Monex Morning Report – Thur 26 Nov 2020

OVERNIGHT HIGHLIGHTS

Nasdaq ends at record, but Dow closes below 30,000 milestone on Thanksgiving eve; Asia stocks face muted start as global rally ebbs

Fed policymakers may give new bond-buying guidance ‘fairly soon’: minutes; China blacklist strands more than 50 Australia coal cargoes

BOJ digital currency will help boost cryptocurrency trading, says Monex head

Central bank digital currencies will help boost trading of cryptocurrencies by providing a more convenient platform for converting cryptocurrencies into legal tenders, said Oki Matsumoto, head of Japan’s Monex Group. Matsumoto, chief executive of the major financial services firm, welcomed the Bank of Japan’s plan to look into the idea of issuing a central bank digital currency (CBDC), saying it will help Japan move toward a more efficient, digitalised economy. “CBDCs will significantly enhance the interoperability of cryptocurrencies,” he told Reuters on Tuesday. “It would make the cryptocurrency market more lively.” At present, converting cryptocurrencies into legal tenders is not easy because many smaller cryptocurrency exchange brokers do not hold bank accounts, Matsumoto said. If CBDCs are issued, they would offer a digital-friendly platform where CBDCs, cryptocurrencies and legal tenders could be converted to one another more smoothly, he added. The BOJ said last month it would begin experimenting next year on how to operate its own digital currency, joining efforts by other central banks to catch up to rapid private sector innovation. Monex is an owner of Coincheck, a bitcoin exchange operator based in Tokyo.

Originating Source

China blacklist strands more than 50 Australia coal cargoes

More than $500 million worth of Australian coal is on ships anchored off Chinese ports, as a diplomatic spat between the two countries cuts into trade, idles a portion of the world’s dry bulk carriers and threatens to spiral into a humanitarian crisis. More than 50 vessels have been waiting a month or longer to offload coal from Australia, according to separate analyses of shipping data conducted by Bloomberg and data intelligence firm Kpler. There are about 5.7 million tons of coal on the anchored ships, which are mostly Capesize and Panamax-sized vessels, according to Kpler, and an estimated 1,000 seafarers. The cargo and crew are victims of China’s move to blacklist a wide swathe of Australian commodities and foodstuffs, ratcheting up tensions between the two trading partners that have deteriorated since Huawei Technologies Co. was barred from building Australia’s 5G network in 2018. Chinese power stations and steel mills were told to stop using Australian coal and ports were instructed not to offload the fuel, Bloomberg News reported in October.

Originating Source

Fed policymakers may give new bond-buying guidance ‘fairly soon’: minutes

U.S. Federal Reserve policymakers may soon give new guidance on their plans for asset purchases, including for how long and in what maturities, as they seek to provide more support to markets and the economy, minutes from their November policy-setting meeting show. “Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon,” the minutes said. U.S. central bankers agreed the asset purchases were providing accommodation for the economy and served as “insurance” against risks that could appear because of uncertainty created by the coronavirus pandemic, according to the minutes of the Nov. 4-5 meeting released on Wednesday. Most participants said the committee should move toward issuing forward guidance that links the pace and makeup of purchases to certain economic outcomes. Policymakers signaled they will end bond purchases before they begin raising interest rates, which were slashed to near zero levels earlier this year and are expected to remain there until at least 2023. “Most participants judged that the guidance for asset purchases should imply that increases in the Committee’s securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate,” the minutes said. A number of policymakers thought that even after it stops adding to its balance sheet the Fed would take steps to keep it from shrinking, as it did following the end of its last round of bond-buying.

Originating Source

ECB’s de Guindos says Yellen’s appointment good for global economy

The appointment of Janet Yellen as the next U.S. Treasury secretary is good news for the global economy as the former Federal Reserve chair is aware of the global ramifications of her country’s policy, the vice president of the European Central Bank said on Wednesday. “Janet Yellen knows perfectly what the U.S. economy needs and she is perfectly aware of the implications that the economic policy of the United States is going to have on the world economy,” Luis de Guindos said at a news conference. “The appointment of Janet Yellen is good news for the U.S. economy and the global economy.” The ECB has criticised Donald Trump’s outgoing administration for its protectionist stance and was attacked by the U.S. president over the euro-dollar exchange rate.

Originating Source

Brexit could affect economy for longer than COVID: BoE’s Saunders

Bank of England interest-rate setter Michael Saunders said the long-term effects of Brexit could have a bigger impact on companies than the coronavirus pandemic. “Businesses will shake off the effect of COVID-19 as they’re temporary, but the long-term effects of Brexit could be more permanent,” Saunders said in an interview with TheBusinessDesk.com website. BoE Governor Andrew Bailey said on Monday that a no-deal Brexit would cause longer-term damage to Britain’s economy than the pandemic, and the impact of the change might be felt for decades. Britain and the European Union are still negotiating a trade agreement ahead of the Dec. 31 expiry of a post-Brexit transition period. Saunders also said Britain’s economy was unlikely to fall into a recession. “It’s not worth getting too worried about recession at the moment. We had a big recovery in Q3 and there will be a dip in Q4 – but we’re only forecasting a contraction of around 2%,” he said.

Originating Source

Yellen would need Congress to approve use of clawed-back Fed loan funds, Treasury says

President-elect Joe Biden’s Treasury secretary will need Congress to approve re-use of $455 billion in funds that the Trump administration is taking back from Federal Reserve and other pandemic lending programs, the Treasury said on Monday. Biden is expected to name former Federal Reserve chair Janet Yellen as his Treasury secretary, putting a woman in the job for the first time since the department was created in 1789. Current Treasury Secretary Steve Mnuchin last week said he would allow some little-used coronavirus lending programs at the Federal Reserve to expire on Dec. 31 and allow Congress to spend the funds on other aid for businesses and individuals. Biden’s transition team called the move, which restricts the new administration’s ability to backstop financial markets during a worsening pandemic, “deeply irresponsible.” A Treasury spokesperson confirmed a Bloomberg report saying that the reclaimed money will be put into the Treasury’s General Fund, but denied that moving it out of the Exchange Stabilization Fund would put the funds off limits. The funds are tied to expiring Fed lending programs for mid-size businesses, municipal bond issuers and other borrowers, the spokesperson said, adding that any new use, including renewing the facilities, would require congressional approval.

Originating Source

Mnuchin Defends Work With Fed as Democrats Fault Funds Shift

Treasury Secretary Steven Mnuchin said he has maintained close coordination with Federal Reserve Chair Jerome Powell throughout the economic downturn sparked by the pandemic, saying the central bank was aware in advance that he would bring an end to emergency facilities. “Powell and I speak multiple times a week. We would both characterize that we have an excellent relationship,” Mnuchin said in an interview Wednesday. Treasury and the Fed have been “incredibly coordinated on the execution of the Cares Act facilities,” he said, referring to the federal stimulus law.

Originating Source

OPEC+ leaning towards oil cut extension, despite rally

OPEC and allies including Russia are leaning towards delaying next year’s planned increase in oil output to support the market during the second wave of COVID-19 and rising Libyan output, despite a rise in prices, three sources close to OPEC+ said. OPEC+ was due to raise output by 2 million barrels per day (bpd) in January – about 2% of global consumption – as it moves to ease this year’s record supply cuts. With demand weakening, OPEC+ has been considering delaying the increase. Russia is likely to agree on a rollover of current output for the first quarter if needed, a source familiar with the issue said, and would prefer to decide later on extending for the second quarter.

Originating Source

Top Trump News

China’s President Xi Jinping

China’s President Xi Jinping broke his silence on Joe Biden’s election victory, sending the U.S. president-elect a message that he hopes to “manage differences” and focus on cooperation between the world’s two largest economies. The congratulatory note, reported by the official Xinhua News Agency, said China wants to advance a “healthy and stable” relationship and uphold the principles of “no conflict” and “no confrontation.” A previous Foreign Ministry statement sent congratulations and said China respected the American people’s choice. China’s Communist Party leaders had held off on offering extended comments as President Donald Trump pursued unfounded claims of fraud in an effort to overturn the Nov. 3 election. Trump has ratcheted up tension with Beijing over the course of his administration, hitting China with tariffs in continuing trade disputes, blaming it for the coronavirus pandemic and condemning its treatment of ethnic Uighurs in the Xinjiang region and its crackdown on freedoms in Hong Kong. Biden appreciates the congratulations he’s receiving from world leaders, including Xi, a spokesman for the president-elect’s transition office said.

Originating Source

Biden says he hasn’t heard from Trump directly

President-elect Joe Biden on Tuesday said President Trump has yet to personally reach out to him since his election victory.“His chief of staff and my chief of staff have spoken,” Biden told NBC’s Lester Holt in an interview that aired Wednesday on the “Today” show. “But no, I have not heard anything from President Trump,” Biden added in his first interview as president-elect.Biden said despite the lack of direct contact with Trump, his transition team has seen immediate results since General Services Administration head Emily Murphy authorized the beginning of the transition earlier this week.

Originating Source

Trump lawyer details far-fetched strategy to reverse Pennsylvania

A lawyer for President Donald Trump’s campaign on Wednesday revealed that the campaign could be relying on pulling off a complicated — and possibly unprecedented — legal and legislative trick shot to undo President-elect Joe Biden’s victory in Pennsylvania and possibly in other states. That far-fetched strategy would require a federal court to invalidate Pennsylvania’s certification of its election results, and then get the state’s General Assembly to agree to send Trump electors to the Electoral College. The idea is buried in a footnote in a three-page letter that campaign attorney Marc Scaringi wrote to the U.S. Court of Appeals for the 3rd Circuit. The Trump campaign is asking that appeals court to hear its bid to block the effect of Tuesday’s certification of a win for Biden in Pennsylvania.

Originating Source

Economic Indicators

United States Durable Goods Orders

New orders for US manufactured durable goods increased 1.3 percent month-over-month in October of 2020, easing from an upwardly revised 2.1 percent rise in September and above market expectations of 0.9 percent. It is the sixth consecutive gain in durable goods orders. Excluding transportation, new orders rose 1.3 percent and excluding defense, new orders went up 0.2 percent. Orders slowed for transportation equipment (1.2 percent vs 3.3 percent) and capital goods (2.7percent vs 5.7 percent ) and computers and electronics (0.6 percent vs 1.2 percent). Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.7 percent, following a 1.9 percent rise in September.

United States GDP Growth Rate

The US economy expanded by an annualized 33.1% in Q3 2020, in line with the advance estimate. It is the biggest expansion ever, following a record 31.4% plunge in Q2, as the economy rebounds from the coronavirus pandemic. Upward revisions to business and housing investment, and exports were offset by downward revisions to personal and public consumption and private inventory investment. Still, personal spending was the main driver of growth, helped by checks and weekly unemployment benefits from the federal CARES Act. However, GDP is still 3.5% below its pre-pandemic level and although a coronavirus vaccine is expected to be ready soon, the pandemic is far from controlled. Also, only around half of the 22 million jobs lost were recovered so far and a new stimulus bill hasn’t been approved yet.

United States Personal Income

US personal income fell by 0.7 percent from a month earlier in October of 2020, following a downwardly revised 0.7 percent increase in the previous month and compared with market expectations of a flat reading. The decrease in government social benefits was mostly to blame because of a drop in Lost Wages Supplemental Payments, a Federal Emergency Management Agency program that provides wage assistance to individuals impacted by the pandemic. In contrast, compensation and proprietors’ income rose. On a positive note, personal spending increased 0.5 percent, following a downwardly revised 1.2 percent growth in September and slightly beating market forecasts of 0.4 percent.

United States New Home Sales

New home sales in the US edged down 0.3 percent month-over-month to a seasonally adjusted annual rate of 999 thousand in October of 2020, compared to forecasts of 970 thousand. Sales fell from an upwardly revised 1,002 thousand in September which was the highest reading since November of 2006. Still, the level of home sales remained elevated as the housing market has been supported by record low interest rates and increasing demand from people moving away from big cities due to the coronavirus crisis. Sales dropped in the South (-2 percent to 580 thousand) and the West (-1.5 percent to 269 thousand), but rose in the Midwest (11.2 percent to 109 thousand) and the Northeast (5.1 percent to 41 thousand). The median sales price went up to $330,600 from $322,400 a year earlier.

United States Michigan’s Consumer Sentiment

The University of Michigan’s consumer sentiment for the US was revised lower to 76.9 in November of 2020 from a preliminary of 77 and below 81.8 in October. It is the lowest reading since August. There was a significant decline in the expectations component (70.5 vs 71.3 in the preliminary release) which was partially offset by more favorable assessments of current economic conditions (87 vs 85.8). Meantime, inflation expectations were left unchanged for both the year ahead (2.8 percent) and the next 5 years (2.6 percent). The November data were less optimistic than last month due to the resurgence in covid infections and deaths as well as partisan shifts due to the outcome of the presidential election. For the first time since Trump entered office, Democrats rather than Republicans held a more optimistic economic outlook.

United States Cushing Crude Oil Stocks

US crude oil stocks at Cushing, Oklahoma, fell by 1.721 million barrels in the week ended November 20th, 2020, following a 1.2 million decrease in the previous period, according to the EIA Petroleum Status Report.

United States Initial Jobless Claims

The number of Americans filing for unemployment benefits rose to 778 thousand in the week ended November 21st, from the previous week’s revised level of 748 thousand and well above market expectations of 730 thousand. It the highest number in five weeks amid rising COVID-19 cases and new lockdowns across the country. On a non-seasonally adjusted basis, the number of claims was up to 828 thousand, compared with 749 thousand in the previous week. Also, more than 312 thousand people applied for help from the Pandemic Unemployment Assistance scheme, which covers workers that do not qualify for initial claims, compared with 320 thousand in the previous period.

Economic Calendar

Thursday

US Initial Jobless Claims

Thursday

US GDP (QoQ) (Q3)

Thursday

US Crude Oil Inventories

Friday

UK Nationwide HPI (MoM)