Monex Morning Report – Tue 20 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow books worst day in four weeks, falls over 400 points, as investors fret odds of stimulus deal before election; Asia stocks set to slip after a weak session on Wall Street overnight

Pelosi, Mnuchin narrowing gap on stimulus, to talk again Tuesday; U.S. blacklists Chinese entities, individuals for dealing with Iran

Top Market News

Pelosi, Mnuchin narrowing gap on stimulus, to talk again Tuesday

Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin “continued to narrow their differences” on a coronavirus relief package, a Pelosi aide said Monday, as time draws short to reach agreement on a bill that could pass by Election Day. “The Speaker continues to hope that, by the end of the day Tuesday, we will have clarity on whether we will be able to pass a bill before the election,” Pelosi spokesman Drew Hammill said on Twitter. “The two principals will speak again tomorrow and staff work will continue around the clock.” Pelosi earlier Monday told House Democrats that significant areas of disagreement are standing in the way of any deal, according to four people who participated in the closed conference call. Democrats have resisted giving up on their priorities for local governments, workers, schools and health care. Hammill said Democratic committee chairmen have been directed to work with their Republican counterparts in the Senate on a solution. “We’re discussing it today very solidly – we’ll see what happens,” President Donald Trump told reporters in Arizona. “Nancy Pelosi at this moment does not want to do anything that’s going to affect the election, and I think it will affect the election negatively for her.”

Originating Source

U.S. blacklists Chinese entities, individuals for dealing with Iran

The United States on Monday said it blacklisted two Chinese men and six Chinese entities for having dealt with Iranian shipping company Islamic Republic of Iran Shipping Lines (IRISL) and, in some cases, helping it to evade U.S. sanctions. The U.S. State Department named the entities as Reach Holding Group (Shanghai) Company Ltd.; Reach Shipping Lines; Delight Shipping Co., Ltd.; Gracious Shipping Co. Ltd.; Noble (OTC:NEBLQ) Shipping Co. Ltd.; and Supreme Shipping Co. Ltd. As a result of being put on the U.S. Treasury Department’s Specially Designated Nationals list, the assets of the entities and individuals falling under U.S. jurisdiction are frozen and U.S. persons are generally barred from dealing with them. “Today, we reiterate a warning to stakeholders worldwide: If you do business with IRISL, you risk U.S. sanctions,” Secretary of State Mike Pompeo said in the statement.

Originating Source

Fed’s Powell: More important for U.S. to get digital currency right than be first

In any development of a cross-border digital currency, it is more important for the United States “to get it right than be first,” U.S. Federal Reserve Chair Jerome Powell said on Monday. “We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully,” Powell said in a panel discussion on digital payments hosted by the International Monetary Fund. Powell said it is vital the Fed assess what impact a CBDC might have on a range of critical issues.

Originating Source

Fed’s Bostic says significant portions of U.S. recovery are weak or nonexistent

It will be a while before the U.S. economy is fully recovered and before the Federal Reserve will raise interest rates or remove the support it is providing financial markets, Atlanta Federal Reserve Bank President Raphael Bostic said on Monday. “On balance, I am comfortable with our current policy stance,” Bostic said in remarks prepared for a virtual event organized for the Securities Industry and Financial Markets Association Annual Meeting. “As I have detailed today, though the U.S. economy continues to show clear signs of recovery, there remain significant portions where the recovery has been weak or nonexistent.” The Fed moved quickly to support the economy in March by slashing rates to zero and launching emergency lending programs to support market functioning. Those programs will stay in place as long as needed, however, market participants should expect the central bank to sunset some of its emergency lending vehicles after the crisis has passed, Bostic said.

Originating Source

Fed’s Clarida says U.S. economic recovery has a ‘long way to go’

The U.S. economy is rebounding strongly after taking a big hit because of the coronavirus pandemic, but it may be another year before the economy returns to pre-crisis levels and take even longer for the labor market to recoup lost ground, Federal Reserve Vice Chair Richard Clarida said on Monday. “While recovery since the spring collapse in economic activity has been robust, let us not forget that the full economic recovery from the COVID-19 recession has a long way to go,” Clarida said during a virtual discussion organized for the American Bankers Association Convention. The pandemic threw the U.S. economy into a “very deep hole” and despite recent improvements, the outlook is “unusually uncertain,” Clarida said.

Originating Source

Worried about weak oil demand, OPEC pledges action

OPEC and allied producers on Monday pledged action to support the oil market as concerns mounted that a second wave of the COVID-19 pandemic will hobble demand and an earlier plan to raise output from next year would further depress prices. Saudi Arabia, the biggest member of the Organization of the Petroleum Exporting Countries (OPEC), said no-one should doubt the group’s commitment to providing support, while three sources from producing countries said a planned output increase from January could be reversed if necessary. Already Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman held two phone calls last week. Kremlin Dmitry Peskov spokesman said regular contact was necessary as the markets were volatile. OPEC and its allies, including Russia, collectively known as OPEC+, have curbed output since January 2017 to try to support prices and reduce inventories. “This group has shown, especially in this year, that it has the flexibility to adapt to changing circumstances when required. We will not dodge our responsibilities in this regard,” Saudi Energy Minister Prince Abdulaziz bin Salman said. “Nobody in the market should be in any doubt as to our commitment and our intent,” Prince Abdulaziz told the opening of an OPEC+ ministerial monitoring committee (JMMC).

Originating Source

Brexit brinkmanship: UK says no to more EU trade talks

Britain sees no basis to resume trade talks with the European Union unless there is a fundamental change in approach from Brussels, chief negotiator David Frost said on Monday, dashing earlier optimism that negotiations could resume. Earlier, Michael Gove, the minister overseeing Brexit, had said there was agreement on the need to intensify trade talks and work on legal texts, after the negotiations broke down last week. The two sides are each pressing the other to move first in the high-stakes talks on a deal to protect billions of pounds worth of trade once Britain ends a status quo arrangement with the EU on Jan. 1. A no-deal finale to Britain’s five-year Brexit drama would disrupt the operations of manufacturers, retailers, farmers and nearly every other sector – just as the economic hit from the coronavirus pandemic worsens. Frost said on Twitter he had held a constructive discussion with EU counterpart Michel Barnier, but added: “The EU still needs to make a fundamental change in approach to the talks and make clear it has done so. We will stay in close touch.”

Originating Source

Ant IPO pushes demand for Hong Kong dollars to most on record

Demand for Hong Kong dollars hasn’t been this strong since before the global financial crisis, when the U.S. Federal Reserve flooded markets with liquidity. Stock sales from Chinese megacaps such as Ant Group’s anticipated offering have drawn so much cash to Hong Kong that the city’s currency has remained near the strongest it’s allowed to trade against the greenback since April. This year’s inflows have forced the de facto central bank to sell local dollars, interventions that will have helped replenish the cash pool by about HK$280 billion ($36 billion) by Wednesday. The record annual increase is more than 2008 and 2009 combined. Back then, a credit squeeze globally forced Hong Kong’s businesses to repatriate funds to meet their liquidity needs, while the Fed’s quantitative easing program weakened the greenback. In March this year, Hong Kong dollar assets became more attractive versus the greenback after the Fed aggressively slashed rates to zero in the wake of the pandemic, a move that the Hong Kong Monetary Authority did not replicate.

Originating Source

Top Trump News

Trump calls Fauci a ‘disaster’

President Donald Trump called coronavirus expert Anthony Fauci a “disaster” on Monday, airing his frustration with the scientist during a call meant to reassure campaign staff he has a path to victory on Nov. 3 despite trailing in opinion polls. Trump and Fauci, a member of his coronavirus task force, have been at odds over how best to handle a pandemic that has killed more than 219,000 people in the United States and weakened the Republican president’s case for re-election. Fauci, 79, who has served under Republican and Democratic presidents and is one of the most admired scientists in the United States, has urged that COVID-19 continue to be taken seriously. Trump has suggested the worst has passed. “Fauci is a disaster. If I listened to him, we’d have 500,000 deaths,” Trump said during the call, which the campaign allowed reporters to join. Fauci has openly complained about being cited in a Trump re-election campaign advertisement that discussed the administration’s pandemic response, and said in an interview broadcast on Sunday night by CBS’ “60 Minutes” that he was not surprised Trump himself contracted the virus.

Originating Source

Stimulus deal

President Donald Trump says stimulus talks are underway today. He says “I want at a bigger number than she wants,” Trump said of Pelosi during a campaign stop Sunday in Reno, Nevada. “That doesn’t mean all the Republicans agree with me, but I think they will in the end.”

Originating Source

Urges change in debate topics but not rules

Donald Trump’s re-election campaign lashed out at the Commission on Presidential Debates about the topics and potential rule changes for the president’s final face-off against Democratic candidate Joe Biden. In a two-page letter to the commission, Trump campaign manager Bill Stepien stopped short of threatening to withdraw from the Oct. 22 debate but said the non-partisan commission’s “pro-Biden antics have turned the entire debate season into a fiasco.” “For the good of campaign integrity and for the benefit of the American people, we urge you to rethink and reissue a set of topics for the October 22 debate, with an emphasis on foreign policy,” Stepien wrote in the letter, which was dated Oct. 19 and posted on his Twitter account. The campaign chief said the topic list would “insulate Biden from his own history,” referring to unfounded allegations related to the foreign business dealings of the former vice president’s son, Hunter. Stepien said the final debate was “always billed” as a foreign policy debate but that was never announced by the commission or the moderator, NBC’s Kristen Welker.

Originating Source

Economic Indicators

Japan Balance of Trade

Japan recorded a trade surplus of JPY 674.98 billion in September of 2020, compared with a JPY 129.07 billion deficit a year earlier and market expectations of a JPY 989.8 billion surplus. It was the third straight month of surplus and the largest since February, as exports fell by 4.9 percent year-on-year to JPY 6.06 billion while imports dropped at a faster 17.2 percent to JPY 5.38 billion. Considering the first nine months of the year, Japan posted a trade gap of JPY 1,306.25 billion, narrowing from a JPY 1,431.46 billion shortfall in the same period of 2019.

China GDP Annual Growth Rate

The Chinese economy advanced 4.9% yoy in Q3 2020, faster than a 3.2% expansion in Q2 but below forecasts of a 5.2% growth. Despite the lower-than-expected reading, there are signs the expansion is finally extending to consumption after a state-backed industrial recovery. Retail sales rose 3.3% yoy in September, above forecasts and the highest reading so far this year. Industrial production went up 6.9%, also higher than expected and the biggest gain in 2020. For the first nine months of the year, the economy expanded 0.7%, recovering all the ground it lost in the first half, with the primary industry increasing 2.3%, the secondary 0.9% and the services sector 0.4%. Rising global demand for medical equipment and work-from-home technology has been boosting exports while government support including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements has also helped to boost the recovery.

China Industrial Production

China’s industrial production increased by 6.9 percent year-on-year in September 2020, the most since December 2019 and above market expectations of 5.8 percent growth, as activity continued to recover from the COVID-19 shock. Production rose for manufacturing (7.6 percent vs 6 percent in August), mining (2.2 percent vs 1.6 percent) and utilities (4.5 percent vs 5.8 percent). Among major industries, production grew for machinery (15.9 percent vs 15.1 percent), general equipment (12.5 percent vs 10.9 percent), chemicals (7.5 percent vs 6.9 percent), communication (8 percent vs 8.7 percent), ferrous metals (9 percent vs 9.2 percent), non-metal minerals (9 percent vs 5 percent), power equipment (4.2 percent vs 5.9 percent), textiles (5.6 percent vs 3.3 percent), and transport equipment (3.9 percent vs -0.3 percent). For the first nine months of the year, industrial output rose by 1.2 percent.

China Retail Sales YoY

China’s retail trade rose by 3.3% year-on-year in September 2020, after a 0.5 percent gain in August and well above market expectations of a 1.8%. This was the second straight month of rise in retail trade and the biggest gain since December last year, as consumption continues to recover following the gradual loosening of COVID-19 restrictions. Sales rose further for most categories: automobiles (11.2% vs 11.8%); clothing and footwear (8.3% vs 4.2% in August); food and drinks (7.8% vs 4.2%); personal care (10.7% vs 11.4%); medicines (9.6% vs 6.2%); alcohol and tobacco (17.6% vs 3.1%); office supplies (12.2% vs 9.4%); cosmetics (13.7% vs 19%); and jewellery (13.1% vs 15.3%). Meantime, sales fell for home appliances (-0.5% vs 4.3%); telecoms (-4.6% vs 25.1%); furniture (-0.6% vs -4.2%); and oil, oil products (-11.8% vs -14.5%). From the January to September period, retail trade tumbled 7.2%.

Economic Calendar

Tuesday

Reserve Bank of Australia Meeting Minutes

Tuesday

U.S. Building Permits

Tuesday

Germany Producer Price Index (PPI) MoM

Wednesday

U.K. Consumer Price Index (CPI) YoY

Thursday

U.S. Cushing Crude Oil Inventories

Thursday

U.S. Initial Jobless Claims

Friday

Existing Home Sales (Sep)

Friday

U.S. Markit Composite PMI