Monex Morning Report – Thur 3 Dec 2020

OVERNIGHT HIGHLIGHTS

The S&P 500 climbed to a record high close on Wednesday; Asian stocks face muted start

Australia says it won’t give ground on China’s grievances; Deal on fresh U.S. coronavirus relief eluding congressional Republicans, Democrats

Australia says it won’t give ground on China’s grievances

Australia said it won’t give ground on a list of Chinese grievances against the government as a growing diplomatic row hurts trade between the two countries. A Chinese diplomat in Canberra last month handed media outlets a document outlining 14 grievances, from Australia meddling in domestic affairs in Hong Kong to calling for a probe into the coronavirus outbreak. Relations have been souring for months, with a string of commodities targeted with tariffs or bans in what Canberra says amounts to “economic coercion.” Referring to the list of grievances, Treasurer Josh Frydenberg told Sky News on Thursday that Australia is “not going to give way on those.” “They go to the heart of who we are,” he said. “Our national identity, a free press, a democratically elected parliament and obviously upholding our national interest when it comes to things like foreign investment.” Relations hit a new low this week after a diplomat in Beijing tweeted a fake image purporting to show an Australian soldier holding a knife to the throat of an Afghan child — a reference to an ongoing war crimes probe. Prime Minister Scott Morrison said the post was “repugnant” and demanded an apology. He also took to WeChat, defending Australia as a “free, democratic, liberal country” and explaining that an official probe is underway to investigate allegations of atrocities committed by Australian special forces soldiers in Afghanistan.

Originating Source

Australia central bank prepared to boost stimulus if needed: Lowe

Australia’s top central banker struck an optimistic note about the country’s economy on Wednesday, but warned a recovery from the coronavirus pandemic would be bumpy and uneven, signalling the need for policy support for a long time to come. Economic growth is expected to be “solidly positive” in both the September and December quarters, Reserve Bank of Australia (RBA) Governor Philip Lowe said at an appearance before a parliamentary economics committee. “There is still a high degree of uncertainty about the outlook,” Lowe said. “What has become clearer, though, as time has passed is that Australia is likely to experience a run of years with unemployment too high and wage increases and inflation too low, leaving us short of our goals,” Lowe added. “In the current environment, addressing the high rate of unemployment is a priority for the Reserve Bank Board. We are intent on doing what we can, with the tools that we have, to help here,” he said, while reiterating that a policy of negative interest rates was extraordinarily unlikely.

Originating Source

Deal on fresh U.S. coronavirus relief eluding congressional Republicans, Democrats

Republicans and Democrats in Congress remained unable to reach agreement on fresh relief for a pandemic-hit U.S. economy on Wednesday, with top Republicans supporting what the Senate’s top Democrats dismissed as an “inadequate, partisan proposal.” Treasury Secretary Steven Mnuchin said outgoing Republican President Donald Trump supported a proposal put forth by Republican Majority Leader Mitch McConnell after McConnell on Tuesday rejected a $908 billion bipartisan package. McConnell’s outline is very close to the legislation that the Senate leader has been touting for months and was rejected by Democrats, according to one Senate Republican source. The plan includes $332.7 billion in new loans or grants to small businesses, according to a document provided to Reuters. “The president will sign the McConnell proposal that he put forward yesterday. We look forward to making progress on that,” Mnuchin told reporters on Capitol Hill. But Senate Democratic leader Chuck Schumer blasted the Republican effort for excluding Democrats, who control the U.S. House of Representatives.

Originating Source

Mnuchin, Powell press again for deal to get economy through the COVID winter

The heads of the U.S. Treasury Department and Federal Reserve on Wednesday renewed calls for legislators to reach agreement on additional funds to help small businesses get through the next few months before a coronavirus vaccine is in wide enough use to allow a broad-based economic recovery to take hold. In a second day of testimony to congressional committees, Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell both told the House Financial Services Committee that additional fiscal action is needed as insurance against another contraction in activity in the near term. For months Congress has been at loggerheads over additional aid after lawmakers agreed to more than $3 trillion in relief in the early days of a pandemic that triggered the deepest recession since the Great Depression. “It would be very helpful and very important that there be additional fiscal support for the economy, really to get us through the winter,” Powell said. “I think we made a lot of progress faster than we expected, and now we have a big spike in COVID cases, and it may weigh on economic activity. People may pull back from activities they were being involved in or not engage in new activities.” “It would be helpful if we could get that done, if you could get that done,” Powell said.”I would encourage Congress, particularly over the next few weeks of the lame duck, let’s try to get something done,” Mnuchin said.

Originating Source

Kaplan Says he’s not in favor of Fed increasing bond purchases

Kaplan said financial conditions are such that the Fed probably doesn’t need to do more than its current pace of at least $120 billion a month in Treasurys and mortgage-backed securities. “I would not want to do that at this point,” he said during a “Closing Bell” interview. “I’ll go into the December meeting with an open mind. But I think we’ve got very accommodative financial conditions, we’ve got historically low rates on the long end, and so I don’t know that increasing the size or extending maturities of our bond purchases would help address this situation that I’m concerned about over the next three or six months.” During that period, Kaplan expects a “challenging” economy where growth could slow considerably or stop due primarily to surging coronavirus cases.

Originating Source

Biden says will not kill Phase 1 trade deal with China immediately

Joe Biden will not immediately cancel the Phase 1 trade agreement that President Donald Trump struck with China nor take steps to remove tariffs on Chinese exports, the New York Times on Wednesday quoted the U.S. president-elect as saying. In an interview with Times columnist Thomas Friedman that gave clues to how the new administration will proceed on foreign policy, Biden said his top priority was getting a generous stimulus package through Congress, even before he takes power.

Originating Source

Fed’s Beige Book: Most Fed districts say expansion has been modest or moderate

Most Federal Reserve districts noted that the expansion in the economic activity in November has been modest or moderate, the Fed’s Beige Book showed on Wednesday. “In most districts, firms reported modest to moderate increases of input prices, while the selling prices of final goods rose at a slight to modest pace.” “Nearly all districts reported that employment rose, but for most, the pace was slow.” “Firms that were hiring continued to report difficulties in attracting and retaining workers.” “Four districts said there was little or no growth, five noted activity remained below pre-crisis levels at least for some sectors.” “Providing for childcare and virtual schooling needs was widely cited as a significant issue for the workforce.” “Philadelphia and three midwestern districts observed slowing activity in early November as COVID-19 cases surged.” “Women were especially affected by challenges accessing child care, prompting some firms to offer more flexible work schedules.” “Most districts reported that firms’ outlooks remained positive but optimism has waned amid the pandemic wave.” “In several districts, firms feared that employment levels would fall over the winter before recovering further.”

Originating Source

UK approves Pfizer/BioNTech Covid vaccine for rollout next week

The UK has become the first western country to license a vaccine against Covid, opening the way for mass immunisation with the Pfizer/BioNTech vaccine to begin next week for those most at risk. The vaccine has been authorised for emergency use by the Medicines and Healthcare products Regulatory Authority (MHRA), before decisions by the US and Europe. The MHRA was given power to approve the vaccine by the government under special regulations before 1 January, when it will become fully responsible for medicines authorisation in the UK after Brexit.

Originating Source

Top Trump News

Biden says he’ll try to return to Iran Deal

“President-elect Biden plans to re-enter the Iran nuclear deal on the condition that the Middle Eastern country agreed to “strict compliance” measures, he has revealed. The incoming commander-in-chief made the admission during a wide-ranging interview with New York Times columnist Thomas Friedman, who pressed Biden on where he stood with regard to Iran. Asked if he still stood by a September op-ed he authored where he argued in favor of re-joining the Obama-era accords “as a starting point for follow-on negotiations,” Biden said he did. “It’s going to be hard, but yeah,” he remarked. At the time, he had argued that, “if Iran returns to strict compliance with the nuclear deal, the United States would re-join the agreement as a starting point for follow-on negotiations” under his presidency. ”

Originating Source

Senate Republicans vetting COVID-19 relief that Trump would sign

U.S. Senate Majority Leader Mitch McConnell said on Tuesday that he and his fellow Senate Republicans have begun considering COVID-19 economic relief provisions that President Donald Trump would be willing to sign into law later this month. “I think the one thing we all agree on, is that we don’t have time for messaging games. We don’t have time for lengthy negotiations,” McConnell told reporters, saying that he has also received a proposal from Democratic House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer. “The issue is, do we want to get a result? And I like to remind everybody that the way you get a result is you have to have a presidential signature,” McConnell added. The Kentucky Republican said that he and House Republican leader Kevin McCarthy spoke with White House officials about what measures Trump would accept and that proposals are being circulated to Senate Republicans for feedback. McConnell said COVID-19 relief provisions would likely be combined with a must-pass measure to replenish government funding that is set to expire later in December. He added that there are also expectations for an additional coronavirus relief bill in the new year, when President-elect Joe Biden is due to be sworn into office.

Originating Source

Justice Dept. investigating potential bribery scheme for Trump pardon

The Justice Department has been investigating whether intermediaries for a federal convict offered White House officials a bribe in exchange for a potential pardon or commutation from President Trump, according to court documents unsealed by a federal judge Tuesday. The documents were heavily redacted, and it was unclear who may have been involved. Nothing directly tied Trump to the scheme, and the documents said no one had been charged. Late Tuesday, Trump used Twitter to briefly address the disclosure of the investigation, calling it “Fake News.”

Originating Source

Economic Indicators

Australia GDP Growth Rate

The Australian economy advanced 3.3 percent on quarter in the three months to September 2020, partially recovering from a record 7 percent contraction in the prior period and easily beating market consensus of a 2.6 percent growth. This was the steepest period of expansion since the March quarter of 1976, as the economic activity resumed following an easing of social distancing measures and trading restrictions across most states and territories. Household consumption grew by a record 7.9 percent, due to increased spending on both goods and services; and government consumption advanced 1.4 percent, the ninth consecutive rise, driven by increased social benefits to households. Meanwhile, private investment fell 0.2 percent on weaker business investment; and net external demand contributed negatively to the GDP amid a fall in exports. Through the year to the September quarter, the economy shrank 3.8 percent, after a 6.4 percent contraction in the June quarter.

Germany Retail Sales MoM

Retail sales in Germany jumped 2.6% mom in October of 2020, following a downwardly revised 1.9% fall in September ad well above forecasts of a 1.2% rise. It is the biggest increase since April of 2018 as the economy attempts to rebound from the coronavirus hit. Compared with February 2020, the month before the covid-19 crisis, retail sales are 5.9% higher. Year-on-year, retail sales jumped 8.2%, the strongest increase since May of 2000, led by sales of food, beverages and tobacco (7.3%); sales in supermarkets, self-service department shops and hypermarkets (7.9%); furniture, household appliances and building materials (14.2%); and internet and mail order business (29.8%). On the other hand, retail sales declined for textiles, clothing, shoes and leather goods (-6.4%) and department stores (-2.3%).

Euro Area Unemployment Rate

The Euro Area seasonally-adjusted unemployment rate edged down to 8.4 percent in October 2020, from an upwardly revised 8.5 percent in the previous month and moving further away from an over two-year high of 8.7 percent hit back in July. The number of unemployed decreased by 86,000 from the previous month to 13.825 million. Still, the Eurostat warns that the numbers do not capture in full the unprecedented labor market situation triggered by the COVID-19 outbreak, as people only count as unemployed if they were actively seeking work in the last four weeks and were available to start work within the next two weeks. There was a sharp increase in the number of claims for unemployment benefits across the bloc; while a significant part of those who had registered in unemployment agencies were no longer actively looking for a job or no longer available for work, for instance, if they had to take care of their children.

United States ADP Employment Change

Private businesses in the US hired 307K workers in November of 2020, below an upwardly 404K in October and market forecasts of 410K. It is the smallest increase in four months as a rise in COVID-19 infections and further lockdowns slowed down the hiring. The service-providing sector added 276K jobs led by leisure and hospitality (95K); education and health (69K); professional and business (55K); trade, transportation & utilities (31K); other services (18K); and financial activities (8K) while the information sector added none. The goods-producing sector created 31K jobs, due to construction (22K), manufacturing (8K), and natural resources and mining (1K). Private payrolls in midsized companies were up 139K, small firms added 110K, and large companies 58K.

United States Crude Oil Stocks Change

US crude oil inventories dropped by 0.679 million barrels in the week ended November 27th, 2020, following a 0.754 million decrease in the previous period and compared with market expectations of a 2.358 million fall, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were up by 3.491 million barrels, while markets had forecast a smaller 2.386 million rise.

Economic Calendar

Friday

US Initial Jobless Claims

Friday

US ISM Non-Manufacturing PMI (Nov)