Monex Morning Report – Tue 27 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends 650 points lower as rising COVID-19 cases, stalled stimulus efforts highlight recovery jitters; Asian stocks to drop after S&P500 tumbles most in a month

Pelosi, Mnuchin fail to reach deal on stimulus in Monday call; Jack Ma’s Ant set to raise $35 billion in biggest-ever IPO

Top Market News

Wave of new COVID-19 cases crashes across U.S. and Europe as winter looms

The United States, Russia, France and many other countries are setting records for coronavirus infections as a tidal wave of cases washes over parts of the Northern Hemisphere, forcing some countries to impose new curbs. The gloom weighed on global financial markets on Monday as surging infections clouded the economic outlook. U.S. stocks had their worst day in more than seven weeks over the double whammy of record coronavirus cases and political deadlock in negotiations to provide more economic aid. Word that a vaccine being developed by the University of Oxford and AstraZeneca Plc produced immune responses in both elderly and young people offered some positive news as autumn turns to winter in northern countries and more people socialise indoors. But British Health Secretary Matt Hancock cautioned that the vaccine would not be widely available until next year and said, “We’re not there yet”. Any vaccine faces both scientific and public relations hurdles. Surveys have shown only about half of Americans would get a COVID-19 vaccination due to concerns about safety, effectiveness and the approval process.

Originating Source

Pelosi, Mnuchin fail to reach deal on stimulus in Monday call

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Monday failed again to close major differences on a fresh stimulus for a U.S. economy facing a renewed surge in Covid-19 cases. In their first call since last Wednesday, the two main negotiators still had not resolved language for a national testing and tracing program for the coronavirus, according to Pelosi’s spokesman Drew Hammill. “We continue to eagerly await the Administration’s acceptance of our health language,” including the testing strategy, Hammill tweeted Monday. He said Pelosi and Mnuchin spoke for 52 minutes. Pelosi remains “optimistic” about reaching a deal before Election Day, Hammill said. But with eight days to go until then and the Senate scheduled to leave town later Monday, the lack of an imminent agreement largely extinguished prospects of any legislation being written, voted on, and signed into law by President Donald Trump by Nov. 3.

Originating Source

Trump won’t release tax-cut plan before election, Kudlow says

President Donald Trump’s administration has no plans to release a second-term tax plan before the election, White House economic adviser Larry Kudlow said, despite promises that voters would get a detailed look at his agenda. The president’s aides are “deep into discussions” about further tax cuts if Trump wins another term on Nov. 3, but there’s no need to lay out policy specifics, Kudlow said Monday in an interview with Fox News. “Look, we’ve put out a lot. We’ve mentioned it. I’ve talked about it,” he said. “I don’t see any reason why we have to put out a detailed plan.” That’s a reversal of what Kudlow said in January, when he promised Trump’s plan would be released by late summer to use as a campaign pledge. Trump has repeatedly said that he wants to pass another bill to cut taxes for the middle class and provide incentives for companies that bring back jobs from China, but he has yet to say what that plan would do.

Originating Source

Jack Ma’s Ant set to raise $35 billion in biggest-ever IPO

Jack Ma’s Ant Group Co. is set to raise about $34.5 billion through initial public offerings in Shanghai and Hong Kong, a blockbuster listing that will rank as the biggest IPO ever and make it one of the most valuable finance firms on the planet. The fintech giant will have a market value of $315 billion even before exercising its greenshoe option, based on filings Monday. The IPO is attracting interest from some of the world’s biggest money managers, and sparking a frenzy among individual investors in China clamoring for a piece of the sale. In the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, or over 284 times of the initial offline offering tranche, according to Ant’s Shanghai offering announcement. “This was the first time such a big listing, the largest in human history, was priced outside New York City,” billionaire founder Ma told the Bund Summit in Shanghai Saturday. “We wouldn’t have dared to think about it five years, or even three years ago.” Such demand puts the much-anticipated IPO on track to surpass Saudi Aramco’s $29 billion sale last year. Ant priced its Shanghai stock at 68.8 yuan ($10.27) apiece and its Hong Kong shares at HK$80 ($10.32) each. The company may raise another $5.17 billion if it exercises its greenshoe options.

Originating Source

Time is very short’ Britain says as EU’s Barnier heads to London

Britain said on Monday that time was very short to bridge the significant remaining gaps on key issues in talks with the European Union, as EU chief negotiator Michel Barnier heads to London to continue negotiations. The United Kingdom left the European Union in January but the two sides are trying to clinch a deal that would govern nearly a trillion dollars in annual trade before a transition period of informal membership ends on Dec. 31. After a brief hiatus when London walked away from the negotiating table, both sides are now meeting daily to try to find common ground. At stake is the smooth flow of cross-border trade as well as the harder-to-quantify damage that a chaotic exit would do to areas such as security information sharing and research and development cooperation. “There is … much work to be done if we’re going to bridge what are the significant gaps that remain between our positions in the most difficult areas and time is very short,” Johnson’s spokesman said.

Originating Source

U.S. issues fresh Iran-related sanctions targeting state oil sector

The United States on Monday imposed fresh Iran-related sanctions targeting the Islamic Republic’s oil sector, including the Iranian Ministry of Petroleum, in Washington’s latest move to increase pressure on Tehran. The U.S. Treasury Department in a statement said it was slapping sanctions on key actors in Iran’s oil sector for supporting the Quds Force, the elite foreign paramilitary and espionage arm of the Islamic Revolutionary Guard Corps. “The regime in Iran uses the petroleum sector to fund the destabilizing activities of the IRGC-QF,” Treasury Secretary Steven Mnuchin said in the statement. The minister of petroleum, the National Iranian Oil Company (NIOC) and National Iranian Tanker Company were also blacklisted alongside other individuals and entities in Washington’s move on Monday, which freezes any U.S. assets of those blacklisted and generally bars Americans from dealing with them.

Originating Source

U.S. appeals WTO ruling on its multi-billion tariffs on China

he United States lodged an appeal on Monday against a WTO ruling last month that found U.S. tariffs imposed on China in 2018 breached global trade rules, a World Trade Organization (WTO) official said. A three-person panel had ruled that Washington had not justified why the tariffs imposed after a Section 301 investigation against China were a justifiable exception to its obligations. The U.S. delegation, in a speech seen by Reuters announcing its appeal, said that the panel report “reflects a major, missed opportunity for the WTO to begin to address the most serious problem faced by every member that seeks a balanced and fair world trading system: namely, aggressive, state policies that seek to dominate broad industrial sectors.”

Originating Source

China to sanction Boeing, Lockheed and Raytheon over Taiwan arms sales

China’s government said Monday it will impose sanctions on U.S. military contractors including Boeing’s defense unit and Lockheed Martin for supplying weapons to rival Taiwan, stepping up a feud with Washington over security and Beijing’s strategic ambitions. Raytheon Technologies Corp. and “relevant American individuals” associated with the sales also will be affected, said Foreign Affairs Ministry spokesman Zhao Lijian. He gave no details of what penalties might be imposed or when. The ruling Communist Party claims Taiwan, which split with the mainland in 1949 during a civil war, as part of its territory and has threatened to invade. Washington promised in the 1980s to reduce and eventually end weapons sales to Taiwan but insists its dispute with Beijing must be settled peacefully. “In order to safeguard national interests, China decided to impose sanctions on the American companies that were involved in arms sales to Taiwan,” Zhao said at a regular news briefing.

Originating Source

Top Trump News

Block pandemic food aid

The Trump administration is fighting in federal court to block states from giving billions of dollars in emergency food stamps to the lowest-income Americans during the coronavirus crisis. Residents of Pennsylvania and California have sued President Donald Trump’s Agriculture Department over a policy that has kept roughly 40 percent of households who rely on the Supplemental Nutrition Assistance Program from receiving any emergency benefits during the pandemic. After being ordered by a federal judge last week to proceed with the payments in the Pennsylvania case, the department is continuing to appeal.

Originating Source

Final pitch to Pennsylvania

President Donald Trump crisscrossed Pennsylvania on Monday in a frenzied attempt to pull out a critical victory with a singular message: fracking, fracking, fracking. At several stops in a one-day, three MAGA-rally blitz, Trump portrayed fracking as an issue of “existential importance” for Pennsylvania. He mentioned it at the top of his rallies. He returned to it repeatedly during his remarks. And, with a reference to classic Hollywood director Cecil B. DeMille, he asked rally goers to watch a campaign video of Biden’s comments on the issue — a tactic he first adopted last week in Erie, Pa. — then tweeted it out minutes later.

Originating Source

Ahead of Biden in Texas

President Donald Trump has maintained his single-digit lead over Democratic presidential nominee Joe Biden in Texas, according to a new survey of the state with the second-biggest Electoral College prize. A New York Times/Siena College poll published Monday shows that 47 percent of Texas likely voters prefer Trump, while 43 percent back Biden. An additional 10 percent favor other candidates or are undecided. Trump’s advantage of 4 percentage points falls roughly in line with his performance in the previous version of the Times/Siena survey, conducted last month, which showed him with a 3-point lead over Biden.

Originating Source

Economic Indicators

Germany Ifo Business Climate Index

The Ifo Business Climate indicator for Germany dropped to 92.7 in October 2020, from a seven-month high of 93.2 in the previous month and slightly below market expectations of 93.0. Companies were considerably more skeptical regarding developments over the coming months following the imposition of tougher restriction measures to curb the spread of the COVID-19 pandemic. In contrast, firms assessed their current situation as better than in the previous month.

United States New Home Sales

Sales of new US single-family homes dropped 3.5 percent to a seasonally adjusted annual rate of 959 thousand in September 2020, from the previous month’s 14-year high of 994 thousand and compared with market expectations of 1,025 thousand. Still, the level of home sales remained elevated as the housing market has been supported by record low interest rates and increasing demand from people moving away from big cities due to the coronavirus crisis. In September, new home sales declined in the South (-4.7 percent to 563 thousand), the Midwest (-4.1 percent to 93 thousand) and the Northeast (-28.9 percent to 32 thousand), but rose in the West (0.7 percent to 284 thousand).

United States Chicago Fed National Activity Index

The Chicago Fed National Activity Index in the US dropped to +0.27 in September 2020 from an upwardly revised +1.11 in the previous month, missing market expectations of +0.39. Three of the four broad categories of indicators used to construct the index decreased from August. Production-related indicators contributed -0.24 to the CFNAI in September, down from +0.31 in August; and the contribution of the sales, orders, and inventories category to the CFNAI edged down to +0.07 from +0.10. Also, employment-related indicators contributed +0.35 in September, down from +0.71 in August; while the contribution of the personal consumption and housing category to the CFNAI moved up to +0.09 from a neutral value in the previous month.

Japan Leading Economic Index

The index of leading economic indicators in Japan, which is a gauge of the economy a few months ahead and is compiled using data such as job offers and consumer sentiment, was at 88.4 in August 2020, the highest since February, compared with the preliminary reading of 88.8 and a final 86.7 a month earlier, following the reopening of business units amid the loosening of coronavirus pandemic restrictions.

United States Dallas Fed Manufacturing Index

The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas rose 6.2 points to a two-year high of +19.8 in October of 2020, as activity continues to recover from the coronavirus shock. The production index, a key measure of state manufacturing conditions, increased 3.2 points to +25.5, indicating a slight acceleration in output growth. Other measures of manufacturing activity also point to stronger growth this month: new orders (up 5.2 points to +19.9); growth rate of orders (up 1.1 points to +14.3); capacity utilization (up 5.5 points to 23); and shipments (up 0.4 points to +21.9). Labor market measures indicated continued but slower growth in employment and work hours. The employment index remained positive but fell 5.8 points to +8.7, suggesting less-robust hiring; while the hours worked index dropped 3.2 points to +3.7.

Economic Calendar

Wednesday

Australia Consumer Price Index (CPI) QoQ

Thursday

U.S. Crude Oil Inventories

Thursday

Japan Retail Sales YoY

Thursday

Japan Interest Rate Decision

Thursday

Eurozone Interest Rate Decision

Friday

Germany Consumer Price Index (CPI) MoM

Friday

U.S. Pending Home Sales MoM

Friday

Germany Gross Domestic Product (GDP) QoQ