Monex Morning Report – Mon 28 Sep 2020

OVERNIGHT HIGHLIGHTS

U.S. Stocks close higher, but Dow and S&P500 logged their fourth straight weekly losses; Asia were on course to open marginally higher

Trump announces Judge Amy Coney Barrett as U.S. Supreme Court nominee; Pelosi expresses hope deal can be reached with White House on COVID-19 relief

Top Market News

Trump announces Judge Amy Coney Barrett as U.S. Supreme Court nominee

Eight days after the death of Supreme Court Justice Ruth Bader Ginsburg, President Donald Trump announced Sept. 26 that Judge Amy Coney Barrett, a judge on the Chicago-based U.S. Court of Appeals for the 7th Circuit, is his nominee to fill that seat. The president said he was honored to nominate Barrett whom he described as “one of the nation’s most gifted legal minds” to the court and praised her for her loyalty to the Constitution. This should be a “straightforward and prompt confirmation,” he added before a small crowd seated in the White House Rose Garden. “The stakes are incredibly high,” he added. Barrett, for her part, said she was “humbled by the prospect of serving in the Supreme Court,” and said if she were confirmed, she would always be mindful she would be following in Ginsburg’s footsteps.

Originating Source

Pelosi expresses hope deal can be reached with White House on COVID-19 relief

U.S. House Speaker Nancy Pelosi, the top Democrat in Congress, said on Sunday she thinks a deal can be reached with the White House on a coronavirus relief package and that talks were continuing. “We are having our conversations. And when I have a conversation with the administration, it is in good faith,” Pelosi said. “I trust (Treasury) Secretary (Steve) Mnuchin to represent something that can reach a solution. And I believe we can come to an agreement.” Formal talks between Pelosi, Senate Democratic leader Chuck Schumer, Mnuchin and White House Chief of Staff Mark Meadows aimed at hammering out a relief package broke down on Aug. 7 with the two sides far apart. Pelosi and Mnuchin have since spoken by phone. With formal COVID-19 relief talks stalled for weeks, House Ways and Means Committee Chairman Richard Neal on Thursday said Democratic lawmakers were starting to draft a bill totaling at least $2.2 trillion. Pelosi on Sunday said it was “definitely a possibility” that she would offer legislation in the coming days if the impasse with the Trump administration continued but said she would rather have a deal with the White House than a “rhetorical argument.” Any legislation the Democratic-led House might approve would be unlikely to advance in the Senate, which is controlled by Republicans.

Originating Source

Armenia-Azerbaijan clashes kill at least 16, undermine regional stability

At least 16 military members and several civilians were killed on Sunday in the heaviest clashes between Armenia and Azerbaijan since 2016, reigniting concern about stability in the South Caucasus, a corridor for pipelines carrying oil and gas to world markets. The clashes between the two former Soviet republics, which fought a war in the 1990s, were the latest flare-up of a long-running conflict over Nagorno-Karabakh, a breakaway region that is inside Azerbaijan but is run by ethnic Armenians. Nagorno-Karabakh said 16 of its servicemen had been killed and more than 100 wounded after Azerbaijan launched an air and artillery attack early on Sunday. Armenia and Nagorno-Karabakh declared martial law and mobilised the male population. Azerbaijan, which also declared martial law, said its forces responded to Armenian shelling and that five members of one family had been killed by Armenian shelling.

Originating Source

Fed’s George says strains on financial industry could still mount

The current recession’s impact on households and businesses could still risk the sort of damage to the banking system that the United States has avoided so far, Kansas City Federal Reserve president Esther George said on Friday. Throughout the pandemic Fed officials have taken solace in the fact that it has not yet led to a wave of mortgage, business or other defaults that could cripple banks, cause them to stop lending, and deepen the recession. But “the economic recovery…is far from complete,” George said in remarks prepared for delivery via the web to the Independent Bankers of Colorado. “Strains on household and commercial balance sheets since March have created fragilities that could yet threaten bank profitability and loss-absorbing capacity for some time.” She is the second Fed official, along with Boston Federal Reserve bank president Eric Rosengren, to explicitly warn this week that credit strains could still mount as the recession and health crisis persist.

Originating Source

Some 3,500 U.S. companies sue over Trump-imposed Chinese tariffs

About 3,500 U.S. companies, including Tesla (NASDAQ:TSLA) Inc, Ford Motor (NYSE:F) Co, Target Corp (NYSE:TGT), Walgreen Co (NASDAQ:WBA) and Home Depot (NYSE:HD) have sued the Trump administration in the last two weeks over the imposition of tariffs on more than $300 billion in Chinese-made goods. The suits, filed in the U.S. Court of International Trade, named U.S. Trade Representative Robert Lighthizer and the Customs and Border Protection agency and challenge what they call the unlawful escalation of the U.S. trade war with China through the imposition of a third and fourth round of tariffs. The legal challenges from a wide variety of companies argue the Trump administration failed to impose tariffs within a required 12-month period and did not comply with administrative procedures.

Originating Source

BoE’s Tenreyro says evidence on negative rates is ‘encouraging’

The Bank of England’s investigation into whether negative rates might help the British economy through its current downturn has found “encouraging” evidence, policymaker Silvana Tenreyro said in an interview published late on Saturday. Tenreyro told the Sunday Telegraph that she did not expect Britain to continue to enjoy a fast V-shaped recovery, due to headwinds from local flare-ups in COVID-19, rising unemployment and a “very weak” global economic outlook. Britain’s central bank said in August that it was taking a closer look at the case for cutting interest rates below zero, and in September it said it would take a detailed look at the idea’s technical feasibility during the fourth quarter. However Governor Andrew Bailey said this did not mean the BoE was committed to going ahead with the idea, which would potentially see people charged for holding deposits with banks.

Originating Source

ECB’s Visco says euro’s strength is a worry

A recent strengthening in the euro’s exchange rate is a worry and will warrant a reaction from the European Central Bank if it drags inflation farther away from its goal, ECB policymaker Ignazio Visco said on Sunday. Visco also denied ECB policymakers were divided on the matter and said his views echoed those of the Executive Board. “The euro’s recent strengthening is worrying us because it generates further downward pressures on prices at a time when inflation is already low,” Visco, Italy’s central bank governor, told an event in Trento. “The monetary policy implications are obvious: if the downward pressures jeopardise our price stability objective, we’ll have to intervene. If, however, opposite effects were to emerge, the measures we’ve already taken could suffice.”

Originating Source

U.S. Places Restrictions on China’s Leading Chip Maker

The Trump administration has placed new restrictions on exports to Semiconductor Manufacturing International Corporation, China’s most advanced maker of computer chips, a measure that could deepen the technology conflict between China and the United States. In a letter on Friday, the Department of Commerce told American companies in the chip industry that they must first acquire a license to sell technology to SMIC and its subsidiaries. The department said it was taking the action after a review in which it determined that the Chinese company “may pose an unacceptable risk of diversion to a military end use in the People’s Republic of China.” The measure, which could cut SMIC off from the American software and other technology it needs to make its products, comes as the Trump administration takes a harsher stance against Chinese technology companies that it has deemed a national security threat. The administration has clamped down on shipments to the Chinese tech giant Huawei, restricted exports to dozens of other Chinese companies by placing them on a blacklist this year and moved to ban the Chinese-owned social media services WeChat and TikTok.

Originating Source

Top Trump News

Rise in virus cases

With COVID-19 deaths in the U.S. topping 200,000 this week following a rise in new daily cases last week for the first time in eight weeks, the role of the economy in the looming presidential election could take on heightened importance — but it is not clear how. Among the six battleground states, ones that are hotly contested because their population can swing either to Republicans or Democrats, Wisconsin looks particularly troubled less than six weeks before the Nov. 3 election determines whether Republican President Donald Trump is re-elected or is ousted by Democratic presidential nominee Joe Biden.

Originating Source

Income taxes

President Donald Trump paid extremely little in income taxes in recent years as heavy losses from his business enterprises offset hundreds of millions of dollars in income, the New York Times reported on Sunday, citing tax-return data. The Times reported that Trump, who is seeking re-election in November, paid just $750 in federal income taxes in both 2016 and 2017, and paid no income taxes in 10 of the last 15 years, despite receiving $427.4 million through 2018 from his reality television program and other endorsement and licensing deals. Trump was able to minimize his tax bill by reporting heavy losses across his business empire. The Times reported Trump claimed $47.4 million in losses in 2018, despite claiming income of at least $434.9 million in a financial disclosure that year. Trump denied the report on Sunday, calling it “total fake news” at a White House news conference.

Originating Source

Platinum Plan

President Trump leaned into his economic record Friday as he attempted to attract Black voters with a pledge to try to secure more lending for African American business owners. Trump unveiled what he called the “platinum plan” for Black economic empowerment at a campaign event in Atlanta. But during wide-ranging remarks, Trump spent more time telling people why they shouldn’t vote for Democratic rival Joe Biden than he did describing his campaign pitch to African Americans. “No one in politics today has done more to hurt the Black community than Joe Biden,” Trump said at the ballroom event. Joe Biden should not be demanding your support; he should be begging for your forgiveness,” he told supporters.

Originating Source

Economic Indicators

United States Durable Goods Orders

New orders for US manufactured durable goods rose 0.4 percent month-over-month in August of 2020, well below an upwardly revised 11.7 percent jump in July and lower than market forecasts of a 1.5 percent raise. Still, it was the 4th straight month of improvement in orders as the economy recovers from big plunges in March and April due to the coronavirus pandemic. Transportation (0.5 percent), machinery (1.5 percent), and computers and electronics (1.2 percent) led the increase while orders for electrical equipment and appliances (-1.5 percent), motor vehicles (-21.7 percent) and defense capital goods (-3.3 percent) shrunk. Excluding transportation, new orders increased 0.4 percent and excluding defense, new orders rose 0.7 percent. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.8 percent, below 2.5 percent in July but above forecasts of 0.5 percent.

United Kingdom Consumer Confidence

The United Kingdom’s Gfk Consumer Confidence rose to -25 in September 2020 from -27 in the previous month, ahead of further lockdowns. Three sub indices improved, one deteriorated and one stayed the same. The largest gains were seen in the general economic situation for the next 12 months (up four points to -38) and the major purchase index (up four points to -21). “Despite unfavourable double-dip economic headwinds and the threat of a second lockdown, we have seen an uptick for September as the Overall Index Score climbs to -25 from the near-historic low of -36 in our early June ‘flash’,” said Joe Staton, GfK’s Client Strategy Director.

United States New Home Sales

Sales of new single-family homes in the United States jumped 4.8 percent from the previous month to a seasonally adjusted annual rate of 1,011 thousand in August of 2020, surprising markets that were expecting a fall to 895 thousand. It is the highest reading since September of 2006 as the housing market continues to recover from the coronavirus hit, prompted by record low interest rates and increasing demand as people move away from the big cities. New home sales increased in the South (13.4 percent to 636 thousand) and the Northeast (5 percent to 42 thousand) but fell in the Midwest (-21.4 percent to 99 thousand after a 59.5 percent rise in July) and the West (-1.7 percent to 234 thousand). The average sales price went down to $369,000 from $392,700 a year earlier. The number of new houses for sale available on the market fell 3.1 percent to 282 thousand.

Economic Calendar

Monday

EUR ECB President Lagarde Speaks

Wednesday

CNY Manufacturing PMI (Sep)

Wednesday

UK GDP (QoQ) (Q2)

Wednesday

US GDP (QoQ) (Q2)

Thursday

US Pending Home Sales (MoM) (Aug)

Thursday

US Crude Oil Inventories

Thursday

EUR German Manufacturing PMI (Sep)

Thursday

US Initial Jobless Claims

Friday

“US ISM Manufacturing PMI (Sep) ”

Friday

“US Nonfarm Payrolls (Sep) ”