Monex Morning Report – Mon 7 Sep 2020

OVERNIGHT HIGHLIGHTS

U.S. Stocks fall but end off session lows as investors continue to rotate out of tech and momentum sectors; U.S., Asian futures retreat with nerves rattled

U.S. economy adds back jobs but at slowing pace in August, unemployment rate falls; Fed’s Powell: rates to stay low for ‘however long it takes’

Top Market News

Fed’s Powell: rates to stay low for ‘however long it takes’

Federal Reserve Chair Jerome Powell on Friday said the U.S. jobs report for August was “a good one,” but noted that with gains likely to slow, the central bank is planning to keep its foot on the monetary policy gas pedal for years. “We do think it will get harder from here — because of those areas of the economy that are so directly affected by the pandemic still,” Powell told National Public Radio in an interview, referring particularly to sectors like leisure, hospitality, travel and entertainment that depend on large gatherings made unsafe by the virus. Even as U.S. employers added 1.37 million jobs last month, the total number of jobs regained since the crisis has only been about half the total lost, leaving millions still out of work. “We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time … it will be measured in years,” Powell said. “However long it takes, we’re going to be there.”

Originating Source

U.S. labor market slowing as fiscal stimulus boost ebbs

U.S. job growth slowed further in August as financial assistance from the government ran out, threatening the economy’s recovery from the COVID-19 recession. Government hiring for the 2020 Census accounted for nearly a fifth of the employment gains reported by the Labor Department on Friday. Companies from transportation to manufacturing industries are announcing layoffs or furloughs. The moderation in hiring could pressure the White House and Congress to restart stalled negotiations for another fiscal package, and will likely become political ammunition for both Democrats and Republicans with just two months to go until the presidential election. Programs to help businesses pay wages have either lapsed or are on the verge of ending. A $600 weekly unemployment supplement expired in July. Economists credited government largesse for the sharp rebound in economic activity after it nearly ground to a halt following the shuttering of businesses in mid-March to control the spread of the coronavirus.

Originating Source

China’s Xi supports Beijing free trade zone

Chinese President Xi Jinping said on Friday he supports the city of Beijing in setting up a pilot international free trade zone for the service sector and digital economy and to promote scientific and technological innovation. Xi made the remarks while addressing the Global Trade in Services Summit of the 2020 China International Fair for Trade in Services via video. He did not give details on when or how the new zone would be set up. “China will unswervingly increase its openness and set up a robust cross-border services trade-negative list system,” he said. A negative list sets out prohibited and restricted industries for foreign investment. The Ministry of Commerce said on Thursday that one would be set up for services by the end of this year. Xi also said China supports the establishment of a global alliance of trade and services, and would further ease market access for the service sector.

Originating Source

Australia PM Scott Morrison seeks to reopen borders

Australian Prime Minister Scott Morrison has called for an end to internal border controls ahead of a meeting with state and territory leaders on Friday. The government has instead suggested using local lockdowns to control the coronavirus outbreak. “Australia was not meant to be closed, Australia was meant to be open,” Mr Morrison told parliament on Thursday. The country has recorded more than 26,000 cases and 678 deaths. States and territories have imposed strict lockdowns and barred entry to citizens from other parts of the country as they try to tackle the pandemic. The harsh measures have attracted controversy, with many backing the controls but others opposing them. But it is unclear whether all premiers will agree with the proposal. Both Western Australia and Queensland have suggested they want to keep their frontiers controlled.

Originating Source

White House asks U.S. agencies to detail all China-related funding

The White House has asked U.S. government agencies for extensive details of any funding that seeks to counter China’s global influence and business practices, or supports Beijing, amid growing tensions between Washington and Beijing. According to an Aug. 27 White House Office of Management and Budget (OMB) document seen by Reuters, the OMB directed U.S. agencies to submit “cross-cutting data on federal funding that aids or supports China, or that directly or indirectly counters China’s unfair competition and malign activities and influence globally.” China denies it engages in unfair competitive practices. The document, titled “Strategic Competition with China Crosscut,” does not say how the information will be used other than that it will “inform policymakers” of the myriad ways U.S. government spending involves China. The United States and China have grown antagonistic toward each other with disagreements that stretch from a two-year-old trade war, to the Trump administration blaming Beijing for a lack of transparency about the spread of COVID-19.

Originating Source

Japan’s Suga signals ultra-easy monetary policy to continue

Japan’s Chief Cabinet Secretary Yoshihide Suga, a frontrunner to be the next prime minister, said he would like the central bank to continue its ultra-loose monetary policy as the economy is still struggling with the impact of the coronavirus pandemic. In an interview that ran on Saturday in the Nikkei newspaper, Suga also said he would consider compiling another economic stimulus package by the end of this year to “put the pandemic to an end and shift the economy to a new stage.” “I highly approve of his handling of monetary policy,” Suga said of BOJ Governor Haruhiko Kuroda, who undertook bold easing steps that were part of Prime Minister Shinzo Abe’s “Abenomics” stimulus strategy. “I want to carry over (the bold easing steps),” he was quoted as saying by the paper. The remarks reinforce expectations that Suga will continue with many of Abe’s pro-growth economic policies as the pandemic adds to the pain of an economy already in deep recession.

Originating Source

Mnuchin urges more stimulus amid stalled talks

Treasury Secretary Steven Mnuchin said on Sunday he and President Donald Trump believe there should be more stimulus to help American businesses during the coronavirus pandemic, but are stuck on top-line negotiations with House Speaker Nancy Pelosi. “The speaker has refused to sit down and negotiate unless we agree to something like a $2.5 trillion deal in advance,” Mnuchin said on “Fox News Sunday.” “Let’s do a more targeted bill now — and if we need to do more in 30 days, we’ll continue to do more. But let’s not hold up the American workers and American businesses that need more support.” “The president and I believe we should do more stimulus,” Mnuchin said. The Treasury secretary added Senate Republicans are planning to push a “targeted” or “skinny” relief bill when Congress returns after Labor Day.

Originating Source

UK’s Johnson tells EU to agree trade deal by October 15 or ‘move on’

Britain has set a deadline of Oct. 15 to strike a free-trade deal with the European Union, and if none is agreed both sides should “accept that and move on,” UK Prime Minister Boris Johnson will say on Monday. Britain left the EU on Jan. 31 but there has been little progress on a new trade deal after a status-quo transition arrangement ends in December. Talks, which have stalled over Britain’s insistence that it has full autonomy over state aid and fishing, are due to resume in London on Tuesday. French Foreign Minister Jean-Yves le Drian said an agreement on trade needed to be reached urgently and he blamed the stalemate on Britain’s attitude. Johnson will say there is no sense in thinking about timelines beyond Oct. 15.

Originating Source

Top Trump News

The jobs report and the U.S. presidential race

An unexpectedly steep drop in the U.S. unemployment rate last month looks to offer fresh ammunition for President Donald Trump as he stumps for votes contending he is the better choice for the U.S. economy in the run-up to the Nov. 3 presidential election. But the Labor Department’s monthly jobs report also contains tinder for Democratic presidential nominee Joe Biden to make his own case against Trump’s economic stewardship, with fewer job gains and widening disparity among racial groups. Trump was quick off the draw with his take: “Great Jobs Numbers!” he tweeted, adding that the unemployment rate had fallen below 10%, the peak during the Great Recession, sinking “faster and deeper than thought possible.”

Originating Source

Saudi King Salman

Saudi Arabia’s ruler King Salman bin Abdulaziz told President Donald Trump there would be no normalisation with Israel without Palestinian statehood, the kingdom’s state news agency reported on Monday. The leaders spoke by phone following a historic U.S. brokered accord last month under which the United Arab Emirates agreed to become the third Arab state to normalise ties with Israel after Egypt and Jordan. King Salman told Trump he appreciated U.S. efforts to support peace and that Saudi Arabia wanted to see a fair and permanent solution to the Palestinian issue based on the Arab Peace Initiative proposed by the kingdom in 2002.

Originating Source

Removing the threat of a near-term government shutdown

The Trump administration has reached a deal with lawmakers in Congress to ensure the U.S. government is funded past Sept. 30, U.S. Vice President Mike Pence said on Friday, removing the threat of a near-term government shutdown. Pence told CNBC the agreement reached this week by the Republican administration would keep the government funded when the fiscal year runs out at the end of the month and clear the way to focus on another coronavirus relief bill. A Democratic aide in the U.S. House of Representatives said House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin agreed this week to keep any stopgap funding bill free of controversial items.

Originating Source

Economic Indicators

Australia Retail Sales MoM

Retail sales in Australia rose by 3.2 percent month-over-month in July 2020, compared with a preliminary figure of a 3.3 percent gain and after a 2.7 percent rise in a month earlier. This was the third straight month of growth in retail trade, as the economy continued to recover from the impact of the COVID-19 crisis. Household goods (4 percent vs -3.2 percent in June) led the monthly rises, as consumers continued to purchase large items for homes. Also, there were rises in other retailing (4.4 percent vs 0.3 percent), food (1.2 percent vs 0.9 percent), clothing, footwear and personal accessory retailing (7.1 percent vs 20.5 percent), department stores (4 percent vs -12.1 percent), and cafes, restaurants, and takeaway food services (4.9 percent vs 27.9 percent).

U.K. Construction Purchasing Managers Index (PMI)

The IHS Markit/CIPS UK Construction PMI fell to 54.6 in August of 2020 from 58.1 in July which was the highest since October of 2015. The reading came well below market forecasts of 58.5 as a lack of new work to replace completed contracts had acted as a brake on the speed of expansion. The civil engineering sector fell back into contraction and growth in the commercial and housebuilding slowed. New orders slowed, supply chain disruption persisted, job shedding eased only slightly and input price inflation increased.

U.S. Average Hourly Earnings YoY

Average hourly earnings for all employees on private nonfarm payrolls rose by 11 cents, or 0.4 percent to USD 29.47 in August of 2020, beating market expectations of no growth. Average hourly earnings of private-sector production and nonsupervisory employees increased by 18 cents to USD 24.81, following a decrease of 10 cents in the prior month. The large employment fluctuations over the past several months–especially in industries with lower-paid workers–complicate the analysis of recent trends in average hourly earnings.

United States Non Farm Payrolls

The US economy added 1.371 million jobs in August of 2020, easing from a downwardly revised 1.734 million in the previous month, and only slightly below market forecasts of 1.4 million. That leaves payrolls 11.5 million below its pre-pandemic level as more than 22 million jobs were lost in March and April. Government employment accounted for one-fourth of the gain (344K), largely reflecting temporary hiring for the 2020 Census. Retail trade added 249K jobs, with almost half the growth occurring in general merchandise stores (116K). The professional and business services added 197K jobs, leisure and hospitality 174K; employment in education and health services 147K; transportation and warehousing 78K, financial activities 36K and manufacturing 29K.

U.S. Unemployment Rate

The Canadian economy created 245.8 thousand jobs in August of 2020, easing from 418.5 thousand in the previous month and below market expectations of 275 thousand. Most of the employment gains in August were in full-time work, which increased by 206 thousand, compared with a much smaller increase of 40 thousand in part-time positions.

China Exports

Exports from China jumped by 7.2 percent year-on-year to USD 237.6 billion in July 2020, accelerating from a 0.5 percent gain in the previous month and defying market expectations of a 0.2 percent fall. It was the fastest growth rate in exports since December last year, as global demand improves with more countries lifting COVID-19 related restrictions. The country’s exports have been boosted by record shipments of medical supplies and robust demand for electronic products.

U.S. Baker Hughes Oil Rig Count

Crude Oil Rigs in the United States increased to 181 in September 4 from 180 in the previous week.

Economic Calendar

Monday

CNY Exports YoY

Tuesday

Japan Gross Domestic Product (GDP) QoQ

Wednesday

US EIA Short-Term Energy Outlook

Thursday

Canada Interest Rate Decision

Thursday

Euro Zone Deposit Facility Rate

Thursday

US Initial Jobless Claims

Thursday

US Producer Price Index (PPI) MoM

Friday

US Crude Oil Inventories

Friday

UK Gross Domestic Product (GDP) MoM

Friday

US Core Consumer Price Index (CPI) MoM