Monex Morning Report – Mon 26 Oct 2020

OVERNIGHT HIGHLIGHTS

U.S. stock market ends mostly higher but notches weekly loss as fiscal stimulus hopes fade; Asia stocks set for muted open

U.S. COVID-19 aid bill talks continue, Pelosi says; A good chance we can get a deal with EU, says UK minister Lewis

Top Market News

U.S. hits record again as Italy, Spain crack down: Virus Update

The U.S. reported record coronavirus infections for the second day in a row, adding 85,317 cases. President Donald Trump’s chief of staff was lambasted by Democrats after saying the U.S. won’t “control” the pandemic. Spain announced a national curfew from 11 p.m. to 6 a.m. as the government approved further emergency powers. Italy, which again reported record infections, introduced the strongest virus restrictions since the end of a national lockdown in May. France’s surge pushed infections to 52,010, another record. U.S. Vice President Mike Pence’s chief of staff, Marc Short, tested positive, raising the prospect of another outbreak within the White House. Pence has tested negative and will continue to campaign.

Originating Source

U.S. COVID-19 aid bill talks continue, Pelosi says

U.S. House Speaker Nancy Pelosi on Sunday said the Trump administration was reviewing the latest plan for more COVID-19 relief over the weekend and that she expected a response on Monday, adding that she was still optimistic a deal could be reached. Pelosi said she would still pursue an agreement after the Nov. 3 election regardless of its outcome, but that she wanted to see a deal for another round of federal financial aid amid the novel coronavirus pandemic as soon as possible. “We want it the sooner the better,” she said in an interview on CNN’s “State of the Union” program. Pelosi and President Donald Trump have been trading accusations for days about who needed to act in order to cement another round of COVID-19 aid before Election Day, with Trump’s fellow Senate Republicans off to the sidelines. Pelosi, the top Democrat in Congress, has been negotiating with U.S. Treasury Secretary Mnuchin to try to reach an agreement that could be worth around $2 trillion before the presidential and congressional election. On Sunday, she said that Mnuchin was reviewing the latest proposed legislative language and that she was awaiting formal agreement from the White House on a deal.

Originating Source

White house’s Kudlow says ‘ball’s not moving much’ on stimulus

White House economic director Larry Kudlow said “the ball’s not moving much right now” on negotiations over an additional round of federal stimulus, even as coronavirus cases spike in parts of the country raising the prospect of further shutdowns. “It’s very difficult,” Kudlow said Friday during an interview with Bloomberg Television, adding that there are still a number of issues dividing the White House and Democrats. “The clock is ticking, as you know.” Kudlow signaled pessimism over the chances of getting a bill before Election Day, saying disagreements remain over policies like liability protection and assistance to undocumented migrants. Even if a deal were reached, Kudlow said, it would be hard to draft and pass in the 11 days before voters head to the polls. Kudlow said he had heard that “the GOP conference in the Senate would be willing to support a bill as long as it is a genuinely bipartisan deal and their asks are included.” He said he wasn’t aware of Senate Majority Leader Mitch McConnell — who opposes a larger spending package — telling the White House not to make a deal. Dimming hopes for an agreement before Election Day raises the risk that additional stimulus funds may not arrive until January, depending on the results of the Nov. 3 election. House Speaker Nancy Pelosi said Thursday that committee chairs in the House and Senate have become involved in the talks, addressing smaller issues in the bill.

Originating Source

Threats to U.S. Treasury market liquidity still exist, Fed says

The U.S. Treasury market still runs the risk of abrupt freezes in liquidity like the one seen in March and April, as the COVID-19 pandemic roiled the financial system, a member of the Federal Reserve Bank of New York’s Market Committee said on Friday. The market shock in March, which helped drive yields across maturities to all-time lows, was “truly an exceptional event,” Lorie Logan said in a speech to the Brookings-Chicago Booth Task Force on Financial Stability. “However, while it is tempting to dismiss it as a once-in-a-lifetime shock, it is important to take time to reflect and assess if lessons can be learned that could make the Treasury market even more resilient to future shocks.” The Treasury market is the deepest and most liquid in the world. Nevertheless, at the start of the coronavirus pandemic, a large number of investors tried to sell off their Treasury holdings only to find a limited number of buyers. The major sellers were mutual funds, which sold off more than $200 billion of their Treasury holdings in the first quarter, foreign accounts, which sold off roughly $161 billion between February and April, and hedge funds.

Originating Source

A good chance we can get a deal with EU, says UK minister Lewis

Britain and the European Union have a good chance of striking a deal on future relations, the British government’s Northern Ireland minister Brandon Lewis said on Sunday. The United Kingdom left the EU in January but the two sides are trying to clinch a deal that would govern nearly a trillion dollars in annual trade before a transition period of informal membership ends on Dec. 31. Talks resumed last week after Britain walked away in frustration at what it saw as the EU’s unwillingness to compromise on key issues. On Friday, Britain said there had been good progress since the restart. forBritain’s Sunday Telegraph newspaper said the EU’s chief negotiator Michel Barnier was planning to extend his stay in London until Wednesday. Asked about that report, and the overall prospects of a deal, Lewis told the BBC: “I’m always an optimist … and I hope and I think there’s a good chance we can get a deal, but the EU need to understand it is for them to move as well.” Lewis restated the government position that it would rather leave without a deal — a scenario it calls leaving on Australian terms — than accept a deal which is not in Britain’s interests.

Originating Source

Britain signs first major post-Brexit trade deal with Japan

“Britain and Japan formally signed a trade agreement on Friday, marking Britain’s first big post-Brexit deal on trade, as it continues to struggle to agree on a deal with its closest trading partners in the European Union. Britain formally left the EU in January and it has focused on negotiating new trade pacts with countries around the world as its status-quo transition period ends on Dec. 31. “”How fitting it is to be in the land of the rising sun to welcome in the dawn of a new era of free trade,”” British Trade Secretary Liz Truss told reporters after the signing ceremony in Tokyo. “”This is the first new free trade deal to be agreed since the UK once again became an independent trading nation.”” The signing comes after Truss and Japanese Foreign Minister Toshimitsu Motegi reached a broad agreement in September. Motegi pointed out that the signing came about in just four and a half months since the start of negotiations. “”This is a manifestation of the determination of Japan and the United Kingdom to carry on vigorously promoting free trade,”” the minister said.”

Originating Source

Japan mulls $95.5 billion extra budget to counter coronavirus: media

Japan’s government is considering compiling an extra budget worth around $95.5 billion to offset the economic drag caused by the coronavirus pandemic, the Mainichi newspaper reported on Saturday. The government is likely to debate using the 10 trillion yen ($95.52 billion) budget to extend a labour subsidy programme scheduled to end in December and to pay for the distribution of a coronavirus vaccine, the Mainichi reported, without citing sources. Members of the ruling Liberal Democratic Party are calling for 10 trillion yen in spending, and Prime Minister Yoshihide Suga is likely to formally order an extra budget early next month, the Mainichi said. The finance ministry and the prime minister’s office did not respond when contacted by phone.

Originating Source

China imposes anti-dumping measures on U.S., South Korea, EU rubber imports

China’s Ministry of Commerce said on Friday that it will impose temporary anti-dumping measures on some rubber imports from the United States, South Korea, and the European Union from Oct. 28. Beijing will impose anti-dumping deposits on ethylene propylene diene monomer rubber imports from the countries and region, the ministry said in a statement on its website. The measures follow an investigation launched in June 2019.

Originating Source

Top Trump News

Second debate

U.S. President Donald Trump’s probability of getting re-elected gained slightly on online betting markets following Thursday’s final presidential debate. Bettors on British exchange Smarkets give Democratic challenger Joe Biden a 66% chance of winning the Nov. 3 election, down from 68% before the the debate. Trump’s chances improved to 34% from 32%. Betfair also said Trump’s odds improved on the same level following the debate, adding that punters spent over nine million pounds ($12 million) betting on the election over the last 24 hours. The odds have narrowed since mid-October, but betting trends on gambling websites still predict a win for Biden. The former vice president has a substantial lead in national opinion polls, although the contest is closer in battleground states likely to decide the race. The majority of big-money political betting occurs outside America as betting on politics is illegal in the United States.

Originating Source

I voted for a guy named Trump’

President Donald Trump has cast his ballot for the US election on Saturday morning (Sunday 1:30am AEDST) in West Palm Beach, Florida, and he tells reporters afterward: “I voted for a guy named Trump”. West Palm Beach is near his private Mar-a-Lago club. He used to vote in New York but changed his residency to Florida last year. There were several hundred supporters gathered with flags and signs outside the library where he voted. And there were chants of “Four more years.” The president wore a mask while voting but he took it off as he approached reporters afterward in the building. He called it “a very secure vote. Much more secure than when you send in a ballot, I can tell you that.” Democrat Joe Biden hasn’t voted yet and it likely to do so in person in Delaware on Election Day, November 3. Delaware doesn’t offer early, in-person voting like Florida.

Originating Source

Senate

Shortly after Donald Trump insisted to reporters in Ohio he expected a “red wave” on election day, 3 November, it was reported on Saturday that he told Republican donors this week it would be “tough” for the party to hold on to the Senate. Trump trails Joe Biden in most national and battleground state polls. Democrats hold the House of Representatives and expect to keep it, while many forecasters think they have a good chance of re-taking the Senate, which Republicans hold 53-47, thereby achieving unified government. “I think the Senate is tough actually,” the Washington Post said Trump told donors in Nashville, Tennessee, on Thursday, before his last debate against Biden, according to an anonymous attendee. “The Senate is very tough.” The Post said Trump also insisted Republicans “are going to take back the House”. As Democrats hold that chamber by 232-197, few forecasters think there is much chance of that. Senate Republicans face defeat in Colorado, Maine, Arizona and perhaps North Carolina. Supposedly safer seats in Georgia, Iowa and Montana look far from secure. Trump reportedly told donors North Carolina would hold and Alabama would be taken back, but said there were “a couple” of senators he did not want to help.

Originating Source

Economic Indicators

Japan National Consumer Price Index (CPI) YoY

Japan’s consumer prices remained unchanged September year-on-year after increasing 0.2 percent in the previous month, as the pandemic continued to hamper consumption. Food inflation declined to 1.9 percent from 2.9 percent. Prices for education continued to drop at a sharp 10.3 percent pace. In contrast, prices for transport & communication rose by 0.4 percent after increasing 0.2 percent in August. Meanwhile, deflation for fuel, light & water charges accelerated (-2.2 percent vs -1.9 percent). On a monthly basis, consumer prices edged down 0.1 percent for the second month. Core consumer prices, which exclude fresh food, dropped 0.3 percent after falling 0.4 percent in the previous month.

Japan Services Purchasing Managers’ Index (PMI)

The au Jibun Bank Japan Services PMI fell to 46.6 in October 2020 from a final 46.9 in September, flash data showed. New business inflows shrank again, though the pace of decline was the weakest in three months and one that was modest overall. At the same time, new export orders continued to decline, due to international travel restrictions and client business closures. The labor market, meanwhile, moved toward stabilization, with employment broadly unchanged. On the price front, input cost dropped at a softer rate, while output prices fell faster. Finally, confidence strengthened, with the government’s “Go to Campaign” providing a boost to tourism services.

U.K. Retail Sales MoM

Retail sales in the United Kingdom increased 1.5 percent month-over-month in September of 2020, beating forecasts of a 0.4 percent rise. It is the fifth consecutive month of rising retail sales and the third highest gain so far this year. Food sales have done well in recent months (0.7 percent vs 0.4 percent) as people have eaten out less, and sales also increased for household goods and garden items (0.9 percent vs 1.4 percent); fuel (0.1 percent vs 3.9 percent) and clothing (3.6 percent vs 12 percent). Retail sales are now 5.5 percent higher compared with February’s pre-pandemic level. Considering the 3 months to September, retail sales volumes increased by 17.4 percent when compared with the previous three months; this is the biggest quarterly increase on record as sales picked up from record-low levels experienced earlier in the year amid the coronavirus lockdown.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit Germany Manufacturing PMI increased to 58 in October of 2020 from 56.4 in September and well above market expectations of 55.1. The reading pointed to the strongest expansion in factory activity since April of 2018, preliminary estimates showed. Stronger growth of factory output and new orders, a slower fall in stocks of purchases, and a greater lengthening of input delivery times drove the expansion. There were increases in sales to Asia (often China), the US and across Europe. Input prices rose only marginally, but it was the first increase in a year-and-a-half amid higher demand for materials and associated shortages at suppliers. On the other hand, further staff cuts were observed.

Eurozone Services Purchasing Managers Index (PMI)

The IHS Markit Eurozone Services PMI fell to 46.2 in October of 2020 from 48 in the previous month and below market expectations of 47, a preliminary estimate showed. The latest reading pointed to a second successive month of contraction in the service sector and the sharpest rate since May. If the March to May period at the height of COVID19 lockdowns is excluded, the latest drop in service sector output was the steepest for eight years. Inflows of new business into the service sector also fell at an accelerated rate. Inflows of new business fell at an accelerated rate and employment reduced with companies reporting excess capacity, as indicated by a further reduction in backlogs of work. On the price front, input costs rose while output prices continued to fall. Looking ahead, business expectations about the coming 12 months deteriorated sharply.

U.K. Services Purchasing Managers Index (PMI)

The IHS Markit/CIPS UK Services PMI fell to 52.3 in October of 2020 from 56.1 in the previous month and well below market forecasts of 54, a preliminary estimate showed. The latest reading pointed to the worst performance for the sector since June, indicating a sharp loss of momentum across the service economy, with business activity growth easing for the second month running. Moreover, there was a reversal in customer demand, as signalled by a drop in new work for the first time since June, which contributed to another steep fall in staffing numbers. Finally, business expectations for the next 12 months worsened in October.

U.S. Services Purchasing Managers Index (PMI)

“The IHS Markit US Services PMI rose to 56 in October 2020 from 54.6 in the previous month and beating market expectations of 54.6, a flash estimate showed. The latest reading pointed to the third consecutive expansion in the services sector and the sharpest in since February last year. Despite the rate of new orders growth easing, sales remained strong overall. At the same time, new export business increased at a softer pace, while the rate of employment growth was faster than the series average, still dropped to a three-month low. On the price front, inflationary pressures eased. Lastly, sentiment improved to the strongest since April 2018 amid hopes of an end of coronavirus restrictions. ”

Economic Calendar

Monday

German Ifo Business Climate Index (Oct)

Tuesday

U.S. New Home Sales

Wednesday

Australia Consumer Price Index (CPI) QoQ

Thursday

U.S. Crude Oil Inventories

Thursday

Japan Retail Sales YoY

Thursday

Japan Interest Rate Decision

Thursday

Eurozone Interest Rate Decision

Friday

Germany Consumer Price Index (CPI) MoM

Friday

U.S. Pending Home Sales MoM

Friday

Germany Gross Domestic Product (GDP) QoQ