Monex Morning Report – Tue 6 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow ends 465 points higher after Trump cleared to leave hospital after 3-night stay; Treasury yields jumped and USD weakened

Donald Trump announces he will leave hospital this evening; Australia to lay out fiscal blueprint to generate growth, jobs

Top Market News

Australia to lay out fiscal blueprint to generate growth, jobs

Australia’s government will lay out a spending program to resuscitate a recession-hit economy and generate jobs for the hundreds of thousands of people left unemployed by the nation’s Covid-19 lockdown. Treasurer Josh Frydenberg is expected to announce a A$220 billion ($158 billion) deficit when he hands down a delayed budget for the year ending June 2021, at 7:30 p.m. in Canberra. The shortfall will be equivalent to 11.6% of gross domestic product, according to the median estimate of surveyed economists. Five hours earlier, the Reserve Bank of Australia delivers its October interest rate decision, and is expected to keep policy unchanged. The government’s economic blueprint is expected to backdate to July 1 this year income tax cuts that had been set to start in July 2022, and fast track another round due to start in 2024. It also plans an investment allowance for firms as well as tax breaks for small startups, according to reports. The government has already announced A$1.5 billion to revitalize manufacturing and create jobs and A$1.2 billion to subsidize wages of new apprentices.

Originating Source

U.S. stimulus talks grind on; no deal yet despite Trump urging

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin engaged in another round of virus stimulus talks Monday with no sign they are close to deal, despite the urging of President Donald Trump to get it done. The two negotiators have maintained talks by telephone since last week when they met in person for the first time since early August. They’re attempting to bridge a still-yawning gap between the Democratic $2.2 trillion proposal and a $1.6 trillion White House offer. While Trump’s infection with Covid-19 and his tweet from the hospital on Saturday pressing negotiators to “get it done” had raised hopes that the administration would endorse a bigger package and reach agreement with Democrats, the timeline is increasingly compressed as Election Day looms. Pelosi and Mnuchin spoke by phone for one hour on Monday and plan to speak again on Tuesday, according to Drew Hammill, a Pelosi spokesman. They discussed spending amounts and will exchange written proposals, Hammill said.

Originating Source

Fed must be ‘in it to win it’ on inflation goal: Evans

Chicago Federal Reserve Bank President Charles Evans on Monday said he expects U.S. inflation to reach 2% by 2023 and wants to push it to 2.5% to offset years of below-target price rises. The Fed “needs to have an ‘in it to win it’ attitude toward our inflation objective,” Evans said at a virtual meeting of the National Association for Business Economics. “We’ve got to overshoot for sure,” he told Bloomberg TV later. “I would be quite pleased if could get inflation, core inflation, up to 2.5% for a time.” In August the Fed adopted a new framework to counter long-running structural forces pulling down on inflation, officially aiming for 2% inflation on average. Last month it put that framework into practice with a promise to keep rates at their current near-zero level until inflation reaches 2% and is on track to overshoot that level for some time. Most U.S. central bankers, including Evans, believe that won’t be until after 2023.

Originating Source

IMF urges infrastructure investment to boost post-COVID growth

The International Monetary Fund on Monday said member governments should seize a low interest rate opportunity to invest in infrastructure to drive recovery from the coronavirus pandemic and a shift toward greener energy. The IMF said in chapters from it fiscal monitor that its research shows public investment in infrastructure, including investments in health care systems, digital infrastructure and addressing climate change can pay back more than two to one in economic growth within two years. The full Fiscal Monitor will be presented at the IMF and World Bank annual meetings, which get underway next week and will provide an updated assessment of the pandemic’s effect on the global economy. The IMF said increasing public investment by 1% of GDP in advanced and developing economies would grow their GDP by 2.7%, creating 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.

Originating Source

Bank of England’s Haskel keeps door open to negative rates, sees risks to growth

Bank of England rate-setter Jonathan Haskel said on Monday he saw downside risks to the economy, and also some possible benefits from cutting interest rates below zero, though it was too soon to reach a firm conclusion on this. The BoE, which cut interest rates to a record-low 0.1% in March, is now looking at whether it is technically feasible to cut its main interest rate below zero, something that has already been done in Japan and the euro zone. The Bank of England’s chief economist, Andy Haldane, and one of its deputy governors, Dave Ramsden, have expressed doubts about whether this would be helpful, but one external policymaker, Silvana Tenreyro, has been more supportive. Haskel, like Tenreyro, said evidence from the European Central Bank suggested that cutting interest rates below zero could boost lending, and that banks did pass negative rates on to businesses, though not to households.

Originating Source

BOJ’s Kuroda warns pandemic to keep economic uncertainty ‘very high’

Bank of Japan Governor Haruhiko Kuroda said on Monday uncertainty over the country’s economic and price outlook remained “very high” as the coronavirus pandemic continued to inflict pain on global growth. Kuroda said the world’s third-largest economy was emerging from a severe downturn caused by the pandemic and was likely headed for a moderate recovery. But he stressed the central bank was ready to maintain the range of measures put in place to ease corporate funding strains, and to top up monetary support if needed to cushion the economic blow from the health crisis. “There is very high uncertainty on the economic and price outlook. Risks are skewed to the downside,” said Kuroda in a video message to an annual meeting of securities firms. While consumer prices will fall for the time being due to sliding oil prices and weak demand, they are expected to rebound as the economy emerges from the doldrums, he said.

Originating Source

Donald Trump announces he will leave hospital this evening

Donald Trump will leave hospital and return to the White House on Monday evening after a three-day stay to treat symptoms of the coronavirus, the US president and his medical team have announced. Trump told his Twitter followers that he was “feeling really good” and would be discharged from the Walter Reed military hospital in Bethesda, Maryland, at 6.30pm on Monday. The president’s physician, however, cautioned that Trump was not yet entirely “out of the woods”. The president also offered controversial advice to the public via his tweet, saying: “Don’t be afraid of Covid. Don’t let it dominate your life. We have developed, under the Trump Administration, some really great drugs & knowledge. I feel better than I did 20 years ago!” The message appeared to confirm predictions of critics that, if Trump stays relatively healthy, he will attempt to use his own experience to yet again downplay the virus and claim that its severity has been exaggerated.

Originating Source

Pompeo seeks to show united front on China despite virus crisis

U.S. Secretary of State Michael Pompeo will meet with his counterparts from three other democratic countries in Tokyo, in a bid to keep up the pressure on China amid the coronavirus crisis rocking Washington. The so-called Quad — also including Australia, India and Japan — is slated to hold its second ministerial-level meeting Tuesday in Tokyo, an event expected to help firm up New Delhi’s participation in the group. The in-person gathering demonstrates solidarity at a time when China is feuding with at least three of its members: Australia, U.S. and India. For the host, newly installed Japanese Prime Minister Yoshihide Suga, the meeting signals a willingness to continue some of his predecessor Shinzo Abe’s more hawkish security projects. China has expressed concerns that the “Quadrilateral Initiative,” which Abe first helped promote more than a decade ago, is an attempt to form “exclusive cliques” and stoke a “new Cold War.”

Originating Source

Top Trump News

Hospital criteria

U.S. President Donald Trump has met or exceeded all standard hospital criteria to be discharged, and while he is not yet out of the woods, he is able to go home, his physician, Dr. Sean Conley, said on Monday. “Over the past 24 hours … he’s met or exceeded all standard hospital discharge criteria,” Conley told a news conference, saying it had been more than 72 hours since Trump’s last fever and that his oxygen levels were normal. “Though he may not entirely be out of the woods yet, the team and I agree that all our evaluations, and most importantly, his clinical status, support the president’s safe return home, where he will be surrounded by world-class medical care 24/7,” Conley said.

Originating Source

Polls

Democrat Joe Biden leads President Donald Trump among potential voters nationally, according to two polls conducted in the past few days, while other surveys showed Biden ahead in key swing states and running close in others. In a poll by the Washington Post and ABC News, Biden had a 10 percentage point advantage over Trump. Biden’s lead was eight points in another survey conducted by the New York Times and Siena College. With those surveys added, Biden’s lead over Trump, according to the RealClearPolitics average of recent polls, was 7 points. In the Washington Post poll, Biden and running mate Kamala Harris had 54% support among likely voters compared with Trump and Vice President Mike Pence at 44%. Among registered voters, Biden had a 53% to 43% lead. The margin is statistically unchanged from the 12-point gap in the survey’s August version, taken before both parties held their conventions. Biden is ahead of Trump by 65% to 34% among the women surveyed, while 55% of men polled supported Trump compared with 42% for Biden, according to the report. The poll was conducted by telephone Monday through Thursday among a random national sample of 1,008 U.S. adults. The margin of error is plus or minus 3.5 percentage points. In the New York Times poll, the former vice president was leading Trump 49% to 41% among likely voters. Women favored Biden by 53% to 37%, while the candidates were tied among men, both at 45%.

Originating Source

Biden

As President Trump prepared to return to the White House on Monday after a four-day stay at the hospital, his Democratic rival, Joseph R. Biden Jr., campaigned in Florida, where he expressed hope that the president was recovering but urged Americans not to minimize the threat posed by the coronavirus. “I hope the president’s recovery is swift and successful, but the nation’s Covid crisis is far, far from over,” Mr. Biden said at a gym in Miami’s Little Havana, where people in a small, socially-distanced crowd were seated at least six feet apart from one another and wore masks. Mr. Biden once again urged Mr. Trump — who has sent lukewarm-to-mixed signals on the importance of wearing masks, and who had mocked the vice president at the debate just last week for wearing masks — to embrace universal masking, saying it would save lives. “Since the president was in the hospital, since Friday, more than 100,000 more people have been diagnosed with Covid,” Mr. Biden said, according to a pool report. “Cases and deaths are climbing in many states.”

Originating Source

Economic Indicators

Japan Services PMI (Sep)

The au Jibun Bank Japan Services PMI was revised higher to 46.9 in September 2020, from a preliminary estimate of 45.6 and compared to August’s final 45.0. The latest figure signaled a reduction in activity, although one that was the slowest in the current eight-month sequence of contraction. Incoming new business fell for the eighth month running, with export sales declining at a faster pace due to international travel restrictions and client business closures, while employment shrank for the seventh straight month. On the price front, input costs dropped for the second consecutive month while cost savings were passed onto clients, with some firms mentioning discounting strategies to stimulate sales. Finally, sentiment strengthened to a nine-month high, as firms hope for a recovery in demand in both domestic and foreign markets and the complete easing of lockdown restrictions over the coming year.

German Services PMI (Sep)

The IHS Markit Services PMI for Germany was revised higher to 50.6 in September of 2020 from a preliminary of 49.1, showing the services sector avoided a contraction. Still, the PMI fell from 52.5 in August and 55.6 in July, as the recovery from the coronavirus shutdown lost further momentum in September. The relatively weak inflow of new work was underlined by a further decrease in service sector backlogs in September. This extended the current sequence of decline to 14 months. Though sector employment was up for the third month in a row following deep cuts to payroll numbers between March and June, the rate of job shedding remained modest. Latest data pointed to a near-stabilisation in average prices charged across the service sector, following decreases in each of the previous six months. Finally, expectations towards activity also weakened slightly, though firms remained confident enough to add to workforce numbers amid steadily rising inflows of new business.

EUR Services PMI (Sep)

The IHS Markit Eurozone Services PMI was revised slightly higher to 48.0 in September 2020, from a preliminary estimate of 47.6 and compared to August’s final 50.5. The latest reading signaled a fall back into contraction of the services economy, as overall new business fell for a second straight month and export business was also down markedly, extending the current period of contraction to over two years. In addition, employment continued to fall and backlogs of work outstanding declined for a seventh successive month. On the price front, operating expenses rose for a fourth straight month, while output charges declined again. Finally, looking ahead to the coming 12 months, business confidence strengthened in September. By country, Spain recorded by far the steepest monthly fall, followed by Ireland. Germany was the only services economy to register growth.

UK Services PMI (Sep)

The IHS Markit/CIPS UK Services PMI was revised higher to 56.1 in September 2020, from a preliminary estimate of 55.1 and compared to an over five-year high of 58.8 hit in August. The latest reading signaled the weakest performance for the sector in three months and the first setback for the recovery since the turnaround began in May. New business growth slowed following the withdrawal of the UK government’s Eat Out to Help Out scheme and an introduction of some tighter restrictions on activity. In addition, the rate of job losses was again marked amid evidence of ongoing spare capacity, while backlogs of work increased modestly during September, and for the first time in two years. On the price front, operating expenses rose for a third straight month, while output charges declined due to competitive pressures, efforts to drum-up new business and promotional activities. Finally, sentiment about the year ahead remained comfortably inside positive territory.

US Services PMI (Sep)

The IHS Markit US Services PMI was confirmed at 54.6 in September 2020, down from the previous month’s 17-month high of 55.0. Still, the latest reading signaled a solid upturn in service sector business activity. New business expanded the most since March 2019 boosted by strengthening customer demand and amid the second-strongest increase in exports since data collection for the series began six years ago. In addition, the rate of job creation was the second-quickest since February 2019 and backlogs of work rose for the third month running. On the price front, input costs increased at a sharp rate due to greater wage and equipment costs, with many highlighting the uptick in PPE prices. Selling prices rose at the fastest rate since September 2018 and outpaced the rise in cost burdens, as firms took advantage of stronger demand conditions. Looking ahead, business confidence slumped to a four-month low amid concerns regarding the COVID-19 pandemic.

US ISM Non-Manufacturing PMI (Sep)

The ISM Non-Manufacturing PMI for the US increased to 57.8 in September of 2020 from 56.9 in August, beating market expectations of 56.3. The reading pointed to the fourth straight month of expansion in the non-manufacturing sector as the economy recovers from the coronavirus hit. Faster increases were seen for business activity (63 vs 62.4) and new orders (61.5 vs 56.8) and employment rebounded (51.8 vs 47.9). Inventories fell less (48.8 vs 45.8) and price pressures eased (59 vs 64.2). “Respondents’ comments remain mostly optimistic about business conditions and the economy, which correlates directly to those businesses that are operating. There continues to be capacity and logistics issues, as business volumes have increased” said Anthony Nieves, Chair of the ISM.

Euro Area Retail Sales MoM

Eurozone’s retail trade rose by 4.4 percent from a month earlier in August 2020, following a revised 1.8 percent drop in July and beating market expectations of a 2.4 percent growth, as countries across the region continued to relax COVID-19 containment measures. Non-food products sales rebounded 6.1 percent (vs -4.6 percent in July) boosted by on-line trade (12.4 percent vs -11.2 percent), and sales of textiles, clothing, footwear (7.7 percent vs -3.8 percent) and pharmaceutical and medical goods (3.2 percent vs -0.5 percent). Food, drinks, tobacco trade grew 2.4 percent after being unchanged in July, while automotive fuel sales advanced 2.1 percent, compared to 8.9 percent in the previous month. Year-on-year, retail sales jumped 3.7 percent, the most since November 2017 and above forecasts of 2.2 percent.

Economic Calendar

Tuesday

Australia Interest Rate Decision

Tuesday

U.K. Construction Purchasing Managers Index (PMI)

Tuesday

European Central Bank President Lagarde Speaks

Wednesday

U.S. Fed Chair Powell Speaks

Thursday

U.S. Crude Oil Inventories

Thursday

U.S. Federal Open Market Committee (FOMC) Meeting Minutes

Thursday

European Central Bank Monetary Policy Statement

Thursday

U.S. Initial Jobless Claims

Friday

Japan Gross Domestic Product (GDP) QoQ

Friday

China Composite Purchasing Managers’ Index (PMI)