Monex Morning Report – Thur 8 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow logs over 500-point gain as investors eye fiscal stimulus prospects; Asia stocks to advance amid stimulus optimism

Split on applying new framework, Fed struggles over economic outlook as well; Australia says tax cuts to come into effect in December

Top Market News

Trump again calls for more airline aid after halting talks for broader stimulus

President Donald Trump late Tuesday again called for billions more in federal support for airline payrolls, hours after he halted talks with Democrats for a national stimulus package until after the election, sending stocks down sharply. “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support,” Trump tweeted. House Speaker Nancy Pelosi on Friday vowed more support for airlines but an attempt by a key House Democrat to get aid passed failed. Last week American Airlines, United Airlines and other U.S. carriers began furloughing more than 32,000 workers. Airlines, struggling from weak demand during the pandemic and bleeding cash, agreed to not cut any jobs until Oct. 1 under the terms of $25 billion in federal payroll support passed in March. But with demand hovering at one-third of last year’s levels, airline executives and labor unions spent the last few weeks pleading for more aid in Washington that would preserve jobs through March 2021. Their proposal won bipartisan support but has remained stuck, as Democrats in Congress and the Trump administration repeatedly failed to reach agreement on a national coronavirus package that could have included the airline aid.

Originating Source

U.S. airlines await fresh shot at federal aid as Pelosi, Mnuchin talk

U.S. airlines were once again holding out hope for another $25 billion in payroll aid after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin discussed the possibility of standalone legislation for the struggling sector on Wednesday. Their conversation is the latest in a series of turbulent developments on relief prospects in recent weeks for airlines, which last week began the furlough of tens of thousands of employees. Airline shares jumped on Wednesday after sinking abruptly a day earlier on remarks by President Donald Trump that his administration would abandon talks with congressional Democrats over a major stimulus package until after the Nov. 3 election. But an immediate path forward remains unclear.

Originating Source

Split on applying new framework, Fed struggles over economic outlook as well

U.S. Federal Reserve policymakers split over how to apply a new strategy for monetary policy at their September meeting, and, amid growing doubts about the path of the economy, offered no clear sense of their next steps to offset the coronavirus recession. U.S. central bankers agreed unanimously in August on a broad new approach to monetary policy, and “most participants supported providing more explicit outcome-based forward guidance for the federal funds rate” to flesh out the new framework, a readout of the Sept. 15-16 meeting released on Wednesday said. The Fed adopted that approach in September with promises to keep interest rates near zero until its 2% inflation target and full employment are reached. However participants in the Federal Open Market Committee deliberations also “discussed a range of issues associated with providing greater clarity” about the Fed’s plans, with a couple officials wanting a stronger promise to push inflation above 2%, several arguing such promises did little to help the economy at this juncture, and others arrayed around different choices, the minutes said.

Originating Source

Fed’s Williams says moderate inflation overshoot acts as guardrail

The Federal Reserve’s new pledge to keep interest rates at zero until inflation is on track to “moderately” exceed 2% has come under fire for being overly vague and leaving too much up to U.S. central bankers’ judgment, but that’s exactly the point, a key author of the pledge said on Wednesday. “Moderate isn’t a number…it’s a guardrail” against expectations that the Fed would tolerate very high or persistently high inflation, New York Fed President John Williams (NYSE:WMB) said at a virtual conference held by the Hoover Institution. “It’s also about proportionality; if we are undershooting the target by a few tenths… then you are obviously thinking that that’s the proportionality that you are thinking about in terms of trying to get that balance of 2%, but it is specific to the circumstances,” and where the economy is.

Originating Source

Fed’s Evans says Fed won’t follow strict formula for timing liftoff

The U.S. central bank will likely need to keep monetary policy easy for some time after 2023 in order to meet its inflation goal, even once it begins raising interest rates, a top Federal Reserve policymaker suggested on Wednesday. “We are not going to follow a strict numerical formula to determine the time of liftoff and how long to keep policy accommodative after liftoff,” Chicago Federal Reserve President Charles Evans said in remarks prepared for delivery to the Metals Service Center Institute. Inflation, he forecast, will return to 2% only by 2023, and the Fed will need to moderately overshoot that level for some time thereafter to achieve its goal of 2% on average, he said. “Our work on inflation is unlikely to be complete when we first begin to raise rates, and so it also indicates that we will maintain accommodative monetary conditions until our inflation averaging goal is met,” he said.

Originating Source

ECB’s Weidmann mounts defence against calls for more stimulus

The European Central Bank doesn’t need to ease policy further because measures taken to fight a pandemic-induced recession could boost the euro zone economy more than expected, ECB policymaker Jens Weidmann said. Weidmann also expressed doubts about letting inflation overshoot after it has been low for too long, buying stocks or deliberately suppressing bond yields, in an interview with Boersen-Zeitung published on Wednesday. The head of Germany’s Bundesbank and one of the ECB’s most conservative policymakers, Weidmann was countering calls for more stimulus from dovish rate setters like board member Fabio Panetta, in an internal ECB debate about the path ahead for a central bank that has missed its inflation goal for a decade. “At the moment I see no reason to deviate from our assessment,” Weidmann said. “The monetary policy stance is currently appropriate.”

Originating Source

Australia says tax cuts to come into effect in December

Australia’s Treasurer Josh Frydenberg said on Wednesday that the tax cuts forming the centrepiece of the country’s annual budget will not come into effect until December. Frydenberg on Tuesday announced A$17.8 billion in personal tax cuts and A$5.2 billion in new programmes to boost employment in a plan aimed at helping the coronavirus-ravaged economy by creating one million new jobs over the next four years. The bulk of the tax cuts are retrospective from July 1. Although the legislation is on course to pass this week, Frydenberg said the stimulus would not be seen in the incomes of Australians until December. “The advice to us … is that people will receive the money at the end of the year,” Frydenberg told reporters in Canberra.

Originating Source

U.S. explores curbs on Ant group, Tencent payment systems

The Trump administration is exploring restrictions on billionaire Jack Ma’s Ant Group as well as Tencent Holdings Ltd. over concerns that their digital payment platforms threaten U.S. national security, according to people familiar with the matter, a move that risks infuriating China and disrupting what could be the world’s largest initial public offering. Debate over how and whether to restrict Ant Group’s and Tencent’s payment systems has accelerated among senior U.S. officials in recent weeks though a final decision isn’t imminent, said the people, who spoke on condition of anonymity about an idea that’s still taking shape. U.S. officials are concerned that Ant Group and other Chinese fintech platforms will come to dominate global digital payments, the people said. That in turn could give China access to banking and personal data of hundreds of millions of people. Senior administration officials discussed the idea in a Sept. 30 meeting in the White House Situation Room, according to two people familiar with the matter.

Originating Source

Top Trump News

Second debate

“Democratic presidential nominee Joe Biden said Tuesday that the second presidential debate should not be held if President Donald Trump is still infected with coronavirus, but that he would base his participation in the debate upon recommendations from medical experts. “”Well, I think if he still has Covid, we shouldn’t have a debate,”” Biden told reporters in Maryland. “”I think we’re gonna have to follow very strict guidelines. Too many people have been infected and it’s a very serious problem.”” He continued: “”And so I’ll be guided by the guidelines of the Cleveland Clinic, and what the docs say is the right thing to do — if and when he shows up for debate.”””

Originating Source

Poll Results

Democrat Joe Biden is widening his lead against President Donald Trump in a slew of crucial battleground states, according to a fresh round of state polls released Wednesday. Quinnipiac University polls show Biden leading Trump by 11 percentage points in Florida, 13 points in Pennsylvania and 5 points in Iowa. Two New York Times/Siena College polls found Biden leading by 6 points in Nevada and 1 point in Ohio. And a Marquette University Law School poll has Biden up in Wisconsin by 5 points. The polls reflect voters’ views since the widely panned debate on Sept. 29 in which Trump continuously interrupted and cross-talked over Biden, and during which his family disobeyed rules set by debate hosts to wear masks in the debate hall. Days later, Trump and his wife, Melania, were diagnosed with Covid-19 and by Friday, the president was hospitalized, remaining there for three days.

Originating Source

Nancy Pelosi

Top White House officials on Wednesday downplayed the possibility of more coronavirus relief, while House Speaker Nancy Pelosi disparaged President Donald Trump for backing away from talks on a comprehensive deal. White House Chief of Staff Mark Meadows told reporters that “the stimulus negotiations are off,” echoing Trump’s announcement on Tuesday, and said in an interview on Fox News the administration backed a more piecemeal approach to help some sectors of the economy. But White House economic adviser Larry Kudlow said that approach would likely not work either. “Right now in terms of the probability curve, this would probably be low low-probability stuff.”

Originating Source

Economic Indicators

Germany Industrial Production MoM

Industrial production in Germany dropped by 0.2 percent month-over-month in August 2020, missing market expectations of a 1.5 percent rise and following an upwardly revised 1.4 percent gain a month earlier. This was the first fall in industrial output since April, as production declined for capital goods (-3.6 percent), consumer goods (-1.3 percent), and construction (-0.3 percent). Output in the automotive industry tumbled 12.5 percent, after an 8.9 percent increase in July, meaning that it was by just under 25 percent below the level of February 2020. In contrast, production grew for both intermediate goods (3.3 percent) and energy (6.7 percent). Year-on-year, industrial production tumbled 9.6 percent.

U.K. Halifax House Price Index MoM

The Halifax house price index in the UK increased 7.3% year-on-year in September of 2020, well above a 5.2% rise in August, and the strongest gain since mid-2016. Still, September 2019 saw political uncertainty weigh on the market. On a monthly basis, house prices increased 1.6 percent, following an upwardly revised 1.7 percent rise. The average price of a property reached £249,870, compared to £245,889 in August. “Across the last three months, we have received more mortgage applications from both first time buyers and homemovers than anytime since 2008.

U.S. Crude Oil Inventories

US distillate inventories fell by 0.962 million barrels in the week ended October 2nd, 2020, following a 3.184 million drop in the previous week and compared to market expectations of a 0.995 million decline, according to the EIA Petroleum Status Report.

Economic Calendar

Thursday

U.S. Initial Jobless Claims

Friday

Japan Gross Domestic Product (GDP) QoQ

Friday

China Composite Purchasing Managers’ Index (PMI)