Monex Morning Report – Thur 15 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow slips for second day as hope for fiscal stimulus before election fades; Asia stocks to track U.S. drop

Treasury Secretary Mnuchin said a coronavirus relief deal is unlikely before the election; RBA Lowe: Cash rate not expected to be raised for at least 3-years

Top Market News

Treasury Secretary Mnuchin said a coronavirus relief deal is unlikely before the election

Treasury Secretary Steven Mnuchin said on Wednesday that Democrats and Republicans were unlikely to approve a broad coronavirus relief bill before Election Day next month. “I’d say at this point getting something done before the election and executing on that would be difficult, just given where we are in the level of details,” Mnuchin said during a virtual event organised by the Milken Institute Global Conference. He also suggested Democrats were unwilling to give President Donald Trump a victory before the election, saying it is “part of the reality.” Mnuchin added that Trump would continue pushing for a spending deal and said “the clock will not stop.” Mnuchin and House Speaker Nancy Pelosi have engaged in on-again, off-again negotiations for the past two weeks, though the pair appear to have made little progress on reaching an agreement. The Treasury secretary made a $US1.8 trillion stimulus offer on Friday, but many Democrats panned it as insufficient and said it lacked a national testing strategy, among other measures.

Originating Source

RBA Lowe: Cash rate not expected to be raised for at least 3-years

A fresh easing package is expected to be deployed at Reserve Bank of Australias November meeting, with most looking for a combination of a cut in the cash rate target. Today, the RBA’s governor Philip Lowe has been speaking at a city conference where he has stated that he does not expect to be raising the cash rate for at least three years. Lowe says committed to doing what we reasonably can, with the tools we have, to support the recovery. The board will not be increasing the cash rate until actual inflation is sustainably within the target range. It is not enough for inflation to be forecast to be in the target range. It is reasonable to expect that further monetary easing would get more traction than was the case earlier.”we do not expect to be increasing the cash rate for at least three years.”

Originating Source

Fed’s Clarida says U.S. data ‘surprisingly strong,’ but deep hole remains

U.S. economic data since May has been “surprisingly strong,” though it will still take perhaps another year for output to claw back to its pre-pandemic peak, Federal Reserve Vice Chair Richard Clarida said on Wednesday. “In the spring, many voices questioned what good rate cuts, forward guidance, asset purchases, and lending programs could do in an economy in which people do not venture out to buy cars or build houses and in which companies do not invest,” Clarida said in prepared remarks for an Institute of International Finance webcast event. “The data show us that with rates low, credit available, and incomes supported by fiscal transfers, the answer is – at least so far – that they do build houses, buy cars, and order equipment and software.” While the service sector remains pummeled by the ongoing decline in travel, restaurant visits and other face-to-face services considered risky during the coronavirus pandemic, “the rebound in the (gross domestic product) data has been broad-based across indicators of goods consumption, housing, and investment,” Clarida said, with the housing sector and auto sales particularly strong. Still, he said the U.S. economy remained in a deep hole and will need time to climb out, “perhaps another year” in the case of GDP, and perhaps three years for the unemployment rate.

Originating Source

Fed’s Barkin Says Rising Virus Cases May Hold Back U.S. Recovery

Federal Reserve Bank of Richmond President Thomas Barkin said a rebound in U.S. coronavirus cases to about 50,000 a day has added uncertainty to the outlook and may discourage businesses from hiring or investing. “An elevated case rate raises economic uncertainty and that affects businesses’ willingness to hire or spend or invest,” Barkin told a virtual conference Wednesday sponsored by West Virginia University. “The persistence of elevated infections and the risk of a second wave have both psychological and practical implications” for businesses and consumers. The manufacturing, technology and health care sectors are struggling to find workers, he said, adding that unemployment adjusted for labor participation stands at 11%.

Originating Source

IMF says U.S. has room for more stimulus, would aid long-term growth

The United States has room to provide further fiscal support to its economy, which would have a positive impact on its long-term growth prospects, International Monetary Fund Fiscal Affairs Director Vitor Gaspar said on Wednesday. “A restoration of growth is a very important favorable condition to tackle the high public debt level,” Gaspar told a news conference during IMF and World Bank annual meetings.

Originating Source

EU and Britain to keep talking past Johnson’s Brexit deadline

The European Union and Britain are set to prolong Brexit talks past a mid-October deadline to try bridge stubborn gaps holding up a new trade agreement, according to sources and documents. As the year-end deadline for a pact on relations with Britain nears, EU leaders meeting on Thursday and Friday will tell their Brexit negotiator Michel Barnier to step up talks to get a deal by Jan. 1, 2021, according to a draft of their decision. UK negotiator David Frost is then due to tell Prime Minister Boris Johnson if he thinks it is worth continuing the tortuous negotiations, and whether a deal on everything from trade to transport and energy cooperation is achievable in time. A source close to the talks, who spoke on condition of anonymity, said Frost would say agreement was difficult but not impossible if both sides work intensively in the coming weeks.

Originating Source

ECB policymakers set out wish list for strategic rethink

Five European Central Bank policymakers, including President Christine Lagarde, floated proposals on Wednesday for changing how the ECB goes about the business of steering price growth in the euro zone. With the ECB in the middle of its first strategic review in nearly two decades, proposals ranged from buying more green bonds to letting inflation overshoot the symbolic 2% threshold — to doing nothing at all. The ECB has undershot its goal of keeping price growth “below but close to” 2% for nearly a decade. And just as the coronavirus pandemic causes prices to fall, it is now debating whether and how to change that target. Policymakers speaking at different events throughout the day acknowledged that some of the reasons for the sluggish price growth were beyond their control but their responses sometimes differed.

Originating Source

China’s third quarter GDP growth expected to improve: PBOC official

China’s third-quarter GDP growth is expected to improve from the previous quarter, Ruan Jianhong, an official with the People’s Bank of China (PBOC), told a press conference on Wednesday. Authorities should allow the macro-leverage ratio to rise temporarily due to efforts to boost credit support to the economy hit by the pandemic, Ruan said.

Originating Source

Top Trump News

Youngest son

The son of President Trump and Melania, Barron, was infected by the virus, his mother said in a statement from the White House. The First Lady said she was concerned about her son’s health immediately after both she and her husband tested positive. “To our great relief he [our son initially] tested negative, but again, as so many parents have thought over the past several months, I couldn’t help but think ‘what about tomorrow or the next day?’. “My fear came true when he was tested again and it came up positive. Luckily he is a strong teenager and exhibited no symptoms. In one way I was glad the three of us went through this at the same time so we could take care of one another and spend time together. He has since tested negative.” Melania Trump said she has now tested negative and will resume her duties as First Lady soon.

Originating Source

Alibaba

The US State Department has submitted a proposal for the Trump administration to add China’s Ant Group to a trade blacklist, according to two people familiar with the matter, before the fintech arm of e-commerce giant Alibaba is slated to go public. t was not immediately clear when the US government agencies that decide whether to add a company to the so-called Entity List would review the matter. But the move comes as China hardliners in the Trump administration are seeking to send a message to deter US investors from taking part in the initial public offering, worth up to a record $35 billion ($48 billion). They fear buying shares in the company could expose them to fraud or that Ant could give the Chinese government access to sensitive banking data belonging to US citizens. State Department did not immediately respond to a request for comment.

Originating Source

Reuters/Ipsos poll

President Donald Trump pulled into a statistical tie with Democratic rival Joe Biden in Florida, one of the election’s most important battlegrounds, but Biden’s lead appeared to widen in Arizona, Reuters/Ipsos opinion polls showed on Wednesday. A separate Reuters/Ipsos national poll found that Biden also leads Trump among all U.S. likely voters by 10 percentage points. The Oct. 9-13 poll showed that 51% of likely voters were supporting Biden, while 41% were backing Trump. Last week’s national poll had Biden ahead by 12 points. Reuters/Ipsos is polling likely voters in six states – Wisconsin, Pennsylvania, Michigan, North Carolina, Florida and Arizona – that will play critical roles in deciding whether Trump wins a second term in office or if Biden ousts him.

Originating Source

Economic Indicators

Australia Westpac Consumer Sentiment (Oct)

The Melbourne Institute and Westpac Bank Consumer Sentiment Index for Australia increased 11.9 percent month-over-month to 105 points in October of 2020, following an 18 percent jump in the previous month. It was the highest reading since July of 2018, amid the ongoing success across the nation in containing the COVID-19 outbreak and the response to the October Federal Budget. All components of the Index were higher in October, the most striking improvements were around the outlook for the economy, with the surge in the five year outlook taken this sub-index to its highest level since August 2010. In addition, there was a stunning lift in confidence around job security, with the Index improving by 14.2% to be back around the levels of early 2019. Also, confidence in the housing market boomed, the ‘time to buy a dwelling’ index increased 10.6% to its highest level since September 2019.

Japan Industrial Production (MoM) (Aug)

Japan’s industrial production rose by 1.0 percent from the previous month in August 2020, compared with a preliminary estimate of a 1.7 percent advance and 8.7 percent growth in the prior month, signaling a slowdown in economic recovery. The largest contributors to the growth were motor vehicles (8.9 percent vs 38.4 percent in August), iron, steel, and non-ferrous metals (6.5 percent vs 11.3 percent), and electronic parts and devices (3.9 percent vs 4.6 percent). On a yearly basis, industrial production declined 13.8 percent in August, after a 15.5 percent plunge in July.

Euro Area Industrial Production (MoM) (Aug)

Eurozone’s industrial output rose by 0.7 percent from the previous month in August 2020, following an upwardly revised 5.0 percent growth in July and compared to market expectations of a 0.8 percent increase, as the bloc’s economic recovery showed signs of slowing. An increase in production of durable consumer goods (6.8 percent vs 5.9 percent in July), intermediate goods (3.1 percent vs 5.0 percent) and energy (2.3 percent vs 1.5 percent) was partially offset by declines in output for capital goods (-1.6 percent vs 6.5 percent) and non-durable consumer goods (-1.6 percent vs 4.2 percent). On a yearly basis, industrial production shrank by 7.2 percent, compared to a 7.1 percent contraction in the previous month.

U.S. PPI (MoM) (Sep)

Producer prices for final demand in the US increased 0.4 percent from a month earlier in September of 2020, following a 0.3 percent rise in August and above market expectations of a 0.2 percent gain. Cost of goods advanced 0.4 percent, after increasing 0.1 percent in the prior month, led by a 14.7 percent rise in cost for iron and steel. Prices of services went up 0.4 percent, lower than 0.5 percent in August, led by a 3.9 percent advance in the index for traveler accommodation services. Year-on-year, producer prices went up 0.4 percent, after falling 0.2 percent in the prior month and compared to forecasts of a 0.2 percent gain. The core index which excludes food and energy went up 0.4 percent month-over-month, the same as in August. The annual rate increased to 1.2 percent from 0.6 percent.

U.S. API Weekly Crude Oil Stock

Stocks of crude oil in the United States decreased by 5.42 million barrels in the week ended October 9th of 2020, following a 0.95 million gain in the previous week and compared with market expectations of a 3.39 million drop, data from the American Petroleum Institute showed.

China New Yuan Loans

Chinese banks extended CNY 1.9 trillion in new yuan loans in September of 2020, beating market forecasts of CNY 1.7 trillion, and well above CNY 1.28 trillion in August. It is the highest reading in six months and much better than CNY 1.69 trillion a year earlier, a sign the Chinese economy is strongly recovering from the pandemic. Household loans, mostly mortgages, rose to CNY 960.7 billion from CNY 841.5 billion in August, while corporate loans jumped to CNY 945.8 billion from CNY 579.7 billion. Outstanding yuan loans grew 13 percent from a year earlier, the same as in August and above forecasts of 12.9 percent. Total social financing, a broad measure of credit and liquidity in the economy, eased to CNY 3.48 trillion from CNY 3.58 trillion but well above forecasts of CNY 3.15 trillion. The broad M2 money supply went up at a faster 10.9 percent year-on-year, above 10.4 percent in August and forecasts of 10.4 percent.

China Money Supply M2

Broad M2 money supply in China rose 10.9 percent from a year earlier in September 2020, accelerating from a 10.4 percent increase in the previous month and beating market expectations of 10.4 percent. In April, May and June, the M2 money supply rose 11.1 percent, the most since early 2017, as the central bank stepped up efforts to support the economy hit by the pandemic.

Eurozone’s industrial output declined by 7.2 percent from a year earlier in August 2020, following a revised 7.1 percent contraction in the previous month and matching market expectations, as the bloc’s economic recovery from the pandemic shock showed signs of slowing.

Economic Calendar

Thursday

U.S. Import Price Index MoM

Thursday

Australia HIA New Home Sales MoM

Friday

U.S. Retail Sales MoM

Friday

Australia Employment Change