Monex Morning Report – Thur 3 Sep 2020

OVERNIGHT HIGHLIGHTS

U.S. stocks book fresh round of records, Dow ends 1.5% shy of all-time high, on hopes of COVID treatments, cures; Asia stocks to track U.S. gains

Australia records worst economic slump as pandemic ends golden run; Dr. Fauci says a coronavirus vaccine will be ready by the end of the year

Top Market News

Dr. Fauci says a coronavirus vaccine will be ready by the end of the year

Dr. Fauci said in an interview that a coronavirus vaccine will be ready by the end of the year. The prediction seems to mark a change in tone from Fauci, compared to his previous vaccine comments that offered “cautious” optimism about COVID-19 vaccine research. The health expert said that he would not be comfortable with a vaccine getting an emergency use approval without a clinical trial proving the experimental drugs work as intended, and it’s safe for public use. Fauci said we might know by November whether some of these Phase 3 drugs work, and explained under what conditions the final trials can be stopped before the research process is finalized. In a new interview, Fauci went on record to say that there will be a safe and effective vaccine by the end of the year.

Originating Source

CDC Asks States to Cut Restrictions In Push for Vaccine by Nov. 1

The Trump administration is reportedly asking states to waive certain requirements to speed up the approval for coronavirus vaccine sites by Nov.1, The Wall Street Journal reported. “CDC urgently requests your assistance in expediting applications for these distribution facilities and, if necessary, asks that you consider waiving requirements that would prevent these facilities from becoming fully operational by November 1, 2020,” the CDC wrote in letter to state governors, according to the report. The move marked the latest sign that the Trump administration is seeking to get a vaccine approval before the U.S. election on Nov. 3.

Originating Source

Fed’s Mester says new framework makes clear strong employment not always a concern

The U.S. Federal Reserve’s new framework for setting monetary policy makes it clear that a strong labor market on its own is not cause for concern unless there are signs of inflation or financial stability risks, Cleveland Fed Bank President Loretta Mester said Wednesday. The U.S. central bank last week announced a sweeping overhaul of its monetary policy strategy, adapting it in an environment where interest rates are expected to stay low. The shift puts more focus on shortfalls in employment and allows for slightly higher inflation. “The new statement language clarifies that in the absence of inflationary pressures or risks to financial stability, strong employment is not a concern and monetary policy will not react to it,” Mester said in remarks prepared for a webinar.

Originating Source

NY Fed’s Williams says new framework empowers central bank in low-rate environment

Lower interest rates around the globe make it more difficult to use monetary policy to stimulate the economy, but the Federal Reserve’s new framework leaves the U.S. central bank better positioned to hit its goals on inflation and employment, New York Federal Reserve Bank President John Williams (NYSE:WMB) said on Wednesday. The U.S. central bank announced a new strategy last week to target an average rate of inflation over time. The approach makes it clear that temporarily higher inflation is “desirable” to reach the average inflation target, and it clarifies that the Fed is focused on shortfalls in employment, Williams said in remarks prepared for the Bretton Woods Committee Webinar. “These changes are mutually reinforcing and will meaningfully improve our ability to achieve both of our dual mandate goals in an environment of a very low neutral rate,” Williams said.

Originating Source

China says it will keep prudent monetary policy appropriate and flexible

China will keep its prudent monetary policy appropriate and flexible, state radio quoted the cabinet as saying on Wednesday. China will guide more credit to the real economy, avoiding flood-like stimulus, the cabinet was quoted as saying. The cabinet approved rules on market access for financial holding companies, state radio said.

Originating Source

Australia records worst economic slump as pandemic ends golden run

Australia fell into its deepest economic slump on record last quarter as coronavirus curbs paralysed business activity, while fresh outbreaks threaten to upend any immediate recovery, piling pressure on the government to keep fiscal taps open. Data from the Australian Bureau of Statistics on Wednesday showed the country’s A$2 trillion ($1.47 trillion) economy shrank 7% in the three months to end-June from a 0.3% decline in the March quarter. The country joins the United States, Japan, UK and Germany in technical recession, defined as two straight quarters of decline, in Australia’s first such downturn since 1991. “This crisis is like no other,” Treasurer Josh Frydenberg told reporters in Canberra.

Originating Source

Pelosi says ‘serious differences’ between Democrats, White House on coronavirus aid

U.S. House Speaker Nancy Pelosi said after a phone call with Treasury Secretary Steven Mnuchin on Tuesday that “serious differences” remain between Democrats and the White House over coronavirus relief legislation. “Sadly, this phone call made clear that Democrats and the White House continue to have serious differences understanding the gravity of the situation that America’s working families are facing,” Pelosi said in a statement. No negotiations on another round of coronavirus aid have taken place since early August, when talks collapsed as congressional Democrats and the Republican Trump administration could not bridge a gap of more than $1 trillion between their proposed relief packages for small businesses, state and local governments, school districts and healthcare providers.

Originating Source

Pompeo announces restrictions on Chinese diplomats in US

Secretary of State Mike Pompeo on Wednesday announced new restrictions on the freedom of movement for Chinese diplomats in the U.S., the latest salvo in deteriorating Sino-American relations as the Trump administration increases pressure on Beijing. Pompeo said the latest actions are a direct response to long-held restrictions on American diplomats working in China. “For years, the Chinese Communist Party has imposed significant barriers on American diplomats working inside the PRC [People’s Republic of China],” Pompeo said in a briefing with reporters.

Originating Source

Top Trump News

Coronavirus vaccine

The Trump administration is reportedly asking states to waive certain requirements to speed up the approval for coronavirus vaccine sites by Nov.1, The Wall Street Journal reported. “CDC urgently requests your assistance in expediting applications for these distribution facilities and, if necessary, asks that you consider waiving requirements that would prevent these facilities from becoming fully operational by November 1, 2020,” the CDC wrote in letter to state governors, according to the report. The move marked the latest sign that the Trump administration is seeking to get a vaccine approval before the U.S. election on Nov. 3.

Originating Source

WHO

The Trump administration said Wednesday it won’t pay more than $60 million in dues it owes to the World Health Organization and will use the money instead to pay down other contributions to the United Nations. The announcement came just a day after the White House announced the U.S. would not participate in a WHO-run project to develop and distribute a COVID-19 vaccine. The decision to withhold roughly $62 million in outstanding 2020 dues to the WHO is part of President Donald Trump’s decision to withdraw from the organization over its handling of the coronavirus pandemic and his allegations that the agency has been improperly influenced by China.

Originating Source

Virus deal with Democrats

Treasury Secretary Steven Mnuchin spoke Tuesday before the House Select Subcommittee on the Coronavirus Crisis, urging a bipartisan deal expected to include a new round of stimulus checks but offering little in the way of concessions to restart talks between the GOP and Democrats. Pressed by Democrats to quickly negotiate a new coronavirus relief package, Mnuchin said Tuesday the administration remains willing to work on a bipartisan agreement to help small businesses, the unemployed, children and schools. Democratic leaders in Congress are holding it up with hardened positions, he said. “Let’s move forward on a bipartisan basis on points we can agree upon,” Mnuchin urged at a hearing by the House Select Subcommittee on the Coronavirus Crisis. “The president and I want to move forward.”

Originating Source

Economic Indicators

Australia Gross Domestic Product (GDP) QoQ

The Australian economy shrank 7% on quarter in the three months to June 2020, following a 0.3% drop in the prior period and worse than market consensus of a 5.9% fall. It was the second consecutive quarterly contraction and the sharpest on record, entering the first recession in 30 years as the COVID-19 crisis took a huge toll on the economy. Household consumption slumped (-12.1% vs -1.2% in Q1) and gross fixed capital formation shrink at the steepest rate since Q4 2000 (-4.9% vs -0.5%). Also, inventories fell AUD 4,085 million following a $1,261 million drop in Q1, led by trade and manufacturing. In contrast, government spending grew the most since Q4 1995 (2.9% vs 2.1%), in response to the virus shocks. Exports declined (-6.7% vs -4.4%), while imports fell faster (-12.9% vs -6.7%). On the production side, most sectors contracted except mining, financial & insurance, public administration and education. Through the year to Q2, the economy shrank 6.3%, after a 0.3% drop in Q1.

U.S. ADP Nonfarm Employment Change

Private businesses in the US hired just 428K workers in August of 2020, way below market expectations a 950K rise. It follows an upwardly revised 212K increase in July. The labor market continues to rebound from April’s record slump in employment, although only half of the near 20 million jobs lost have been recovered so far. The service-providing sector added 389K jobs led by leisure and hospitality (129K); education and health (100K); professional and business (66K); trade, transportation & utilities (58K); and financial activities (11K) while the information sector lost 1K jobs. The goods-producing sector added 40K jobs, due to construction (28K), manufacturing (9K) and natural resources and mining (2K). Private payrolls in large companies were up 298K, midsized companies added 79K and small firms 52K.

U.S. Crude Oil Inventories

US crude oil stocks fell by 9.362 million barrels in the week ended August 28th, 2020, the sixth consecutive period of decrease and compared to market expectations of a 1.887 million drop, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 4.320 million barrels, while markets had forecast a smaller 3.036 million decline.

U.S. Factory Orders MoM

Factory orders in the US jumped 6.4 percent month-over-month in July of 2020, the same as an upwardly revised increase in June. Figures beat market forecasts of a 6 percent rise as the manufacturing sector recovers from sharp disruptions in March and April due to the coronavirus outbreak. Demand for transport equipment increased 35.7 percent (vs 19.5 percent in June) boosted by vehicles and defense aircraft. Demand was also higher for machinery (2 percent vs 3.8 percent), fabricated metal products (2.7 percent vs 5.7 percent), and computers and electronics (2.6 percent vs -0.1 percent). Excluding transportation, factory orders increased at a slower 2.1 percent.

U.K. Nationwide HPI YoY

The Nationwide House Price Index in the UK increased 3.7 percent year-on-year in August 2020, easily beating market consensus of a 2 percent rise. On a monthly basis, the index jumped 2 percent, the highest monthly increase since February 2004. “The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions.” Robert Gardner, Nationwide’s Chief Economist, said. “These trends look set to continue in the near term, further boosted by the recently announced stamp duty holiday, which will serve to bring some activity forward. However, most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the aftereffects of the pandemic and as government support schemes wind down. If this comes to pass, it would likely dampen housing activity once again in the quarters ahead.” he added.

Germany Retail Sales MoM

Germany’s retail sales fell by 0.9 percent month-over-month in July 2020, after an upwardly revised 1.9 percent drop in June. The latest reading missed market expectations of a 0.5 percent gain, raising concerns about the recovery in Europe’s largest economy. Still, retail sales in July were 0.9 percent higher than in February, the month before the coronavirus outbreak. Year-on-year, retail sales rose 4.2 percent in July, following a 5.9 percent rise in the previous month.

Economic Calendar

Friday

US Nonfarm Payrolls (Aug)