Monex Morning Report – Thur 22 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends nearly 100 points lower as fiscal stimulus talks remain key focus; Asia stocks to drift amid pre-election aid doubts

U.K. to restart Brexit trade talks with European Union; Pelosi says deal on new U.S. COVID-19 relief bill may not come until after election

Top Market News

U.K. to restart Brexit trade talks with European Union

The U.K. agreed to resume trade talks with the European Union less than a week after Prime Minister Boris Johnson suspended them. Intensive negotiations will begin on Thursday afternoon in London and happen every day, U.K. Chief Negotiator David Frost said in a Tweet on Wednesday. The decision came after the EU’s chief negotiator, Michel Barnier, moved on Wednesday to address three British complaints, telling lawmakers in Brussels the EU would acknowledge the U.K.’s sovereignty, change its negotiating approach, and start work on the detailed text of an accord. “We are ready to welcome the EU team to London to resume negotiations later this week,” a spokesperson for Johnson’s office said in a statement after the two sides’ chief negotiators spoke on Wednesday. “We have jointly agreed a set of principles for handling this intensified phase of talks.”

Originating Source

Pelosi, Mnuchin to talk stimulus Thursday with senate skeptical

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin made further progress on a coronavirus stimulus package Wednesday, according to Pelosi’s office, but Senate Republicans continued to raise objections. “Today’s conversation brings us closer to being able to put pen to paper to write legislation,” Pelosi spokesman Drew Hammill tweeted after the two negotiators held a 48-minute call Wednesday. “With the exchange of legislative language, we are better prepared to reach compromise on several priorities.” The two negotiators will talk again Thursday, Hammill said. With the timeframe becoming ever more compressed, both sides on Wednesday floated the potential for final votes after Election Day. White House economic adviser Larry Kudlow said the economy and markets would still benefit from the announcement of a deal between the administration and the House in the next two weeks. Senate Majority Leader Mitch McConnell has made no specific promise on the timing for a vote on any compromise endorsed by President Donald Trump and passed in the House. GOP members Wednesday raised concerns about both the size of the deal under negotiation — $1.9 trillion, according to White House Chief of Staff Mark Meadows — and policy issues in the language.

Originating Source

Pelosi says deal on new U.S. COVID-19 relief bill may not come until after election

U.S. House Speaker Nancy Pelosi on Wednesday said she believed negotiations with the White House could produce a deal on a fresh COVID-19 relief bill despite Senate Republican opposition, but said it may not happen until after the election. Pelosi, the nation’s top elected Democrat, continued talks with Treasury Secretary Steven Mnuchin on Wednesday afternoon, and a Pelosi spokesman said afterwards that they were closer to being able to “put pen to paper” on legislation. Pelosi told MSNBC earlier that she wanted the bill to pass before the Nov. 3 elections, although her Republican counterpart, Senate Majority Leader Mitch McConnell, has not been an enthusiastic supporter. “I’m optimistic, because even with what Mitch McConnell says, ‘We don’t want to do it before the election.’ But let’s keep working so that we can do it after the election,” she said. “We want to before, but again, I want people to know, help is on the way,” she said.

Originating Source

Fed’s Bullard says U.S. can wait on fiscal aid, businesses adapting

St. Louis Federal Reserve Bank President James Bullard on Wednesday repeated his view that U.S. businesses are largely adapting to life amid COVID-19 and the U.S. economy is on track to better-than-trend growth even without further fiscal stimulus. “In terms of the aggregate resources it seems like we should have enough” fiscal aid to bolster growth until the first quarter of next year, when any further need could be reassessed, Bullard said at the Federal Home Loan Bank of Des Moines Leadership Summit. Per-day fatalities per-million population in the coronavirus pandemic are down in the United States from the peak in the spring, he said, adding he does not expect a resurgence, or a second wave, by that metric.

Originating Source

Fed’s Mester says further study needed of monetary policy’s affect on financial stability

The Federal Reserve’s new approach to monetary policy should help the central bank influence the economy at a time when interest rates and inflation are low, but policymakers need to study how low rates can affect financial stability risks, Cleveland Fed Bank President Loretta Mester said Wednesday. The framework clarifies that strong employment on its own is not a concern to the Fed unless there are strong inflationary pressures or financial stability risks, Mester said. But there are situations where low rates could encourage “higher levels of borrowing and financial leverage, increased valuation pressures, and search-for-yield behavior,” she said. “While monetary policy that leads to a stable macroeconomy encourages financial stability, it is also possible that in an environment with low neutral rates, a persistently accommodative monetary policy could, in some cases, increase the vulnerabilities of the financial system,” Mester said in remarks delivered during a virtual event on monetary policy. “How best to approach the nexus between monetary policy and financial stability in a low-interest-rate world deserves more consideration,” Mester said.

Originating Source

Fed’s Brainard Urges More Fiscal Aid in Dark Warning on Outlook

Federal Reserve Governor Lael Brainard said a failure by Congress to reach an agreement on further support for the economy is the biggest risk to the outlook aside from the coronavirus itself. “Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending,” said Brainard, viewed as a possible pick for Treasury secretary if Democratic presidential nominee Joe Biden defeats President Donald Trump next month. “Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize,” she told the Society of Professional Economists in an online speech Wednesday. U.S. central bankers next meet Nov. 4-5, immediately after election day.

Originating Source

BoE’s Ramsden sees no case for negative rates now

Cutting interest rates below zero risks damaging British banks’ capacity to lend, and is not currently the right tool for the Bank of England to stimulate the economy, Deputy Governor Dave Ramsden said on Wednesday. “While there might be an appropriate time to use negative rates, that time is not right now,” Ramsden said, adding that asset purchases were a better way to boost demand. Economists polled by Reuters expect the BoE to expand its asset purchase programme by 100 billion pounds next month to 845 billion pounds, but do not expect it to cut rates below zero this year or next. In August, BoE Governor Andrew Bailey said the central bank was looking more closely at negative interest rates – a tool used by the European Central Bank and Bank of Japan – but said no decision had been taken about whether it was viable.

Originating Source

Tesla (TSLA) crushes Q3 earnings with record profit, accelerates global growth

Tesla’s (NASDAQ:TSLA) third-quarter earnings for 2020 saw the electric car maker post $8.771 billion in revenue, beating Wall Street’s expectations. The results, which were discussed at length in an Update Letter, were released after the closing bell on Wednesday, October 21, 2020. Tesla’s third-quarter was impressive, with the electric car maker producing a total of 145,036 vehicles comprised of 16,992 Model S and Model X and 128,044 Model 3 and Model Y. The company also delivered 139,300 vehicles comprised of 124,100 Model 3 and Model Y, as well as 15,200 Model S and Model X. Tesla’s strong Q3 results were likely due to the Model Y ramp in the United States and the increasing Model 3 production at Gigafactory Shanghai. With these, expectations were high that Tesla would once more post a profit this third quarter.

Originating Source

Top Trump News

Stimulus

President Donald Trump has repeatedly blamed the U.S. House Speaker Nancy Pelosi for “not caring about Americans” since she would not agree to his terms for COVID-19 relief aid. “The problem you have is Nancy Pelosi. She couldn’t care less about the worker. She couldn’t care less about our people,” Trump said during Thursday night’s town hall. He also claimed that she refuses to approve anything before the election

Originating Source

Campaign

President Donald Trump’s reelection campaign committee ended September with only $63.1 million in the bank despite cancelling some television buys late last month, leaving him badly outmatched financially against Joe Biden in the final stretch of the campaign. New filings with the Federal Election Commission showed the extent of Trump’s cash troubles, which are severe enough that he diverted time from key battleground states and flew to California on Sunday for a fundraiser with just over two weeks until Election Day. The president ended September with just over half as much money as he had at the beginning of the month.

Originating Source

Trump and Biden tax plans

The economic and tax policies policies of President Donald J. Trump and Democratic Party candidate Joe Biden differ in significant ways important to small business owners. Biden would move to raise corporate tax rates and target income and estate planning tax law at the highest levels of wealth. Entrepreneurs skew conservative historically, and like the rest of America, are more polarized than ever before, but the coronavirus pandemic devastated Main Street and is a wildcard factor in their 2020 ballot decisions.

Originating Source

Economic Indicators

U.K. Consumer Price Index (CPI) YoY

Annual inflation rate in the United Kingdom increased to 0.5% in September of 2020 from a near 5-year low of 0.2% in August, matching market expectations. The largest upward contribution came from cost of recreation and culture (2.4% vs 2.8% in August), transport (0.9% vs -1%), and restaurants and hotels (-0.7% vs -2.8%) after the end of the Eat Out to Help Out scheme. In contrast, smaller downward contributions from furniture, household equipment and maintenance (-0.5% vs 0.4%); games, toys and hobbies (-1.2% vs 3.8%); and food and non-alcoholic beverages (-0.1% vs 0.4, the lowest rate since January of 2017). On a monthly basis, consumer prices went up 0.4%, reversing from a 0.4% fall in August. Still, the inflation rate remains well below the Bank of England’s 2% target.

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

Factory gate prices of goods produced by the UK manufacturers, excluding food, beverages, tobacco and petroleum rose 0.3 percent from a year earlier in September of 2020, after a flat reading in August and beating market expectations of 0.1 percent growth. On a monthly basis, core producer prices were up 0.2 percent in September, following a 0.1 percent rise in August and compared with market consensus of a flat reading.

U.S. Crude Oil Inventories

US crude oil inventories dropped by 1.001 million barrels in the week ended October 16th, 2020, following a 3.818 million decrease in the previous period and compared to market expectations of a 1.021 million fall, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were up by 1.895 million barrels, while markets had forecast a 1.829 million decline.

U.S. MBA 30-Year Mortgage Rate

The average fixed 30-year mortgage rate in the United States increased 2 bps to 3.02 percent in the week ended October 16th, remaining close to last week’s record low, data from the Mortgage Bankers Association showed.

Economic Calendar

Thursday

U.S. Initial Jobless Claims

Friday

Existing Home Sales (Sep)

Friday

U.S. Markit Composite PMI