Monex Morning Report – Tue 22 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow ends more than 500 points lower but S&P500 avoids correction in wild Wall Street session; Asian stocks to drop

Fed’s Powell says U.S. economy faces long, uncertain recovery; ECB must ‘very carefully’ assess data on patchy recovery, Lagarde says

Fed’s Powell says central bank committed to using all tools to help recovery

“The Federal Reserve remains committed to using all the tools at its disposal to help the U.S. economy recover from the blow delivered by the coronavirus pandemic, Chair Jerome Powell said on Monday. “”We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy,”” Powell said in remarks released ahead of Tuesday’s appearance before the House of Representatives Financial Services Committee, the first of three days of testimony to Congress this week. Powell’s summation of the “”marked improvement”” in the economic landscape largely repeated what he said last week after the Fed’s latest policy meeting, at which policymakers promised to keep interest rates pinned at zero until the economy reaches full employment and inflation is on track to modestly overshoot the central bank’s 2% target. ”

Originating Source

U.S. debt jumps by record amount in second quarter led by federal government, Fed data show

The debt burden on the U.S. economy increased at a record pace in the second quarter led by government borrowing needed to cushion the blow of the coronavirus pandemic, according to a report from the Federal Reserve released Monday. Total domestic nonfinancial debt rose at a record seasonally adjusted annual rate of 25.3% in the April-June quarter to $59.3 trillion. That’s above the prior record of 19.25% during 1985. Federal government debt increased a record 58.9% in the second quarter to $22.58 trillion, up from a 11.4% gain in the first quarter. Congress has approved $2.89 trillion in coronavirus relief spending this year. Household debt rose 0.5%, with consumer credit down at a 6.6% annual rate. Mortgage debt grew at a 3% rate. Nonfinancial business debt rose at a 14% rate in the second quarter, down from a record 18.4% in the first three months of the year.

Originating Source

Fed’s Kaplan says low rates may be needed for two-and-a-half to three years

Dallas Federal Reserve President Robert Kaplan on Monday said the economy will likely need near-zero interest rates for the next two and a half or three years, but the U.S. central bank shouldn’t lock itself into low borrowing costs beyond then. By 2023, he said, U.S. unemployment will likely have fallen to 4% or 3.5%, from its current 8.4%. Once there, he said, “I probably think it’s appropriate to remain accommodative, or maybe even highly accommodative,” Kaplan said in an interview with Bloomberg Television. “I’m not sure it’s appropriate to decide right now that at that point we should leave rates at zero; I would rather leave those judgments to future committees.” The comments were Kaplan’s first public remarks since he cast a dissenting vote last week against the Fed’s decision to promise low rates until inflation reaches and is on track to “moderately exceed” the central bank’s 2% goal.

Originating Source

Climate change since 2000 will cut U.S. growth over next 30 years: CBO

The effects of climate change since 2000 will slow U.S. economic growth slightly over the next 30 years, adding another drag on an economy that will struggle to rebound from the coronavirus pandemic, the Congressional Budget Office said on Monday. In a new research paper, the nonpartisan budget referee agency studied both positive and negative contributions to gross domestic product, from longer growing seasons in colder climates to drought to damage to factories from more intense storms. It projected that on net, climate change will reduce real U.S. GDP by an average of 0.03% annually from 2020 to 2050, compared to what U.S. growth would have been if global climate conditions remained the same as they were in 2000. That reduction in the growth rate, accumulated over 30 years, lowers the CBO’s projected level of real GDP output in 2050 by 1%, the paper showed.

Originating Source

ECB must ‘very carefully’ assess data on patchy recovery, Lagarde says

Europe’s economic rebound is uncertain and uneven, requiring “very careful” assessment of incoming data, including the evolution of the coronavirus pandemic, European Central Bank President Christine Lagarde said on Monday. “The uncertainty of the current environment requires a very careful assessment of the incoming information, including developments in the exchange rate,” Lagarde said in a speech to the Franco-German Parliamentary Assembly. “The strength of the recovery remains very uncertain, as well as uneven and incomplete,” she said. “It continues to be highly dependent on the future evolution of the pandemic and the success of containment policies.”

Originating Source

Merkel urges quick agreement with European lawmakers on EU budget, recovery plan

German Chancellor Angela Merkel and European Commission President Ursula von der Leyen called on European lawmakers on Monday to quickly agree to the bloc’s recovery package and the multi-year budget. Merkel and von der Leyen discussed the 750 billion euro recovery plan and the related 1.1 trillion euro 2021-2027 budget in a video conference with European Parliament President Davide Sassoli, a German government spokesman said. “The participants agreed that a swift agreement was needed for the European programs to enter into force as planned by January 2021. The chancellor and her interlocutors agreed to remain closely engaged in the further negotiations,” the spokesman said. Germany currently holds the rotating presidency of the 27 member bloc.

Originating Source

British Health Minister lays out COVID-19 response as cases surge

Britain’s health minister went before parliament Monday to discuss the government’s response to a surge in positive COVID-19 cases in the nation. Matt Hancock acknowledged what the government’s top medical and science advisers had said earlier in the day – that COVID-19 has been surging across age groups throughout much of Britain. Among the steps the government plans to take, Hancock said, is encouraging self-isolation by those who have been infected or exposed to the virus. The government will also offer a single support payment of about $640 for low-income people for whom self-isolation would be an economic hardship. Hancock said those asked to self-isolate who refuse to do so could face fines of nearly $13,000 for serious breaches or repeat offenders. The health minister told British lawmakers that demand for testing has dropped slightly since last week, taking a little pressure off the system. Nonetheless, the demand for tests remains high enough that the government must prioritize who receives them.

Originating Source

Musk sees no immediate boost from ‘Battery Day’ tech unveil

Tesla Inc TSLA.O Chief Executive Officer Elon Musk said on Monday improvements unveiled at the electric-car maker’s “Battery Day” event would not reach serious high-volume production until 2022. The company’s shares fell nearly 4% to $432 in extended trade. “This affects long-term production, especially Semi, Cybertruck & Roadster, but what we announce will not reach serious high-volume production until 2022,” Musk tweeted here, ahead of the event scheduled to take place on Tuesday. Musk also said Tesla intends to increase battery cell purchases from suppliers Panasonic 6752.T, South Korea’s LG Chem 051910.KS and China’s CATL 300750.SZ, and possibly with other partners as well.

Originating Source

Top Trump News

Supreme Court pick

President Donald Trump said on Monday he would unveil his selection to replace Supreme Court Justice Ruth Bader Ginsburg by the end of the week after spending the weekend fielding advice and floating potential nominees to a wide orbit of advisers. “I think it’ll be on Friday or Saturday and we want to pay respect,” Trump said in a Monday morning interview on “Fox and Friends.” “It looks like we will have probably services on Thursday or Friday, as I understand it,” he went on. “And I think the respect we should wait for the services to be over for Justice Ginsburg. So we’re looking at probably Friday or maybe Saturday.”

Originating Source

Turns off suburban voters

Suburban voters are unusually repelled by President Donald Trump even if they lean conservative, freshman Rep. Dan Crenshaw told POLITICO on Monday. The president’s shaky support in the suburbs, particularly among higher-educated white voters, relative to 2016 has posed a serious threat to his reelection bid in multiple swing states and put places like Texas potentially within the reach of Joe Biden, the Democratic presidential nominee.

Originating Source

New sanctions on Iran

The new actions, facilitated by an executive order President Donald Trump signed Monday morning, come after the administration on Saturday declared it had effectively reimposed sanctions under the so-called “snapback” provision of the 2015 nuclear deal with Iran. The provision restores international sanctions on Tehran that were previously terminated as part of the nuclear deal, and their reimposition could, in theory, kill the agreement.

Originating Source

Economic Indicators

United States Chicago Fed National Activity Index

The Chicago Fed National Activity Index in the US dropped to +0.79 in August 2020 from an upwardly revised +2.54 in the previous month, missing market expectations of +1.95. Two of the four broad categories of indicators used to construct the index made positive contributions in August, but all four categories decreased from July. Production-related indicators contributed +0.23 to the CFNAI, down from +1.26 in July; and employment-related indicators contributed +0.63, compared to +0.65. At the same time, the contribution of the sales, orders, and inventories category to the index moved down to -0.04 in August from +0.53 in July; while the contribution of the personal consumption and housing category declined to -0.04 from +0.09.

China Loan Prime Rate

The People’s Bank of China (PBoC) held its benchmark interest rates steady for the fifth straight month at its September fixing, after the central bank maintained borrowing costs on medium-term loans last week, as policymakers face a challenge in sustaining stable expansion over the next few years. Recent economic data showed the economy has steadily recovered from the COVID-19 shocks. The one-year loan prime rate (LPR) was left unchanged at 3.85 percent while the five-year remained at 4.65 percent.

Economic Calendar

Tuesday

U.K. CBI Industrial Trends Orders

Wednesday

U.S. Existing Home Sales

Wednesday

New Zealand Interest Rate Decision

Wednesday

Germany Manufacturing Purchasing Managers Index (PMI)

Thursday

U.S. Crude Oil Inventories

Thursday

Germany Ifo Business Climate Index

Friday

U.S. New Home Sales

Friday

U.S. Core Durable Goods Orders MoM