Monex Morning Report – Wed 16 Dec 2020

OVERNIGHT HIGHLIGHTS

Dow ends sharply higher, tech and small caps hit fresh records on stimulus hopes; Asia stocks to climb as U.S. rallies before Fed

McConnell recognizes Biden as president-Elect after holdout; Pelosi and McConnell look to break stimulus stalemate with key meeting

Top Market News

McConnell recognizes Biden as president-Elect after holdout

Senate Majority Leader Mitch McConnell recognized Joe Biden as the winner of the U.S. election the day after the Electoral College confirmed his victory — a pivotal moment that further cements President Donald Trump’s defeat. “The Electoral College has spoken,” McConnell said on the Senate floor Tuesday. “So today I want to congratulate President-elect Joe Biden.” McConnell also discouraged Republican senators during a conference call from joining any move to object to the Electoral College outcome when Congress convenes Jan. 6 to formally count the results. Until Tuesday, McConnell had declined to acknowledge Biden’s win, saying the president was entitled to pursue his claims in court, even as Trump-backed cases were dismissed by numerous judges. The Supreme Court last week turned away an effort to toss out election results in states won by Biden. Biden told reporters he called McConnell Tuesday to “thank him for the congratulations” and told him there are issues where they can work together. “We’ve always been straight with one another and we agreed to get together sooner than later and I’m looking forward to working with him,” Biden said. Yet even as McConnell and other Republicans are acknowledging the election results, Trump still refuses to concede. He continued to tweet unfounded claims of voter fraud in the Nov. 3 election after McConnell spoke.

Originating Source

Pelosi and McConnell look to break stimulus stalemate with key meeting

Top lawmakers are vowing to keep Congress in session until they pass a coronavirus relief deal, the strongest signal yet that Senate Majority Leader Mitch McConnell and Speaker Nancy Pelosi may be on the verge of breaking the months-long stimulus stalemate. “We’re not leaving without a covid package,” McConnell told reporters on Tuesday afternoon. “No matter how long it takes.” McConnell’s comments came ahead of a key meeting in Pelosi’s office Tuesday afternoon that will likely determine whether the two leaders can reach agreement on a relief package that has eluded them for months, even as the pandemic tightens its grip on the country. Senate Minority Leader Chuck Schumer and House Minority Leader Kevin McCarthy are also expected to attend the meeting with Treasury Secretary Steven Mnuchin to join by phone. The meeting will be the first meaningful conversation between all four party leaders — known on Capitol Hill as the “four corners” — in months.The outreach comes with the window quickly closing to reach a much-needed agreement before lawmakers are scheduled to depart for the holidays at the end of this week. Congressional leaders are hoping to attach their coronavirus deal to a massive omnibus bill to extend government funding beyond the current Friday deadline.

Originating Source

China’s alleged ban on Australian coal imports a ‘lose-lose’ situation, Prime Minister says

Prime Minister Scott Morrison says the Government is still treating news that China has blocked Australian coal imports as “media speculation”, while adding that if it is true, it would be a bad outcome for both countries’ economies. The nationalistic state-owned tabloid The Global Times has appeared to confirm that Beijing has blocked Australian imports, a move that could cost the Australian economy billions of dollars a year. The report comes after months of uncertainty around the trade, with China unofficially banning Australian coal in October and last month blaming “environmental problems” for delays in processing imports. Mr Morrison said if China had introduced a ban it would be a breach of the World Trade Organization’s rules. “Until we are in a position to have that clarified, then we can only treat [the news] as media speculation in the Chinese state-owned media,” he said. “It would be obviously in breach of our own free trade agreement [with China] and so we would hope that is certainly not the case. That is why we’re seeking clarification on this … but obviously we take these issues very seriously.” The Prime Minister said while Australia had a diverse customer base for coal, losing the trade with China would be a multi-billion-dollar hit.

Originating Source

RBA Minutes: Sees lowering unemployment as national priority

The Reserve Bank of Australia has published the minutes of the December policy meeting. Minutes showed that its Board feared a protracted period of unemployment lay ahead and rectifying that would be a “national priority.” Australia’s labour market is recovering faster than expected thanks to an easing in coronavirus restrictions and a rebound in consumer spending, but it will still take years for unemployment to fall to desired levels, says the country’s central bank. The Board agreed “substantial” monetary and fiscal support would be needed for a considerable period and remained ready to add more stimulus if needed. It reiterated a commitment to keep rates at 0.1% for at least three years and to not tighten until inflation was sustainably back in a 2-3% target range. Prepared to do more if needed, focus on the bond-buying program. Will review size of program at future meetings and its effect on economy. Substantial policy support will be needed for a considerable period. RBA does not expect to raise the cash rate for at least three years. Will not raise rates until inflation sustainably in 2-3% target band. Ready to buy bonds in whatever amount needed to maintain 3-year yield target.

Originating Source

ECB eases COVID-19 crisis ban on dividends as outlook improves

The European Central Bank decided on Tuesday to let banks pay out part of their cumulated 2019-2020 profits to shareholders if they have enough capital, easing a blanket ban on dividends and buybacks set during the first wave of the coronavirus crisis. The euro zone’s top banking watchdog was still asking banks to be prudent so to preserve capital for a wave of unpaid loans that could reach 1.4 trillion euros ($1.70 trillion). But it is now making room for some small payouts from the healthiest banks, heeding calls from disgruntled bankers and investors as the economic outlook improves. “The ECB expects dividends and share buy-backs to remain below 15% of the cumulated profit for 2019-20 and not higher than 20 basis points of the Common Equity Tier 1 (CET1) ratio, whichever is lower,” an ECB statement said.

Originating Source

Fed joins global club of peers in climate change fight

The U.S. Federal Reserve said on Tuesday it has joined an international group of central banks focused on climate change risk, a signal that the Fed could move to incorporate the impacts of global warming into its regulatory writ. The Fed’s membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) comes after a yearlong collaboration, the Fed said. It had been the only major global central bank besides the Reserve Bank of India that was not a member of the NGFS. “As we develop our understanding of how best to assess the impact of climate change on the financial system, we look forward to continuing and deepening our discussions with our NGFS colleagues from around the world,” Fed Chair Jerome Powell said in a statement announcing the move.

Originating Source

Oil consumption will be ‘lower for longer than expected’, warns IEA

“Oil demand will rebound more slowly than initially anticipated in 2021 as the aviation sector takes longer to recover from the coronavirus hit, the International Energy Agency said on Tuesday.  Global consumption is expected to come in at 96.9m barrels a day next year, it said. While this is up from the 91.2m b/d forecast for 2020, it is about 200,000 b/d below what the Paris-based body predicted in November. In its monthly market report, the IEA said governments would probably keep in place border closures and travel restrictions until a vaccine was widely available, extending the disruption to the airline industry. “Demand is clearly going to be lower for longer than expected,” the IEA said. The body, which advises big economies on energy matters, added that while consumers might be keen to resume holidays once travel bans were lifted, older people would remain cautious. Others affected by the financial impact of the pandemic will have less to spend on tickets, it predicted, while business travel will probably remain muted as companies keep a tight rein on costs.  ”

Originating Source

Moderna vaccine found safe, effective before key FDA review

Moderna Inc.’s vaccine is safe and effective for preventing Covid-19 in people ages 18 and older, U.S. regulators said, clearing the way for a second shot to quickly gain emergency authorization and add to the country’s sprawling immunization effort. The Food and Drug Administration’s staff said in a report on Tuesday that the experimental vaccine is 94.1% effective at preventing symptomatic Covid-19, confirming earlier results released by the company. The report was posted online ahead of a meeting Thursday of agency advisers who will vote whether to recommend authorization before a final FDA decision. The agency doesn’t have to follow the advice of the independent vaccine experts, though it often agrees with its advisory panels. Last week, the FDA authorized a similar vaccine from Pfizer Inc. and BioNTech SE after an advisory panel voted 17-4, with one abstention, to support its authorization. The FDA got a much deeper look at Moderna’s clinical-trial data than the numbers previously released to the public by the company. The agency found the shot was similarly effective across racial and ethnic groups and those with underlying medical conditions. It was 86.4% effective in people age 65 and over, according to the report, and 95.6% effective in those 18 to 65. The most common systemic side effects were fatigue and headache.

Originating Source

Top Trump News

McConnell urged Republican senators not to object when Congress ratifies presidential votes

U.S. Senate Republican leader Mitch McConnell and his top deputies pressed other Senate Republicans on Tuesday not to join in with any House Republicans who may object to the presidential election results when Congress meets on Jan. 6 to ratify the decision, a source familiar with the remarks said.

Originating Source

After the White House, Trump faces uncertain future and legal threats

President Donald Trump is leaving the White House but he is not going to fade away quietly. After failing in his legal efforts to overturn his Nov. 3 election loss to Democrat Joe Biden, who on Monday won the state-by-state Electoral College vote that formally determines the U.S. presidency, Trump will re-enter private life on Jan. 20 with an array of opportunities. They include another White House run in 2024 or new pursuits in media. But they are clouded by potential legal jeopardy and business challenges. Only one thing is certain: Trump’s thirst for the spotlight will ensure he does not follow in the footsteps of past presidents like George W. Bush, who quietly took up painting, or Jimmy Carter and his global activism.

Originating Source

Hillary Clinton calls for Electoral College to be abolished

In congratulating president-elect Joe Biden on Monday, former Democratic presidential nominee Hillary Clinton publicly called for the Electoral College to be abolished and advocated for the presidential election to be decided by the popular vote. “I believe we should abolish the Electoral College and select our president by the winner of the popular vote, same as every other office,” Clinton tweeted Monday. “But while it still exists, I was proud to cast my vote in New York for Joe Biden and Kamala Harris.”

Originating Source

Economic Indicators

China Fixed Asset Investment

China’s fixed-asset investment increased 2.6 percent year-on-year to CNY 49.96 trillion in the first eleven months of 2020, compared to a 1.8 percent growth in January-October and matching market consensus, as the economy continued to recover from the pandemic crisis. Public investment rose at a faster 5.6 percent (vs 4.9 percent in January-October) while private investment were up 0.2 percent, rebounding from a 0.7 fall in January – October. Investment in the primary industry expanded 18.2 percent (vs 17.3 percent), and that in the tertiary industry advanced 3.5 percent (vs 3.0 percent) boosted by transport, storage & postal industry, education, health and social work. In addition, investment in the secondary industry declined much less (-0.7 percent vs -2.1 percent).

China Industrial Production

China’s industrial production increased by 7 percent year-on-year in November 2020, the most since March of 2019, and in line with market expectations, as activity continued to recover from the COVID-19 shock. Production rose for manufacturing (7.7 percent vs 7.5 percent in October), mining (2.0 percent vs 3.5 percent) and utilities (5.4 percent vs 4.0 percent). Among major industries, production expanded for chemicals (9.2 percent vs 8.8 percent), communication (9.3 percent vs 5 percent), electrical machinery (18 percent vs 17.6 percent), general equipment (10.2 percent vs 13.1 percent), ferrous metals (9.6 percent vs 11.2 percent), non-metal minerals (9.6 percent vs 9.3 percent), power equipment (5.1 percent vs 3.6 percent), and textiles (6.5 percent vs 9.5 percent). For the first eleven months of the year, industrial output rose by 2.3 percent.

United Kingdom Unemployment Rate

The unemployment rate in the UK increased to 4.9 percent in the three months to October of 2020, compared to 4.8 percent in the previous period and below forecasts of 5.1 percent. It is the highest jobless rate since the three months to August 2016, as the coronavirus continued to hit the labour market. The redundancies reached a record high of 370,000, and the employment rate continued to fall to 75.2 percent. At the same time, total hours worked had a record increase from the low levels in the previous quarter as the number of coronavirus lockdown measures were eased early in August and September. On a positive note, the number of people away from work because of the pandemic and receiving no pay has fallen since its peak in April and May 2020.

United States NY Empire State Manufacturing Index

The New York Empire State Manufacturing Index fell to 4.9 in December of 2020, the lowest since August, from 6.3 in November and below forecasts of 6.9. New orders increased marginally (3.4), and shipments were modestly higher (12.1). Inventories continued to move lower (-4.3), and delivery times edged up (4.3). Employment posted its strongest gain in months (14.2), and the average workweek lengthened somewhat (4.8). Input prices increased at the fastest pace in two years (37.1), while selling prices increased at about the same pace as last month (10). Looking ahead, firms remained optimistic that conditions would improve over the next six months (36.3).

United States Industrial Production

Industrial Production in the United States decreased 5.50 percent year-on-year in November of 2020. It is the 15th consecutive month of falling industrial output, amid the coronavirus crisis. Manufacturing output fell 3.7 percent, mining went down 12.5 percent and utilities 8.9 percent.

United States API Crude Oil Stock Change

API Crude Oil Stock Change in the United States increased to 1.97 BBL/1Million in December 11 from 1.14 BBL/1Million in the previous week.

Economic Calendar

Wednesday

DE German Manufacturing PMI (Dec)  

Wednesday

UK CPI

Thursday

US Core Retail Sales (MoM) (Nov)

Thursday

US Fed Interest Rate Decision

Thursday

US Crude Oil Inventories

Thursday

AU Employment Change

Friday

US Initial Jobless Claims