Monex Morning Report – Thur 1 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends 329 points higher, but stocks book worst month since March as fiscal stimulus hopes fade; Asian stocks set to advance

Chaotic U.S. election debate fuels investors’ fears of contested result; House delays vote on $2.2 trillion coronavirus stimulus bill to allow more time for talks

Top Market News

Chaotic U.S. election debate fuels investors’ fears of contested result

U.S. equity futures fell and volatility indicators turned jumpy as a chaotic presidential debate between incumbent Donald Trump and Democratic challenger Joe Biden heightened fears that a disputed ballot could lead to a messy transfer of power. Nagging doubts over whether Republican President Trump would agree to hand over the keys to the White House if he loses have grown in recent weeks. And during the first debate on Tuesday, Trump declined to commit to accepting the results, repeating his unfounded complaint that mail-in ballots would lead to election fraud. Trump repeatedly interrupted Democratic rival Joe Biden in the Cleveland debate, the first ahead of the Nov. 3 vote, as the rival candidates traded barbs over Trump’s taxes, the economy, the coronavirus pandemic and the integrity of the election.

Originating Source

House delays vote on $2.2 trillion coronavirus stimulus bill to allow more time for talks

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed to strike a coronavirus stimulus deal during a more than 90-minute meeting Wednesday. The pair will continue discussions as they try to craft an elusive fifth relief package that could pass both chambers of Congress, the California Democrat said in a statement. House Democrats initially aimed to pass their roughly $2.2 trillion rescue legislation Wednesday night, but called off the vote until at least Thursday to allow more time for bipartisan talks. Approving the bill would be a largely symbolic action as Senate Majority Leader Mitch McConnell has already opposed it. The House speaker said she and Mnuchin had an “extensive conversation” and “found areas where we are seeking further clarification.” Entering the talks, Mnuchin said the White House and Democrats had reached common ground on issues including direct payments, small business loans and airline aid. But reports indicate they still need to resolve disputes over state and local government aid and liability protections for businesses, among other topics.

Originating Source

Fed’s Bowman sees bumpy recovery, warns on asset prices

The U.S. economy “has been recovering at a rapid pace” from the coronavirus recession, Federal Reserve Governor Michelle Bowman said on Wednesday, but unemployment remains quite high and further monetary and targeted fiscal support likely will be needed. “Even with this support, however, I anticipate that the path toward full recovery will be bumpy, and that our progress will likely be uneven,” Bowman said in remarks prepared for delivery by webcast to a St. Louis Fed community banking conference. “Asset prices in particular, remain vulnerable to significant price declines should the pandemic seriously worsen.” Bowman’s remarks represented an upgrade to the outlook she delivered in August and reflect the generally stronger economic data since then, including record home prices, continued gains in the labor market and a surge in consumer confidence.

Originating Source

Fed’s Kaplan Says Markets Have Clarity on Fed’s Policy Path

Federal Reserve Bank of Dallas President Robert Kaplan said the central bank has been clear to investors and businesses on where the benchmark policy rate will be over the next few years. “The markets and the public have pretty good clarity,” Kaplan said in an interview with CNBC. “The markets expect that the fed funds rate is going to stay at zero probably until 2023.” U.S. central bankers left their policy rate unchanged in a range of zero to 0.25% earlier this month, and said they expect that range will be appropriate until labor markets have reached their assessment of maximum employment and until “inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Originating Source

ECB’s Lagarde sets scene for Fed-like strategy overhaul

European Central Bank President Christine Lagarde set the scene on Wednesday for changing the ECB’s strategy to align it with that of the Federal Reserve, possibly including a commitment to let inflation overshoot after it has been low for too long. Inflation in the euro zone has missed the ECB’s target, currently set “below but close to 2%” for years despite increasingly aggressive stimulus from the central bank, which has pushed its main interest rate below zero and bought more than 3 trillion euros ($3.51 trillion) worth of assets. In her first update on the ECB’s ongoing review of its strategy, Lagarde also opened the door to giving the central bank less time to achieve its elusive goal. The ECB is widely expected to follow in the footsteps of the Fed, which said last month it would aim for 2% on average, so that periods when prices grow too slowly need to be compensated by times of faster increases, and vice versa.

Originating Source

Fed extends share buyback ban on US banks into Q4

The Federal Reserve on Wednesday extended a ban on share buybacks by US banks into the fourth quarter, aiming to ensure they have sufficient capital to weather the coronavirus downturn. For the fourth quarter of this year, large banks — those with more than $100 billion in total assets — will be prohibited from making share repurchases,” the central bank said in a statement. Additionally, dividend payments will be capped and tied to a formula based on recent income. The capital positions of large banks have remained strong during the third quarter while such restrictions were in place.” The announcement comes after the cental bank in June ordered 34 major US banks to suspend buybacks in the third quarter and limit dividend payments.

Originating Source

Australia lays out rescue plan for economy stung by Covid-19

After slowing the coronavirus pandemic to just a trickle of new cases a day, Australia’s Prime Minister Scott Morrison faces his next challenge: shoring up an economy that’s plunged into its first recession in almost 30 years. His conservative government on Tuesday will deliver its latest rescue plan, with a federal budget expected to include accelerated tax cuts and infrastructure spending to restore growth and tackle rising unemployment. It’s a dramatic rewriting of Morrison’s economic narrative that less than 12 months ago was focused on returning the budget to surplus for the first time in more than a decade. Instead, the deficit is expected to blow out to A$198.5 billion ($141.8 billion) in the 12 months to June 30, 2021, according to Deloitte Access Economics.

Originating Source

SEC says Morgan Stanley agrees to pay $5 million for violations in prime brokerage swaps business

The U.S. Securities and Exchange Commission (SEC) said on Wednesday Morgan Stanley (NYSE:MS) agrees to pay $5 million for violations in it prime brokerage swaps business. The firm did not admit or deny the regulator’s charges, but has consented to a cease-and-desist order, which imposing a censure, in addition to paying the penalty, the SEC said.

Originating Source

Top Trump News

TikTok

U.S. Treasury Secretary Steven Mnuchin said if Oracle (NYSE:ORCL)’s deal for TikTok cannot be closed with terms that meet U.S. security requirements, including holding code in the United States, the short video app will be shut down. “All of the code will have to be in the United States. Oracle will be responsible for rebuilding the code, sanitizing the code, making sure it’s safe in their cloud, and …it’ll satisfy all of our requirements,” Mnuchin told a CNBC investor conference.

Originating Source

Fox News and CNN

Minutes after the first presidential debate of the 2020 election season wrapped, Fox News turned the keys over to its chief propagandist, Sean Hannity. “The extremely weak, the frail, the confused, kind of angry Joe Biden just got steamrolled by President Trump,” Hannity declared. The Fox News host, who took over the network’s special coverage following a brief panel hosted by anchors Bret Baier and Martha MacCallum, quipped that Biden “probably stayed up too late” and “needs a nap.” The characterization of what transpired when President Donald Trump met former Vice President Joe Biden on the debate stage stood in stark contrast to what viewers believed took place. A CNN instant poll found that debate watchers thought Biden beat Trump in the debate, with 60% saying Biden won compared to 28% for Trump.

Originating Source

Vaccine approval

“President Trump spoke on Tuesday as if his campaign depends on a Covid-19 vaccine. Specifically, a vaccine approval by Election Day. Throughout a turbulent, disorganized, and hostile debate, Trump highlighted his government’s efforts on vaccine development, pledging, dubiously, that the country is “weeks away from a vaccine” and contradicting high-level officials within his own government who have suggested it will be months, at least, before a vaccine is available. ”

Originating Source

Economic Indicators

China Manufacturing Purchasing Managers Index (PMI)

The official NBS Manufacturing PMI for China rose to 51.5 in September 2020 from 51 in the previous month and above market expectations of 51.2. The latest reading pointed to the seventh straight month of growth in factory activity and the strongest since March as the economy recovered further from the COVID-19 shock. There were rises in output (54.0 vs 53.5 in August), new orders (52.8 vs 52.0), and export sales (50.8 vs 49.1). At the same time, employment fell at a slower pace (49.6 vs 49.4). Meantime, suppliers’ delivery time lengthened slightly (50.7 vs 50.4). On the price front, input costs advanced for the fifth month running (58.5 vs 58.3), while selling prices rose for a fourth consecutive month but at a softer rate (52.5 vs 53.2). Looking ahead, business sentiment was little-changed (58.7 vs 58.6).

New Zealand ANZ Business Confidence

The ANZ Business Confidence Index in New Zealand increased sharply to -28.5 in September 2020 from -41.8 a month earlier. This was the highest reading since February, as the second outbreak of COVID-19 in the country was well under control. Activity outlook (-5.4 vs -17.5 in August), export intentions (-4.7 vs -20), and investment intentions (0.3 vs -15.2) all strengthened sharply. Also, both profit expectations (-24.4 vs -33.4) and employment intentions (-11.8 vs -23.6) lifted, with capacity utilization (1.2 vs -6.2) improving further. At the same time, inflation expectations ticked up (1.38 vs 1.36), and pricing intentions increased faster (15.1 vs 12.5). Among sector, both commercial construction (13.3 vs-32.0) and residential (-3.2 vs -17.2) continued to bounce back.

Australia Building Approvals MoM

The number of dwellings approved in Australia declined by 1.6 percent month-over-month in August 2020, following an upwardly revised 12.2 percent surge in the previous month and compared with market consensus of a 2 percent fall. Private sector dwellings excluding houses tumbled (-11 percent vs 23 percent in July), while private sector houses rose at a softer pace (4.8 percent vs 8.6 percent).

Australia Private Sector Credit MoM

Private sector credit in Australia was unchanged over a month earlier in August 2020, after a 0.1 percent fall in the previous month. Housing credit growth was steady (at 0.2 percent), while credit for both personal (-1.1 percent vs -1.6 percent) and business (-0.4 percent vs -0.6 percent) dropped at a softer pace. Through the year to August, private sector credit rose by 2.2 percent.

U.K. Gross Domestic Product (GDP) QoQ

The British economy shrank 19.8 percent on quarter in the three months to June of 2020, slightly less than a preliminary estimate of a 20.4 percent drop. Still, it remains the biggest contraction ever and the second consecutive quarterly decline in GDP, officially entering a recession, due to the COVID-19 pandemic and the government measures taken to reduce transmission of the virus. Gross fixed capital formation fell less than initially anticipated (-21.6 percent vs -25.5 percent) while both household consumption (-23.6 percent vs -23.1 percent) and government spending (-14.6 percent vs -14 percent) sank more. Private consumption accounted for more than three-quarters of the fall in GDP, reflecting the implementation of public health restrictions, the mandated closures of non-essential shops and forms of social distancing. Net external demand contributed positively as imports (-22.7 percent) fell more than exports (-11 percent).

Germany Unemployment Change

Germany’s seasonally adjusted harmonized unemployment stood at 4.4 percent in August 2020, unchanged from a month earlier. That was the highest jobless rate since February 2016, as the number of unemployed rose by 0.5 percent from the previous month to 1.96 million while employment was almost unchanged at 42.25 million. Youth unemployment rate, measuring job-seekers under 25 years old, was also flat at 4.3 percent in August.

U.S. ADP Nonfarm Employment Change

Private businesses in the US hired 749K workers in September of 2020, the most in three months and above market expectations of a 650K rise raising hopes the labour market recovery strengthened. Still, only half of the near 20 million jobs lost since March when the coronavirus crisis started have been recovered. The service-providing sector added 552K jobs led by trade, transportation & utilities (186K); leisure and hospitality (92K); education and health (90K); professional and business (78K); financial activities (29K) and information (17K). The goods-producing sector added 196K jobs, due to manufacturing (130K), construction (60K) and natural resources and mining (7K). Private payrolls in large companies were up 297K, mid sized companies added 259K and small firms 192K.

The US economy shrank by an annualized 31.4 percent in the second quarter of 2020, slightly lower than a 31.7 percent plunge in the second estimate and a 32.9 percent fall in the advance one. It reflects mainly an upward revision to personal consumption expenditures (PCE) that was partly offset by downward revisions to exports and to nonresidential fixed investment. Still, it remains the biggest contraction ever, pushing the economy into a recession as the coronavirus pandemic forced many businesses including restaurants, cafes, stores and factories to close and people to stay at home, hurting consumer and business spending. The Federal Reserve sees the US economy shrinking by 3.7 percent in 2020, lower than an initial estimate of a 6.5 percent drop. Still, the outlook for 2021 remains uncertain as the coronavirus pandemic is far from controlled and a vaccine is not ready yet.

U.S. Pending Home Sales MoM

Contracts to buy previously owned homes in the US jumped surged 24.2 percent over a year earlier in August of 2020, following a 15.5 percent rise in July. On a monthly basis, pending home sales went up 8.8 percent, beating forecasts of a 3.4 percent gain. Each of the four major regions saw gains in both month-over-month and year-over-year pending home sales transactions. “Tremendously low mortgage rates – below 3% – have again helped pending home sales climb in August,” said Lawrence Yun, NAR’s chief economist. “Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtably aid homebuyers continuing to enter the marketplace.”

U.S. Crude Oil Inventories

US crude oil stocks fell by 1.980 million barrels in the week ended September 25th, 2020, the third consecutive week of decline and compared to market expectations of a 1.569 million rise, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were up by 0.683 million barrels, while markets had forecast a 1.083 million drop.

Economic Calendar

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) ”