Monex Morning Report – Tue 3 Nov 2020

OVERNIGHT HIGHLIGHTS

Dow books 423-point gain, stocks close higher on eve of presidential election; Asia stocks head for muted open

U.S. Treasury cuts fourth quarter borrowing estimate due to higher cash balance; Lobsters stranded at airport amid Australia-China trade dispute

As U.S. COVID-19 cases break records, weekly deaths rise 3%

The number of new COVID-19 cases in the United States hit another record high last week, rising 18% to more than 575,000, while deaths inched up 3%, according to a Reuters analysis of state and county reports. The number of new cases reported each week has risen for four straight weeks, with the biggest increases seen in the last two weeks. Nationally, nearly 5,800 people died of the virus in the seven days ended Nov. 1, bringing the total to over 230,000. Health experts say deaths tend to increase four to six weeks after a surge in infections. Thirty-four out of 50 states have seen new cases increase for at least two weeks in a row, down from 36 the prior week. They include Florida, Ohio and Michigan — all hotly contested states for Tuesday’s U.S. presidential election. New cases rose 60% in Pennsylvania, another crucial state. Texas reported the most new cases last week with over 45,600, followed by Illinois, which has half as many people, with over 44,500 new cases.

Originating Source

Lobsters stranded at airport amid Australia-China trade dispute

“Australian lobsters have been stranded at a Chinese airport prompting fears seafood could become the next victim of escalating trade tensions. The premium rock lobsters have been subject to increased import inspections over the past few days. This means exporters have faced a race against time to get them cleared through Chinese customs and into restaurants and shops before they are spoiled. Any delay beyond 48 hours and the seafood delicacy is unlikely to survive. Southern Rocklobster executive officer Tom Cosentino said a majority of exporters have stopped sending shipments to China until more is known about the new health and compliance checks. “Whilst some cargo has been cleared, there are continued risks of delays while new processes are being implemented,” Mr Cosentino said. “We’re confident that Australian rock lobster industry’s reputation as a global leader in quality, reliability and sustainability will meet the standards of the new process.” Trade Minister Simon Birmingham said he was aware of reports of customs clearance issues related to premium shellfish imports into China and was working closely with the industry. “All importers should be subjected to equivalent standards and there should be no discriminatory screening practices,” he said.”

Originating Source

Oil Climbs With Russia in Talks on Delaying OPEC+ Output Hike

Oil rose the most in more than three weeks as Russian producers met with Energy Minister Alexander Novak to discuss the possibility of delaying an easing of OPEC+ output cuts by three months. U.S. benchmark crude futures gained 2.9%, bouncing back from an abrupt plunge to a five-month low earlier in the session. The OPEC+ alliance, led by Russia and Saudi Arabia, was already considering postponing the supply increase planned for January as crude prices faltered amid renewed lockdown measures. “The move higher was helped by reports that Russia was open to delaying the OPEC+ cuts,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “More importantly though, today’s move also suggests there is strong investor appetite to own oil sub-$40 a barrel.” Futures had earlier sold off amid the double whammy of rising Libyan supply and a dwindling demand outlook as England joined the string of European countries to renew lockdowns. That could be just the curtain-raiser for a turbulent week of trading as Americans head to the polls Tuesday in an election that could reshape U.S. policy on everything from fiscal stimulus to Iran and fracking. Expectations that OPEC+ will postpone its planned easing of output cuts in January have increased recently as new threats to the fragile demand recovery are compounded by the group’s own rising production. The second wave of the virus around the world could push global oil demand to as low 88 to 89 million barrels a day, down 11% or 12% from last year, Trafigura Group boss Jeremy Weir said at a conference.

Originating Source

U.S. Treasury cuts fourth quarter borrowing estimate due to higher cash balance

The U.S. Treasury said on Monday it plans to borrow $617 billion in the fourth quarter, lower than the August estimate, with the decline due to the department’s higher cash balance at the beginning of October. The $617-billion estimate assumes an end-December cash balance of $800 billion, the Treasury said in a statement. The Treasury also said it issued $454 billion in net debt in the third quarter, ending the three-month period with a cash balance of $1.782 trillion. In August 2020, Treasury had estimated privately-held net marketable borrowing of $947 billion and assumed an end-September cash balance of $800 billion. The $493-billion decrease in borrowing was a result primarily of lower-than-assumed expenditures, partially offset by the increase in the cash balance, the Treasury said. For the first quarter of 2021, the Treasury said it plans to issue $1.127 trillion in net marketable debt, assuming an end-March cash balance of $600 billion.

Originating Source

IMF tells G20 countries to “keep spending” on COVID-19 crisis

The International Monetary Fund on Monday warned Group of 20 major economies that the coronavirus crisis is not over and called on the United States, Britain and other countries to increase the amount of fiscal spending currently planned. Premature withdrawal of fiscal support at a time of continued high rates of unemployment would “impose further harm on livelihoods and heighten the likelihood of widespread bankruptcies, which in turn could jeopardize the recovery,” senior IMF officials warned in a blog published Monday. The blog, entitled, “The Crisis is Not Over, Keep Spending (Wisely),” said swift and unprecedented action by G20 and emerging market economies had averted an even deeper crisis, with G20 countries alone providing $11 trillion in support. The IMF last month forecast a 2020 global contraction of 4.4% and a return to growth of 5.2% in 2021, but warned that the situation remained dire and governments should not withdraw stimulus prematurely.

Originating Source

Britain working to close significant gaps with EU in trade talks: PM’s spokesman

Britain is continuing to work hard to bridge significant gaps with the European Union in pursuit of a trade deal, Prime Minister Boris Johnson’s spokesman said on Monday.”We are continuing to work hard throughout this intensive period of talks to seek to bridge the significant gaps that still remain between our positions in the most difficult areas,” the spokesman said.

Originating Source

Jack Ma Summoned by China’s Regulators on Eve of Ant Debut

Four Chinese regulators including the central bank and banking watchdog called billionaire Jack Ma and Ant Group Co.’s top executives to a rare joint supervisory interview on Monday, underscoring rising government scrutiny of the company before its stock-market debut. Ant Chairman Eric Jing and Chief Executive Simon Hu were also at the meeting, which included the China Securities Regulatory Commission and State Administration of Foreign Exchange, according to a statement on Weibo. No further details were disclosed in the statement. The Chinese financial services giant, which spans payments, lending, asset management and insurance, was told it will be treated as a financial holding company and subject to regulations regarding capital and leverage similar to banks, according to people familiar with the matter. Senior executives will be under increased scrutiny, they said, asking not to be identified as the discussions are private. The central bank, banking regulator and CSRC weren’t able to comment outside regular business hours. “Ant Group will implement the meeting opinions in depth,” the company said in a statement. It will follow guidelines including stable innovation, an embrace of supervision and service to the real economy, it said.

Originating Source

DoubleLine’s Gundlach says he’s bearish on long bonds

effrey Gundlach, the billionaire chief executive of DoubleLine investment firm, said in a pre-election webcast on Monday that he is bearish on long-dated bonds like the 30-year Treasury. The 30-year yield has risen about 214 basis points since Federal Reserve Chair Jerome Powell announced in late August that the central bank would allow inflation to run higher for a period in order to average the central bank’s target rate of 2%. On Monday’s webcast alongside David Rosenberg, chief economist and strategist at Rosenberg Research, Gundlach said he was skeptical of the value of long-dated bonds, but that investors were still expected to hold them to hedge against the risk of deflation. Longer-dated bonds are sensitive to inflation expectations as rising consumer prices can erode their value.

Originating Source

Top Trump News

Fire Fauci after election

President Donald Trump suggested to a Florida crowd he may fire Dr. Anthony Fauci after the election, escalating his feud with the nation’s leading expert on infectious diseases and providing a window into a potential post-November 3 administration purge.

Originating Source

Trump’s plan to declare premature victory

President Trump has told confidants he’ll declare victory on Tuesday night if it looks like he’s “ahead,” according to three sources familiar with his private comments. That’s even if the Electoral College outcome still hinges on large numbers of uncounted votes in key states like Pennsylvania.

Originating Source

Investors prepare for U.S. Election Day

Four years after Donald Trump’s surprise presidential victory roiled markets, investors are prepared for short-term trading turmoil and major long-term policy shifts, on the eve of Tuesday’s U.S. election. Investors could confront dramatically different paths for the country on taxes, government spending, trade and regulation depending on who wins the White House, the Republican Trump or Democratic former Vice President Joe Biden. Biden is ahead in national opinion polls, but races are tight in battleground states that could tip the election to Trump. And perhaps the outcome most likely to shake markets – at least in the near term – is no immediate outcome at all. “At this point, markets fear a contested election,” said Kristina Hooper, chief global market strategist at Invesco. “Anything other than a contested election, a decisive victory in particular, would be good news for stocks.” For weeks, market moves have indicated investors are betting on a “Blue Wave” by which Biden becomes president and Democrats capture the U.S. Senate and retain a majority in the House of Representatives to gain full control of Congress.

Originating Source

Economic Indicators

China Caixin Manufacturing Purchasing Managers Index (PMI)

The Caixin China General Manufacturing PMI rose to 53.6 in October 2020, better than market consensus and September’s figure of 53.0. The latest reading pointed to the sixth straight month of growth in factory activity, and the strongest since January 2011, as the post-coronavirus manufacturing recovery continued to pick up speed. Both output and new orders grew by the most in nearly a decade, while new export sales softened notably amid a resurgence of coronavirus cases across a number of export markets. Employment grew for the second month in a row, though firms were cautious about hiring. On the price front, input costs rose at a slower pace, while the rate of charge inflation quickened from September, indicating that enterprises’ profitability improved marginally. Finally, business confidence hit its highest level since August 2014.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit/BME Germany Manufacturing PMI was revised higher to 58.2 in October of 2020 from a preliminary of 58, pointing to the strongest expansion in factory activity since March of 2018. New orders rose at record pace amid stronger demand both domestically and abroad, with rising sales to Asia (particularly China) helping lift new export orders to the greatest extent since December of 2017. As a result, output growth was the third-fastest on record and reflected sharp increases in consumer, intermediate and investment goods. On the other hand, employment fell for the twentieth month. On the price front, average factory gate charges rose modestly and for the first time since May 2019, as stronger demand allowed some goods producers to pass on the burden of higher costs to clients. On the other hand, business confidence slowed slightly from a 32-month high in September but companies remained positive in general.

U.S. ISM Manufacturing Purchasing Managers Index (PMI)

The ISM Manufacturing PMI for the United States jumped to 59.3 in October of 2020 from 55.4 in September, beating market forecasts of 56.4. The reading pointed to the strongest growth in factory activity since September of 2018, amid faster increases in new orders (67.9 vs 60.2), new export orders (55.7 vs 54.3) and production (63 vs 61) and a rebound in employment (53.2 vs 49.6) and inventories (51.9 vs 47.1). Price pressures also intensified (65.5 vs 62.8). “The manufacturing economy continued its recovery in October. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories; with every month, they are becoming more proficient at expanding output. Panel sentiment was optimistic (two positive comments for every cautious comment), a slight decrease compared to September”, Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee said

U.K. Manufacturing Purchasing Managers Index (PMI)

The IHS Markit/CIPS UK Manufacturing PMI was revised higher to 53.7 in October 2020, from a preliminary estimate of 53.3 and compared to September’s final reading of 54.1. The latest number pointed to solid expansion in the UK manufacturing sector, for five months running, with both output and new orders rising amid stronger demand from both domestic and overseas sources. Meanwhile, employment declined for the ninth successive month, and at a faster pace, due to redundancies, recruitment freezes, the non-replacement of leavers, cost reduction strategies and workforce restructuring. On the price front, input cost inflation was the highest since December 2018, while output charges also increased. Looking ahead, business optimism hit the highest level since January 2018 on hopes of economic recovery and a reduction in COVID-19 disruption

Eurozone Manufacturing Purchasing Managers Index (PMI)

The IHS Markit Eurozone Manufacturing PMI was revised slightly higher to 54.8 in October 2020, from an initial estimate of 54.4 and compared with September’s final 53.7. The latest reading pointed to the steepest month of expansion in the manufacturing sector since July 2018, as output growth accelerated to an over two-and-a-half-year high and new orders rose by the most since the start of 2018.

Economic Calendar

Tuesday

Australia Interest Rate Decision

Wednesday

U.S. Presidential Election

Wednesday

Australia Retail Sales MoM

Thursday

U.S. ADP Nonfarm Employment Change

Friday

U.S. Initial Jobless Claims

Friday

U.S. Nonfarm Productivity QoQ

Friday

Fed Interest Rate Decision