Monex Morning Report – Thur 17 Dec 2020

OVERNIGHT HIGHLIGHTS

S&P 500, Nasdaq end higher after Fed vows to buy bonds until economy heals; Aia stocks to track U.S. gains

U.S. Congress closes in on $900 billion COVID-19 aid bill as Friday deadline looms; Fed to maintain bond buys until ‘substantial’ economy gains seen

Top Market News

U.S. Congress ‘closing in’ on $900 billion COVID-19 aid bill

U.S. congressional negotiators on Wednesday were “closing in on” a $900 billion COVID-19 aid bill that will include a new round of stimulus checks and extended unemployment benefits, lawmakers and congressional aides said. One source familiar with the talks said the deal also focused on providing aid to state and local governments. But it was not clear what form such aid would take, since Republicans have resisted another round of direct payments to those entities. “Other avenues” were being discussed to deliver such aid, the source said, without providing details. The aid bill is not expected to include new protections for companies and universities from lawsuits related to the pandemic, the source said. Congressional leaders made substantial progress toward finalizing a new coronavirus aid plan during talks that stretched into the night on Tuesday. Facing a deadline to avert a government shutdown on Friday night, lawmakers also want to come up with some way to address the pandemic’s heavy human and economic toll.

Originating Source

Fed to maintain bond buys until ‘substantial’ economy gains seen

The Federal Reserve strengthened its commitment to support the U.S. economy, promising to maintain its massive asset purchase program until it sees “substantial further progress” in employment and inflation. At their final meeting of a tumultuous year, policy makers led by Chair Jerome Powell on Wednesday voted to maintain monthly bond purchases of at least $120 billion and scrapped their previous pledge to keep buying “over coming months.” They didn’t announce changes to the composition of purchases in their statement, declining to shift them toward longer-term maturities as some economists had recommended. Powell called the new language on asset purchases “powerful,” but declined to specifically define what inflation and unemployment rates would trigger a future change in the buying campaign. “I can’t give you an exact set of numbers,” he told reporters during a press conference to explain the decision. He added the point at which the economy might meet these conditions was “some ways off.”

Originating Source

Britain and U.S. sign agreement to ensure smooth post-Brexit trade

Britain and the United States on Wednesday signed an agreement on customs processes to keep trade flowing smoothly between the two countries when Britain fully leaves the orbit of the European Union at the end of the year. “This is an important agreement that ensures continuity post EU exit, and demonstrates the strength of the US-UK customs relationship,” British Treasury minister Jesse Norman said in a statement. “This deal will allow us to continue to cooperate in combatting customs offences by sharing information and good practice, and provides the legal underpinning for schemes to ease trade flows for importers and exporters.”

Originating Source

European medicines agency will evaluate the Pfizer-BioNTech vaccine next monday

The European Medicines Agency (EMA) said on Monday it received from Pfizer-BioNTech “additional data” required by its committee charged with reviewing medicines for human use. The European Medicines Agency (EMA) will meet on December 21 to evaluate the Pfizer-BioNTech coronavirus vaccine, as several European states, particularly Germany, are pushing for speedy authorization. The Amsterdam-based EMA brought forward the meeting originally scheduled for December 29 by one week, in which it will announce whether or not the Pfizer-BioNTech vaccine will be licensed, the agency said Tuesday. Europe is lagging behind as the UK became the first country in the world to grant emergency approval of the vaccine, followed by the US, Canada, Singapore and Bahrain. The EMA said that on Monday it received from Pfizer-BioNTech “additional data” required by its committee charged with reviewing medicines for human use.

Originating Source

Australia to challenge China barley tariffs through WTO

Australia will challenge tariffs imposed by China on its barley exports through the World Trade Organization, the government said Wednesday, in a further sign that relations between the two key trading partners are deteriorating. Trade Minister Simon Birmingham said the government had advised counterparts in Beijing of its intention “to request formal consultations with China.” “We will make this formal request to the WTO tonight,” he told reporters. “WTO dispute resolution processes are not perfect, and they take longer than would be ideal, but ultimately, it is the right avenue for Australia to take.” Barley was slapped with tariffs of over 80% in May after China accused Australia of dumping the grain and subsidizing growers. So far this year, China has hit Australia with a raft of trade restrictions on products including copper, wine, timber and lobster amid deteriorating diplomatic ties.

Originating Source

Australia set for budget windfall after iron ore prices soar

Australia stuck with a conservative iron ore price forecast in its latest budget update, even as prices surge, setting the country up for a windfall that may bolster its recovery from a pandemic-driven hit to the economy. The world’s biggest iron ore exporter assumes prices will drop to $55 a ton free-on-board by the end of the third quarter of next year, one quarter later than assumed in its October budget. That compares with more than $150 a ton last week, it said in its update, amid surging demand in China and supply problems in Brazil. Australia’s government has maintained a forecast of iron ore returning to $55 a ton in recent years to avoid falling into the trap of the previous Labor government that lost office in 2013. Its then-treasurer was caught out when the price of Australia’s largest export tumbled well below his estimate, turning a forecast budget surplus into a gaping deficit and damaging Labor’s economic credibility in the process. Iron ore has soared over the past month, with benchmark spot prices climbing to a nine-year high, as resurgent Chinese growth coincides with constrained supply. Elevated prices have prompted China’s steel industry to call for government intervention, which comes amid escalating, broader trade tensions between the world’s second-biggest economy and Australia.

Originating Source

New Zealand economy surges out of recession amid spending spree

New Zealand’s economy bounced back strongly from recession in the third quarter as massive fiscal and monetary stimulus sparked a recovery in consumer spending. Gross domestic product surged 14% from the second quarter, when it contracted a revised 11%, Statistics New Zealand said Thursday in Wellington. Economists forecast a 12.9% gain. From a year earlier, the economy grew 0.4%, confounding the consensus forecast for a 1.8% decline. New Zealanders have gone on a spending spree since the nation eliminated community transmission of Covid-19 in May and then successfully contained sporadic outbreaks. However, the border remains closed to foreigners, crippling the tourism industry, and many businesses have put investment and hiring plans on hold, which is projected to push the jobless rate higher in 2021.

Originating Source

ECB’s Weidmann says new bond buys weaken market discipline of govts

The European Central Bank’s latest round of bond purchases risks weakening the market’s ability to discipline governments by making the ECB an even more dominant creditor for them, ECB policymaker Jens Weidmann said on Wednesday. Weidmann conceded that the coronavirus crisis had made fresh ECB intervention necessary but called for ending the Pandemic Emergency Purchase Programme, which is worth up to 1.85 trillion euros after last week’s expansion, when the outbreak is over.

Originating Source

Top Trump News

’Too soon to give up’: Trump hits back at McConnell for admitting election defeat

Hours after powerful Senate Majority Leader Mitch McConnell admitted President-elect Joe Biden won the election, President Trump lashed out at his sometime GOP ally for throwing in the towel too early. “Too soon to give up. Republican Party must finally learn to fight. People are angry!” Trump tweeted early Wednesday morning. Trump shared an article quoting some of his hard-line #MAGA supporters trashing McConnell for not continuing to deny the reality of Biden’s victory. Some of the Trump backers called McConnell and others GOP lawmakers who have congratulated Biden RINOs, meaning Republicans in Name Only, a dreaded epithet for those on the far right. Incoming Rep. Marjorie Greene (R-Ga.) put quote marks around the word “Republican” in a tweet about McConnell, another sign of derision for true believers.

Originating Source

Secretary of state Pompeo quarantines after virus exposure

The State Department said Wednesday that Secretary of State Mike Pompeo had come into contact with a person who tested positive for COVID-19 and was quarantining. The department said Pompeo had tested negative for the virus but was being monitored by medical professionals. It said it would not identify the infected person with whom Pompeo came into contact for privacy reasons. The announcement comes as Pompeo and the department have been criticized for hosting holiday parties amid the coronavirus pandemic.

Originating Source

U.S. calls Switzerland FX manipulator, keeps China on watch

The U.S. Treasury Department designated Switzerland and Vietnam as currency manipulators for the first time, while keeping China on a watch list, in the Trump administration’s final foreign-exchange policy report. Having removed the manipulator label from China in January, the Treasury urged the world’s second-largest economy to “improve transparency” in its currency management, especially of its central bank’s relationship with state-owned banks — which market participants say can act in the currency market with official guidance. The manipulator designation has no specific immediate consequence, beyond any short-term market effects, but the law does require the administration to engage in talks to address the perceived exchange-rate imbalance. Penalties including exclusion from U.S. government contracts could be applied after a year unless the label were removed.

Originating Source

Economic Indicators

United States Manufacturing Production

Manufacturing Production in the United States decreased 3.70 percent in November of 2020 over the same month in the previous year. On a monthly basis, industrial output increased 0.8 percent to a level that was 3.8 percent below its pre-pandemic reading.

United States Industrial Production

Industrial Production in the United States decreased 5.50 percent year-on-year in November of 2020. It is the 15th consecutive month of falling industrial output, amid the coronavirus crisis. Manufacturing output fell 3.7 percent, mining went down 12.5 percent and utilities 8.9 percent.

Australia Markit Manufacturing PMI

The IHS Markit Manufacturing PMI in Australia rose to 56 in December of 2020 from 55.8 in November, preliminary data showed. The latest reading pointed to the sixth straight month of expansion and the highest since July. New orders grew at a 25-month high and employment expanded at the fastest rate in just under three years. On the price front, inflation reached 6- and 9-month highs, respectively.

Japan Balance of Trade

Japan recorded a trade surplus of JPY 366.8 billion in November 2020, compared with a JPY 88.4 billion deficit a year earlier and market expectations of a JPY 530 billion surplus. Exports fell 4.2 percent, defying market consensus of a 0.5 percent increase and marking a 24th straight month of decline, the longest stretch on record. Meanwhile, imports dropped at a faster 11.1 percent, compared with market consensus of a 10.5 percent plunge and marking a 19th consecutive month of decrease. Considering the first eleven months of the year, Japan posted a trade gap of JPY 73 billion, narrowing from a JPY 1509 billion shortfall in the same period of 2019. 

United Kingdom CPI

Consumer prices in the UK edged up 0.3 percent year-on-year in November of 2020, below 0.7 percent in October and market forecasts of 0.6 percent. The largest downward contribution came from cost of food and non-alcoholic beverages (-0.6 percent) and clothing and footwear (-3.6 percent, the biggest drop since January of 2010 on increased discounting for the Black Friday) and housing and utilities (-1.4 percent). Such decreases were partially offset by upward contributions from games, toys and hobbies (5.4 percent), and accommodation services (1.1 percent). On a monthly basis, consumer prices were down 0.1 percent, compared to market expectations of a 0.1 percent rise.

Germany Composite PMI

The IHS Markit Germany Composite PMI increased to 52.5 in December of 2020 from 51.7 in November, beating market forecasts of 50.4, flash estimates showed. Strength in manufacturing (58.6 vs 57.8, 34-month high) continuing to offset service sector weakness (47.7 vs 46). The survey meanwhile pointed to a minor setback in private sector employment, though firms remained optimistic about the year-ahead outlook. Elsewhere, there were signs of increasing supply chain pressures driving a sharp rise in manufacturing input costs. 

U.S. Retail Sales

Retail sales in the US sank 1.1% mom in November of 2020, following a revised 0.1% fall in October and worse than forecasts of a 0.3% drop. It is the second consecutive decline in retail sales as US consumers pulled back holiday shopping amid a surge in coronavirus cases and a drop in income as unemployment benefits are set to expire. Sales at clothing stores fell the most (-6.8%), followed by food services and drinking places (-4%); electronics and appliance stores (-3.5%); gasoline stations (-2.4%) and motor vehicles and parts dealers (-1.7%). Other declines were also seen in sales at furniture stores (-1.1%); general merchandise stores (-1%); health and personal care (-0.7%); sporting goods, hobby, musical instrument and book (-0.6%); and miscellaneous (-0.5%). In contrast, increases were seen at food and beverages stores (1.6%) and building material dealers (1.1%). Core retail sales which exclude automobiles, gasoline, building materials and food services went down 0.5%. 

The IHS Markit US Services PMI fell to 55.3 in December 2020, from the previous month’s five-and-a-half-year high of 58.4 and below market expectations of 55.9, a preliminary estimate showed. The latest reading pointed to a sharp slowdown in services activity growth amid rising COVID-19 cases, with firms stating that restrictions and softer demand weighed on total activity.

United States Crude Oil Stocks Change

US crude oil inventories dropped by 3.135 million barrels in the week ended December 11th, 2020, following a 15.189 million increase in the previous week and compared with market expectations of a 1.937 million fall, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were up by 1.020 million barrels, while markets had forecast a bigger 1.614 million rise.

Economic Calendar

Thursday

AU Employment Change

Friday

US Initial Jobless Claims