Monex Morning Report – Thur 20 Aug 2020

OVERNIGHT HIGHLIGHTS

U.S. stocks finish lower after Fed minutes urge Congress for more pandemic aid; Asian futures slip

Several Fed policymakers see more easing ahead to help brace economy; U.S., China to plan resumption of delayed trade deal talks

Top Market News

U.S. economy rebounding strongly; fresh aid coming to unemployed: Kudlow

The U.S. economy is rebounding “very, very strongly,” and fresh federal aid will reach unemployed Americans in the next week or two, White House economic adviser Larry Kudlow said on Wednesday, shaking off concerns about a second wave of COVID-19 infections. Kudlow, speaking to reporters at the White House, defended a reduction in the unemployment supplement to $300 from $600, saying stimulus measures should be reduced slowly as the economy strengthens. “I think the economy is on a self-sustaining recovery and it’s a V-shaped recovery,” he said. “We’re seeing terrific numbers.”

Originating Source

Fed’s Barkin says uncertainty is weighing on U.S. outlook

Uncertainty is weighing on the U.S. economic outlook, Richmond Federal Reserve Bank President Thomas Barkin warned on Wednesday, keeping households from spending, businesses from investing and even banks from extending credit. To reduce that uncertainty, he said, at least two things are needed: better control of the coronavirus, and more government aid for the unemployed and for businesses. “We simply need to get this virus under control to give people confidence and certainty,” Barkin told the National Economists Club in a virtual event. But the economy also needs “continued fiscal support” to get through this period, he said.

Originating Source

Several Fed policymakers see more easing ahead to help brace economy

“Several Federal Reserve policymakers say the U.S. central bank may need to ease monetary policy further to help nurse the economy through the coronavirus pandemic, minutes from their policy meeting last month showed on Wednesday. The Fed has already slashed interest rates to zero and bought trillions of dollars of bonds in response to the economic crisis spurred by virus, moves which have provided a boost to jobs and spending. But, according to the readout of the July 28-29 policy meeting, members of the rate-setting Federal Open Market Committee saw the rebound in employment already slowing and additional “”substantial improvement”” hinging on a “”broad and sustained”” reopening of business activity. ”

Originating Source

Fed’s Bowman says diversity helps central bank policy

Federal Reserve Governor Michelle Bowman on Wednesday said her experiences as a community banker and state regulator — an atypical background for a U.S. monetary policymaker — improves decisions by the central bank by bringing in a broader perspective. “This diversity is a strength,” Bowman said in remarks prepared for delivery to the Outstanding Women of Kansas Awards Ceremony. She was one of four women to receive the award this year. “I strongly believe that our economic and financial system is strengthened when we consider the implications of our regulatory decisions for bankers on Main Street as well as on Wall Street.”

Originating Source

U.S. official sees ‘real desire’ for smaller coronavirus relief bill

Some Democrats and Republicans have a “real desire” to reach agreement on a smaller coronavirus relief bill that could be worth around $500 billion, a senior Trump administration official said late on Tuesday. The official said the agreement could include funding for the U.S. Postal Service, additional funding for loans to small- and medium-sized businesses to keep workers on their payrolls and potentially added money for schools. “I think there’s a real desire by some in the Democratic caucus and some in the Republican conference, both in the House and the Senate, to do a smaller deal on the things we can agree upon,” the official said. “It could be about $500 billion.” That amount still falls far short of what Democrats have been seeking in protracted discussions with the administration.

Originating Source

Pelosi, McConnell signal willingness to compromise

The chances of a compromise deal on the latest round of economic relief measures appeared to rise after House Speaker Nancy Pelosi indicated she would drop many of her demands in order to secure a short-term deal. “We’re willing to cut our bill in half to meet the needs right now,” Pelosi told an event organized by a Politico, adding: “We’ll take it up again in January.” Bloomberg later reported her spokesman as clarifying her comments to mean that the Democrats would meet the skinnier Republican proposal halfway, rather than “cutting our bill in half.” Bloomberg reported that Senate Republicans are now drafting a pared-down proposal, featuring some money for the U.S. Postal Service, supplemental unemployment payments and aid for small businesses and for school reopenings. Senate Leader Mitch McConnell said however that the Senate would not back a bill on funding the USPS currently being prepared by House Democrats.

Originating Source

Markets Tell the Fed It’s Finally Getting an Edge on Inflation

“The $20 trillion U.S. Treasury market is giving the Federal Reserve a thumbs-up for its efforts to revive inflation after the coronavirus pandemic threatened to inflict a damaging bout of deflation on the U.S. economy. The best measure of that is inflation-adjusted interest rates on 10-year Treasury bonds, which have plunged well below zero as nominal yields held fairly steady. Other signs of success include rising expectations for future prices among U.S. households. Those are all signals that investors reckon some degree of inflation may be on the way, in part because Fed Chair Jerome Powell and colleagues slashed interest rates to almost zero and bought hundreds of billions of dollars of government bonds. Some even think price pressures could ultimately spiral out of hand, as ultra-easy monetary policy combines with fiscal stimulus after lawmakers authorized $3 trillion in spending and debate still more. ”

Originating Source

U.S., China to Plan Resumption of Delayed Trade Deal Talks

The U.S. and China plan to reschedule trade-deal talks postponed from last weekend aimed at reviewing progress at the six-month mark of the agreement between the world’s two biggest economies, according to a person familiar with the matter. While the date hasn’t been set, the review will take place soon, the person said, declining to be identified. The video-conference call between Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin never made it on to official public calendars in Washington or Beijing, though the South China Morning Post reported it was first planned for Aug. 15. President Donald Trump on Tuesday said he called off last weekend’s trade talks with with the Asian nation, raising questions about the future of a deal that is now the most stable point in an increasingly tense relationship.

Originating Source

Top Trump News

$500 Billion Stimulus Deal

The Trump administration sees a possibility for Republicans and Democrats to agree on a smaller round of pandemic relief totaling $500 billion that would omit the biggest areas of disagreement, according to a senior U.S. official. The official, who discussed the matter on the condition of anonymity, said Tuesday night that both parties in Congress may be able to reach an accord on issues like financial help for the Postal Service, aid to schools and more money for businesses to keep their workers employed. But the two parties remain far apart on other proposals, including stimulus checks and assistance for local and state governments, the official added.

Originating Source

Obama,Trump

Former President Barack Obama plans to blast his successor as unserious and self-centered during his address Wednesday on the third night of the Democratic National Convention. Obama will portray President Donald Trump as a catastrophically ineffective leader who has used the office only to benefit himself and his friends, according to a preview released by convention organizers. Trump views the presidency as no more than a “reality show that he can use to get the attention he craves,” and his failure to lead has resulted in the deaths of thousands of Americans during the coronavirus pandemic, Obama will say.

Originating Source

Saction on Iran

“President Trump on Wednesday announced that the U.S. intends to “snapback” sanctions on Iran, days after the U.N. Security Council failed to extend a soon-to expire arms embargo on Iran. “Today I am directing Secretary of State Mike Pompeo to notify the U.N. Security Council that the United States intends to restore virtually all the previously suspended United Nations sanctions on Iran,”” the president said in a news conference with reporters. “It’s a snapback.” ”

Originating Source

Economic Indicators

U.K. Consumer Price Index (CPI) YoY

Annual inflation rate in the UK jumped to 1% in July of 2020 from 0.6% in June, beating market forecasts of 0.6%. It is the highest reading since March, as the restrictions caused by the coronavirus pandemic have been eased. The largest contributions came clothing (-0.1% vs -2.2%), rising prices at the petrol pump (transportation prices were down 0.7% vs -1.6% in June), and furniture and household goods (0.8% vs -0.5%), namely single beds and bath sheets. In contrast, food inflation slowed (0.8% vs 1.1%), mainly due to fruit, vegetables (including potatoes and tubers), fish, meat, and milk, cheese and eggs. On a monthly basis, consumer prices went up 0.4%, after a 0.1% rise and beating forecasts of a 0.1% fall.

U.K. Producer Price Index (PPI) Output MoM

Factory gate prices of goods produced by the UK manufacturers, excluding food, beverages, tobacco and petroleum unexpectedly rose 0.1 percent year-on-year in July of 2020, following a 0.5 percent gain in June and compared with market expectations of a 0.3 percent increase. On a monthly basis, core producer prices fell 0.1 percent in July, after a 3 percent gain in June.

U.S. Crude Oil Inventories

US crude oil stocks fell by 1.632 million barrels in the week ended August 14th, 2020, the fourth consecutive period of decrease and compared to market expectations of a 2.670 million drop, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 3.322 million barrels, while markets had forecast a smaller 1.057 million decline.

Eurozone Consumer Price Index (CPI) YoY

Annual inflation rate in the Euro Area edged up to 0.4 percent in July of 2020 from 0.3 percent in June, reaching the highest in 4 months and matching preliminary estimates. The highest contributions came from cost of non-energy industrial goods (prices up 1.6 percent vs 0.2 percent in June); services (0.9 percent vs 1.2 percent); food, alcohol & tobacco (2 percent vs 3.2 percent) and energy (-8.4 percent vs -9.3 percent). On a monthly basis, consumer prices fell 0.4 percent, the biggest drop since January and above initial estimates of a 0.3 percent decline.

Economic Calendar

Wednesday

U.K. CPI (YoY) (Jul)

Wednesday

EUR Zone CPI (YoY) (Jul)

Thursday

U.S. Crude Oil Inventories

Thursday

U.S. FOMC Meeting Minutes

Thursday

EUR Zone ECB Publishes Account of Monetary Policy Meeting 

Thursday

U.S. Initial Jobless Claims

Thursday

U.S. Philadelphia Fed Manufacturing Index (Aug)

Friday

U.K. Retail Sales (MoM) (Jul)

Friday

German Manufacturing PMI (Aug)  

Friday

U.K. Composite PMI