakthrough, leaving negotiators just two months to reach a deal and avoid further damage to businesses that have already been slammed by the coronavirus recession. British and EU officials said Friday that little progress was made in negotiations to set new terms of trade before transitional Brexit arrangements expire at the end of 2020. Michel Barnier, lead negotiator for the European Union, said that discussions had even shifted into reverse on key issues including commercial fishing rights. “”At this stage, an agreement between the UK and the European Union seems unlikely,”” Barnier told reporters in Brussels. “”I simply do not understand why we are wasting valuable time. The clock is ticking.”” ”

Originating Source

Chinese premier says economy could grow this year: state radio

Chinese Premier Li Keqiang said the country’s economy could grow this year, state radio reported on Sunday, despite the impact of the COVID-19 pandemic. The world’s second-biggest economy grew 3.2% year on year in the second quarter, recovering from a record contraction as coronavirus lockdown measures ended and policymakers stepped up stimulus to combat the shock from the crisis. Li also said the government expects more than 9 million new urban jobs to be created this year.

Originating Source

China promised to follow Phase One trade deal, Pompeo says

China has promised to follow the Phase One trade deal reached with the United States, Secretary of State Mike Pompeo said on Friday, despite a delay in talks to review progress on the deal. “The Chinese have done some of the work they need to do on the purchasing they committed to continuing to fulfill that obligation. But you have to remember there’s a lot of obligations that go far beyond just purchasing American products,” Pompeo said in an interview with CNBC.

Originating Source

UK budget office sees debt above 106% of GDP this year

Britain’s official budget forecasters raised their estimate for the size of the country’s public debt pile at the end of the current financial year, after data showed earlier on Friday that it had passed 100% of annual economic output for the first time. The Office for Budget Responsibility said it now expected public sector net debt to increase to 106.4% of gross domestic product, up from a forecast of 104.1% in the central scenario of projections the OBR published last month.

Originating Source

Top Trump News

Plasma Treatment

President Trump said a treatment involving blood plasma donated by recovered Covid-19 patients will be expanded under an emergency authorization by U.S. regulators on Sunday, saving “countless lives.” “This is what I’ve been looking to do for a long time,” Trump said at a White House news conference announcing the decision, which he said will “dramatically expand access” to a “powerful therapy.” He also promised further announcements “very shortly” involving vaccines. After claiming without evidence that employees at the Food and Drug Administration were delaying coronavirus remedies for political reasons ahead of the November election, Trump said the emergency procedure speeded up the normal approval route by two or three years.

Originating Source

Biden

Joe Biden wrapped up the Democratic National Convention with an acceptance speech that promised to lead the U.S. out of ‘darkness’, without mentioning President Donald Trump by name once. “Character is on the ballot, compassion is on the ballot, decency, science, democracy. They’re all on the ballot,” Biden said. Responding via Twitter, Trump said that Biden’s words were at odds with his 47-year record in politics. Opinion polls this week have shown Trump slightly narrowing Biden’s lead to around 8 percentage points.

Originating Source

TikTok

Chinese video app TikTok is set to launch legal action to challenge a ban imposed by US President Donald Trump. Mr Trump’s executive order prohibits transactions with TikTok’s owner ByteDance from mid-September. Officials in Washington are concerned that the company could pass data on American users to the Chinese government, something ByteDance has denied doing. The short video-sharing app has 80 million active US users. TikTok says it has tried to engage with the Mr Trump’s administration for nearly a year but has encountered a lack of due process and an administration that pays “no attention to facts”.

Originating Source

Economic Indicators

Japan National Consumer Price Index (CPI) MoM

Japan’s consumer price inflation climbed to 0.3 percent in July from an over 3-year low of 0.1 percent yoy in June 2020, as the pandemic continued to hamper consumption excluding food. Prices fell at a softer 10.3 percent pace for education (vs 10.5 percent in June) and 0.1 percent for transport & communication (vs -0.5 percent). In contrast, fuel, light & water charges prices dropped further (-2.2 percent vs -2 percent). Meanwhile, inflation for housing remained unchanged at 0.7 percent. Food inflation jumped to 1.9 percent from 1.5 percent in the previous month. On a monthly basis, consumer prices edged up 0.2 percent after edging up 0.1 percent. Core consumer prices, which exclude fresh food, remained unchanged for the second month.

United Kingdom Consumer Confidence

The United Kingdom’s Gfk Consumer Confidence remained unchanged at -27 in August 2020 from the previous month, as personal finances optimism improved but the economy’s outlook deteriorated. The Major Purchase Index edged up one point to -25. “Employment is now the big issue because the pandemic has ended years of job security. Yes, discounted dinners have proved a winner with hungry consumers across the country this month, but it’s difficult to see significantly increased appetite for other types of spending for now”, said Joe Staton, GfK’s Client Strategy Director.

“U.K. Retail Sales MoM ”

UK retail trade increased 3.6 percent from a month earlier in July 2020, recovering further from the sharp falls during lockdown and easily beating market expectations of 2.0 percent, as non-food sales climbed 10.0 percent and fuel trade jumped 26.2 percent. Meanwhile, sales at food stores declined 3.1 percent, which could be explained by the re-opening of restaurants and bars from July 4th, as consumers’ retail food bills reduced as they began to eat out. At the same time, non-store retailing dropped for a second straight month from the sharp growth in March, April and May, possibly an impact of an increasing number of retail stores re-opening. Retail sales volumes were 3.0 percent above pre-pandemic levels in February, led by food sales (2.4 percent) and non-store retailing (49.2 percent), while non-food trade and fuel sales were down 6.6 percent and 11.7 percent respectively.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit Germany Manufacturing PMI rose to 53 in August of 2020 from 51 in July, beating market forecasts of 52.5. The reading pointed to the strongest increase in factory activity since September of 2018, preliminary figures showed, a sign the economy is recovering form the coronavirus hit. Production grew sharply, new work and export sales rose markedly for the second month and job shedding slowed. The only negative directional influence was from the stocks of purchases component, with goods producers reporting an accelerated decline in preproduction inventories. Efforts to streamline stocks were indeed reflected in only a marginal rise in manufacturers’ purchasing activity, the rate of growth of which was well below those of both output and new orders. Also, business expectations were the strongest in two-and-a-half years.

U.K. Composite Purchasing Managers’ Index (PMI)

The IHS Markit/CIPS UK Composite PMI climbed to 60.3 in August 2020 from 57.0 in the previous month, easily beating market expectations of 57.1, a preliminary estimate showed. The latest reading signaled the fastest rate of business activity expansion since October 2013 boosted by the reopening of the UK economy after the lockdown period in the second quarter of the year and a subsequent increase in both consumer and business spending. Service sector activity expanded the most since August 2014 and manufacturing production growth quickened to over six-year high.

U.S. Services Purchasing Managers Index (PMI)

The IHS Markit US Services PMI rose to 54.8 in August 2020 from 50.0 in the previous month, easily beating market expectations of 51.0, a preliminary estimate showed. The latest reading signalled the first expansion in service sector business activity since the start of 2020, and at the fastest rate since March 2019. Overall new business grew firmly, supported by a sharp upturn in new export orders, and employment growth was the steepest since February 2019. On the price front, competitive pressures led to a softer increase in selling prices despite a sharp increase in cost burdens. Looking ahead, business optimism eased slightly since July.

U.S. Existing Home Sales

Sales of previously owned houses in the US jumped 24.7 percent from the previous month to a seasonally adjusted annual rate of 5.86 million units in July of 2020. That was a new record increase in existing home sales, bringing the total to the highest since December of 2006 amid low interest rates. Single family sales went up 23.9 percent and those of condos 31.8 percent. Each of the four major regions attained double-digit increases. There were 1.5 million previously owned homes on the market in July, down from 1.9 million a year ago. The median existing house price increased to a record USD 304,100. Year-on-year, existing home sales went up 8.7 percent. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021”, Lawrence Yun, NAR’s chief economist said.

Economic Calendar

Tuesday

Germany German GDP (QoQ) (Q2)

Tuesday

Germany Ifo Business Climate Index (Aug)

Wednesday

US New Home Sales (Jul)

Wednesday

US Core Durable Goods Orders (MoM) (Jul)

Thursday

US Crude Oil Inventories

Thursday

US GDP (QoQ) (Q2)  

Thursday

US Initial Jobless Claims

Thursday

US Fed Chair Powell Speaks  

Friday

US Pending Home Sales (MoM) (Jul)

Friday

UK BoE Gov Bailey Speaks