Monex Morning Report – Thur 24 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow ends 525 points lower as tech tumbles, stocks close near session lows; Asian stocks to decline

A parade of Federal Reserve officials Wednesday stressed that more fiscal stimulus is critical to sustaining the economic recovery; U.S. business activity rises at slightly weaker pace in September, PMI data show

Powell: Congress and Fed both need to ‘stay with it’ to bolster recovery

The U.S. Congress and the Federal Reserve both need to “stay with it” in working to bolster the economic recovery, Federal Reserve Chair Jerome Powell said on Wednesday. Despite progress in rebounding from the coronavirus economic downturn, “there is a long way to go,” with millions still jobless compared to where the economy was in February, he said. “We need to stay with it … The recovery will go faster if there is support coming both from Congress and the Fed.”

Originating Source

Fed’s Quarles sees long recovery, says he’ll be ‘more patient’ on inflation

Federal Reserve Governor Randal Quarles on Wednesday painted a somewhat optimistic picture of a U.S. recovery powered by consumer spending, but said risks are weighted to the downside and the economy still needs further support. Quarles, who is also the Fed’s vice president of supervision, was among the 8-2 majority at the U.S. central bank that last week voted to promise to keep interest rates low until the economy reaches full employment, and inflation has risen to 2% and is on track to moderately exceed that target for some time. “Although we have seen the beginnings of a strong recovery, even optimistic forecasts suggest that it will take a long time to recover fully from this shock,” Quarles said in remarks prepared for delivery to the Institute of International Bankers. “By providing additional monetary policy accommodation through stronger, outcomes-based forward guidance, the (Fed) hopes to quicken the pace of the recovery.”

Originating Source

Fed’s Rosengren says U.S. could face a credit crunch by year end if virus worsens

The U.S. economy could face more foreclosures and business bankruptcies in the fall and winter if there is a rise in infections and no additional fiscal aid, conditions that could make it harder for consumers and businesses to access credit, Boston Federal Reserve President Eric Rosengren said on Wednesday. Community and regional banks could especially come under stress if there is a rise in delinquencies in commercial real estate loans as businesses struggle to stay in operation, Rosengren said. “I think the challenge is that we are very likely to face a credit crunch kind of issue as we get towards the end of this year,” Rosengren said

Originating Source

Kuroda says BOJ may extend deadline for aid to pandemic-hit firms

Bank of Japan Governor Haruhiko Kuroda said Wednesday the central bank was ready to extend its programs aimed at easing corporate funding strains that expire early next year, as the coronavirus pandemic keeps the economic outlook highly uncertain. He also reiterated the BOJ’s resolve to work closely with the government in battling headwinds to Japan’s recovery such as the fallout from U.S.-China tensions and protectionism. “There’s a good possibility we will extend the deadline for the programs if needed, depending on the impact of COVID-19,” Kuroda told a news conference after his online meeting with business leaders in Osaka.

Originating Source

Fed not thinking about rate hike until inflation ‘at least’ 2%, Clarida says

Federal Reserve Vice Chair Richard Clarida said on Wednesday that policymakers “are not even going to begin thinking” about raising interest rates until inflation hits 2%, comments aimed at cementing the public’s understanding of the U.S. central bank’s new approach to monetary policy. “Rates will be at the current level, which is basically zero, until actual observed PCE inflation has reached 2%,” Clarida told Bloomberg Television, referring to the Fed’s preferred measure of prices. PCE inflation tends to be somewhat lower than the better-known Consumer Price Index. “That’s ‘at least.’ We could actually keep rates at this level beyond that. But we are not even going to begin thinking about lifting off, we expect, until we actually get observed inflation … equal to 2%. Also we want our labor market indicators to be consistent with maximum employment … So that is the whites of their eyes.”

Originating Source

Fed’s Rosengren says increased COVID infections, lack of fiscal support could slow recovery

The economic recovery will likely be more gradual in fall and winter if coronavirus infections rise and if Congress fails to provide more fiscal support, Boston Federal Reserve President Eric Rosengren said on Wednesday. The policymaker said his economic outlook is more pessimistic than those of his peers at the Fed because he expects a resurgence of the virus to dampen consumer spending and strain the commercial real estate market. “Recent economic data have been encouraging, but I believe the most difficult part of the recovery is still ahead of us,” Rosengren said in remarks prepared for a virtual forum organized by the Boston Economic Club. Rosengren said monetary policy and fiscal policy will need to remain “highly accommodative” until a vaccine is widely available, which is likely required before businesses and consumers will return to previous spending levels.

Originating Source

Johnson & Johnson Initiates Pivotal Global Phase 3 Clinical Trial of Janssen’s COVID-19 Vaccine Candidate

Johnson & Johnson (NYSE: JNJ) (the Company) today announced the launch of its large-scale, pivotal, multi-country Phase 3 trial (ENSEMBLE) for its COVID-19 vaccine candidate, JNJ-78436735, being developed by its Janssen Pharmaceutical Companies. The initiation of the ENSEMBLE trial follows positive interim results from the Company’s Phase 1/2a clinical study, which demonstrated that the safety profile and immunogenicity after a single vaccination were supportive of further development. These results have been submitted to medRxiv and are due to be published online imminently. Based on these results and following discussions with the U.S. Food and Drug Administration (FDA), ENSEMBLE will enroll up to 60,000 volunteers across three continents and will study the safety and efficacy of a single vaccine dose versus placebo in preventing COVID-19.

Originating Source

Tesla sues Trump administration to end tariffs on the ‘brain’ of its vehicles

Tesla is suing the Trump administration over tariffs on a computer chip and other parts it imports from China, joining an increasingly long list of similar lawsuits filed by hundreds of companies, including automakers Ford, Mercedes-Benz and Volvo. Tesla, which names U.S. Trade Representative Robert Lighthizer in the lawsuit filed in the U.S. Court of International Trade, wants the court to declare the tariffs unlawful. Bloomberg was the first to report the lawsuit. Tesla is also seeking a refund for the tariffs it paid, with interest. The lawsuit centers on two types of tariffs, a 25% duty enacted in 2018 and 7.5% tariff on hundreds of other products that went into effect last year. Last year, the United States Trade Representative (USTR) denied Tesla’s request for an exemption on a new custom chip built in China.

Originating Source

Top Trump News

New sanctions targeting Cuban

U.S. President Donald Trump on Wednesday imposed new curbs on imports of Cuban rum and cigars and banned Americans from staying at properties owned by the Cuban government, as he sought to lock in the Cuban-American vote in the swing state of Florida ahead of November’s presidential election. The moves were the latest in Trump’s effort, since taking office in January 2017, to roll back a detente with America’s old Cold War foe pursued by his Democratic predecessor, President Barack Obama. Trump’s aides believe his toughened stance on Cuba has gone down well in the large Cuban-American community in south Florida, an important voting bloc in a state where he and Democratic presidential candidate Joe Biden are locked in a tight race.

Originating Source

Package of reforms

“House Democrats announced a package of government reforms Wednesday aimed at curbing actions taken by President Donald Trump, in an effort to address what they charge are some of the President’s most egregious abuses. The new legislation has virtually zero chance of becoming law this year, but it’s a wish list of policy changes related to everything from government spending at Trump’s properties to the President’s targeting of whistleblowers and firing of inspectors general. The legislative proposals are a roadmap for what Democrats may do next year if former Vice President Joe Biden wins the White House. ”

Originating Source

U.S. coronavirus deaths

“President Donald Trump has said the 200,000 US deaths from coronavirus were “a shame” in response to a reporter’s question about the milestone in the country’s fight against the pandemic. As Trump was departing for an election campaign event in Pittsburgh he told the media: “I think if we didn’t do it properly and do it right, you’d have 2.5 million deaths.” ”

Originating Source

Economic Indicators

New Zealand Interest Rate Decision

The Reserve Bank of New Zealand held its official cash rate (OCR) at a record low of 0.25% on September 23rd 2020, as widely expected, and retained its large scale asset purchase (LSAP) programme at as much as NZD 100 billion. Policymakers said that the decision was necessary to further lower household and business borrowing rates in order to achieve the inflation and employment target. The Committee noted the possible need for further monetary stimulus and added that progress being made on the Bank’s ability to deploy additional monetary instruments, including a Funding for Lending Programme (FLP), a negative OCR and purchases of foreign assets.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit Germany Manufacturing PMI rose to 56.6 in September of 2020 from 52.2 in August, beating market forecasts of 52.5. The reading pointed to the biggest expansion in factory activity since July of 2018, preliminary estimates showed. Goods producers reported ramping up production in line with increasing inflows of new work, which rose at the fastest rate for more than a decade in September, helped in turn by a steep and accelerated increase in new export orders. Backlogs of work also increased sharply and job shedding was the weakest overall for seven months. Finally, manufacturers’ confidence towards future activity improved in September.

U.K. Services Purchasing Managers Index (PMI)

The IHS Markit/CIPS UK Manufacturing PMI fell to 54.3 in September of 2020 from 55.2 in August which was the strongest reading since February of 2018. Figures came better than market forecasts of 54.1, preliminary estimates showed. Output and new business growth both eased from August’s recent peaks, which was partly linked to a slowing of the catch-up effect while plant capacity was brought back on line through the summer. Export sales were a brighter spot in September, partly helped by rising demand from clients in Asia. Latest data signalled the fastest expansion of total new work from abroad since February 2018. In contrast to the downward trend in business optimism reported across the private sector as a whole, manufacturing companies indicated that confidence held steady in September.

U.S. Crude Oil Inventories

US crude oil stocks fell by 1.639 million barrels in the week ended September 18th, 2020, following a 4.389 million decrease in the previous period and compared to market expectations of a 2.325 million drop, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 4.025 million barrels, while markets had forecast a smaller 0.648 million decline.

Economic Calendar

Thursday

Germany Ifo Business Climate Index

Friday

U.S. New Home Sales

Friday

U.S. Core Durable Goods Orders MoM