Monex Morning Report – Wed 14 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow, S&P 500 breaks four-day win streak as J&J and Eli Lilly pause COVID-19 drug trials; Asia stocks to slip amid U.S. stimulus deadlock

Trump, Republicans divided on stimulus as Pelosi demands revamp; EU’s Barnier says not enough progress in Brexit talks: source

Top Market News

Trump, Republicans divided on stimulus as Pelosi demands revamp

Prospects for U.S. fiscal stimulus before Election Day dimmed on Tuesday, with House Speaker Nancy Pelosi demanding the White House revamp its latest offer and Senate Republican leader Mitch McConnell pushing a smaller-scale strategy that Pelosi quickly rejected. McConnell’s proposal to vote next week on just one provision — replenishing funds in the Paycheck Protection Program for small businesses — appeared to stoke opposition even from President Donald Trump, who tweeted “Go big or go home!!” Pelosi told House Democrats on a call Tuesday that McConnell’s proposal was a nonstarter, according to participants. She warned that Democratic priorities would be cut in any deal based on such an agreement, they said. In the wake of Trump’s “go big” tweet, she told colleagues that the Democratic side has more leverage than ever, three participants said. McConnell made the argument Tuesday that some deal is better than none, saying Democrats are ignoring areas of bipartisan agreement to hold out for a bill that includes measures unrelated to the virus response. “Republicans do not agree that nothing is better than something for working families,” McConnell said in a statement. “The American people need Democrats to stop blocking bipartisan funding and let us replenish the PPP before more Americans lose their jobs needlessly.”

Originating Source

EU’s Barnier says not enough progress in Brexit talks: source

The European Union’s Brexit negotiator said on Tuesday there was some but “by far” not sufficient progress in trade talks with Britain. An EU diplomat who followed Michel Barnier’s comments to 27 national EU affairs ministers on Tuesday, told Reuters when asked about the chief negotiator’s message: “There is some movement here and there, but it is not sufficient by far. Level playing field, fishery and enforcement measures remain the key controversial issues.”

Originating Source

EU pushes Britain to budge at ‘critical stage’ in Brexit talks

The EU on Tuesday demanded “substantive” movement from Britain on fisheries, dispute settlement and guarantees of fair competition in their post-Brexit trade talks, which Germany said were at a “critical stage”. France said the 27-nation bloc must not yield on fishing rights. Ireland – the EU member most exposed to any abrupt economic split at the end of the year – said Britain was running out of time to seal a new trade deal with the bloc. Britain, the world’s sixth-biggest economy, left the EU in January and has since been locked in painstaking talks with the world’s largest trading bloc to keep trade flowing freely. With a year-end deadline nearing to put new arrangements in place, the European affairs minister of Germany – current holder of the bloc’s rotating presidency – said the EU was working hard for a deal – but was also ready to trade from 2021 without an accord to avoid tariffs or quotas.

Originating Source

Bank of England ‘not there yet’ on negative rates: Bailey

The Bank of England is not yet at a point where it can decide on whether it should cut interest rates below zero, Governor Andrew Bailey said on Tuesday, reiterating his policy stance on the closely watched topic. Bailey highlighted a letter which the BoE sent to banks on Monday, asking them whether they would be able to implement negative interest rates. “Only when we get through these questions (on practicality) will we be in a position to say if it is a tool we would use. We are not there at the moment,” he said.

Originating Source

G20 to say economic outlook less negative, vow to sustain, strengthen support if needed

The world’s financial leaders will say on Wednesday that the outlook for the pandemic-ravaged global economy is less negative as steps already taken are paying off, and will vow to do more if needed to support the recovery, their draft statement said. Finance ministers and central bankers from the world’s 20 biggest economies will hold virtual meeting on Wednesday to discuss the main global economic challenges as the COVID-19 pandemic will cause a global economic contraction this year. “The outlook is less negative with global economic activity showing signs of recovery as our economies have been gradually reopening and the positive impacts of our significant policy actions started to materialize,” the G20 financial leaders’ draft statement said. “We will sustain and strengthen as necessary our policy response, considering the different stages of the crisis, to secure a stable and sustainable recovery,” it said.

Originating Source

IMF sees less severe global contraction but trouble in emerging markets

Forecasts for the global economy are “somewhat less dire” as rich nations and China have rebounded quicker than expected from coronavirus lockdowns, but the outlook for many emerging markets has worsened, the International Monetary Fund said on Tuesday. The IMF forecast a 2020 global contraction of 4.4% in its latest World Economic Outlook, an improvement over a 5.2% contraction predicted in June, when pandemic-related business closures reached their peak. The global economy will return to growth of 5.2% in 2021, the IMF said, but the rebound will be slightly weaker than forecast in June, partly due to the extreme difficulties for many emerging markets and a slowdown in the reopening of economies due to the continued spread of the virus. She warned of a divergent path between wealthier countries and China, which are recovering more quickly, and poorer countries that “are headed towards worse futures than advanced economies.”

Originating Source

J&J says review of illness that led to pause of coronavirus vaccine trial could take days

Johnson & Johnson said on Tuesday it would take a few days at least to hear from a safety monitoring panel about its review of the company’s late-stage COVID-19 vaccine trial after announcing that the large study had been paused due to an unexplained illness in one participant. The pause comes around a month after AstraZeneca Plc also suspended trials of its experimental coronavirus vaccine – which uses a similar technology – due to a participant falling ill. That trial remains on pause. U.S.-based J&J, whose vaccine effort is among the high profile attempts to fight the coronavirus pandemic, said on Monday the illness was being reviewed by an independent data and safety monitoring board as well as its own clinical and safety team. The data board is then required to submit its findings to the U.S. Food and Drug administration before the study can be restarted.

Originating Source

FDA faults quality control at Lilly plant making Trump-touted COVID drug

U.S. drug inspectors uncovered serious quality control problems at an Eli Lilly and Co pharmaceutical plant that is ramping up to manufacture one of two promising COVID-19 drugs touted by President Trump as “a cure” for the disease, according to government documents and three sources familiar with the matter. The Lilly antibody therapy, which is experimental and not yet approved by regulators as safe and effective, is similar to a drug from Regeneron Pharmaceuticals that was given to the president during his bout with COVID-19. Trump, who credits the Regeneron drug with speeding his recovery, has called for both therapies to become available immediately on an emergency basis, raising expectations among some scientists and policy experts that the administration will imminently release an Emergency Use Authorization (EUA) for the drug. The president’s push is key to his efforts to convince voters he has an answer to the pandemic that has killed more than 215,000 Americans.

Originating Source

Top Trump News

Disclose foreign funding

The Trump administration is demanding that U.S. think tanks and academic institutions publicly disclose what funding they receive from foreign governments or otherwise risk losing access to State Department officials. The move, unveiled in a statement Tuesday by Secretary of State Mike Pompeo, comes amid growing bipartisan concern about the role outside governments, ranging from China to the United Arab Emirates, play in shaping academic and policy debates in the United States.

Originating Source

Tax returns

resident Donald Trump on Tuesday asked the U.S. Supreme Court to freeze a lower court’s ruling allowing a prosecutor in New York City to enforce a subpoena seeking Trump’s tax returns and other financial records for a criminal probe into him and his businesses. Trump’s personal lawyers sought to put on hold a federal judge’s decision that rejected the Republican president’s claims that the subpoena was overly broad and amounted to political harassment by Manhattan District Attorney Cyrus Vance, a Democrat. The Supreme Court already has ruled once in the dispute, rejecting in July Trump’s argument that he was immune from criminal probes as a sitting president. Trump’s team said a temporary stay would allow him “a fair chance to develop” his arguments against the subpoena.

Originating Source

Attacks Fauci

President Donald Trump attacked Dr. Anthony Fauci on Tuesday after the nation’s top infectious disease expert criticized the president’s reelection campaign for featuring him in a political advertisement. In a tweet Tuesday morning, Trump wrote that “Tony’s pitching arm is far more accurate than his prognostications,” referring to Fauci’s bungled first pitch on Major League Baseball’s Opening Day in July.

Originating Source

Economic Indicators

China Balance of Trade

China’s trade surplus narrowed to USD 37.0 billion in September 2020 from USD 39.1 billion in the same month the previous year, the smallest since March and far below market expectations of USD 58 billion. Both exports and imports hit all-time highs as the global demand continued to recover from the pandemic shock. The country’s trade surplus with the US narrowed to USD 30.75 billion in September from USD 34.24 billion in August. For the first nine months of the year, China’s trade surplus with the US totaled USD 218.57 billion.

Germany Consumer Price Index

The Consumer Price Index in Germany decreased 0.20 percent in September of 2020 over the previous month.

United Kingdom Unemployment Rate

The UK unemployment rate increased to 4.5 percent in the three months to August 2020 from 4.1 percent in the previous period and above market expectations of 4.3 percent. It was the highest jobless rate since the three months to May 2017, as the coronavirus pandemic hit the labour market. For June to August 2020, an estimated 1.52 million people were unemployed, up 209,000 on the year and up 138,000 on the quarter. The number of people temporarily away from work rose to almost 7.3 million people in April to June 2020 but has fallen to 6.4 million people in June to August 2020. There were also around 192,000 people away from work because of the pandemic and receiving no pay in June to August 2020, this has fallen from 419,000 in April to June 2020. Redundancies jumped by a record 114,000 on the quarter and by 113,000 on the year. The annual increase was the largest since April to June 2009, with the number of redundancies reaching its highest level since May to July 2009.

Germany Zew Economic Sentiment Index

The ZEW Indicator of Economic Sentiment for Germany dropped by 21.3 points from the previous month to 56.1 in October 2020, from the previous month’s over 20-year high and well below market expectations of 73. Investors voiced concerns about the recent sharp rise in the number of COVID-19 cases and the prospect of the UK leaving the EU without a trade deal. The current situation in the run-up to the presidential election in the US further fuels uncertainty. By contrast, the assessment of the economic situation in Germany improved again, and currently stands at -59.5 points, 6.7 points higher than in September.

Euro Area Zew Economic Sentiment Index

The ZEW Indicator of Economic Sentiment for the Euro Area dropped by 21.6 points from the prior month to 52.3 in October of 2020, the lowest since May. In October, 63.5 percent of the surveyed analysts expected a deterioration in economic activity, 25.3 percent expected no changes while 11.2 percent predicted an improvement. Meantime, the indicator of the current economic situation went up by 4.3 points to -76.6 while inflation expectations fell by 3.7 points to 27.3.

United States Consumer Price Index

Annual inflation rate in the US edged up to 1.4% in September of 2020 from 1.3% in August, in line with expectations and reaching the highest since March. Inflation has been rising consistently since hitting 0.1% in May, the lowest since September of 2015, due to the coronavirus crisis. Still, it remains well below 2.3% in February before the pandemic. Cost for used cars and trucks surged (10.3% vs 4% in August), prices for new vehicles (1% vs 0.7%), and medical care commodities (0.9% vs 0.8%) increased faster and energy cost dropped less (-7.7% vs -9%). On the other hand, inflation for food (3.9% vs 4.1%), shelter (2% vs 2.3%) and medical care commodities (0.9% vs 0.8%) slowed and the deflation deepened for apparel (-6% vs -5.9%) and transportation services (-5.1% vs -4%). On a monthly basis, consumer prices rose 0.2%, below 0.4% in August and also matching forecasts. Prices of used cars and trucks continued to rise sharply and made the largest upward contribution.

Economic Calendar

Wednesday

Australia Employment Change

Wednesday

China Industrial Production YoY

Thursday

U.S. Import Price Index MoM

Thursday

Australia HIA New Home Sales MoM

Friday

U.S. Retail Sales MoM

Friday

Australia Employment Change