Monex Morning Report – Wed 16 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow erases early climb, S&P500 notches third straight gain as tech stocks extend rebound from last week’s rout; Asia stocks seen steady ahead of Fed

RBA calls on governments to spend big as unemployment tipped to rise; U.S. violated trade rules with tariffs on China, WTO says

Top Market News

U.S. violated trade rules with tariffs on China, WTO says

The World Trade Organization undercut the main justification for President Donald Trump’s trade war against China, saying that American tariffs on Chinese goods violate international rules. A panel of three WTO trade experts on Tuesday said the U.S. broke global regulations when it imposed tariffs on Chinese goods in 2018. Washington has imposed levies on $400 billion in Chinese exports. The panel said in its report “that the United States had not met its burden of demonstrating that the measures are provisionally justified.” While the ruling bolsters Beijing’s claims, Washington can effectively veto the decision by lodging an appeal at any point in the next 60 days. That’s because the Trump administration has already paralyzed the WTO’s appellate body, a tactic that has rendered toothless the world’s foremost arbiter of trade.

Originating Source

U.S. stands down on 10% aluminum tariffs imposed on Canada

The United States has suddenly called a tariff truce with Canada, lifting its 10 per cent aluminum levy Tuesday just hours before Ottawa was to unleash a suite of countermeasures. The tariffs on Canadian aluminum will be lifted retroactive to Sept. 1 because Canadian exports are expected to “normalize” over the remainder of the year, the U.S. trade representative’s office said in a statement.The news came as Deputy Prime Minister Chrystia Freeland and International Trade Minister Mary Ng prepared to unveil a list of U.S. aluminum products and manufactured goods Canada had singled out for reciprocal treatment later Tuesday. Canada to unveil retaliatory tariffs on range of U.S. goods, Trudeau says

Originating Source

China extends tariff exemptions for 16 U.S. products

China’s finance ministry said on Tuesday it will extend existing tariff exemptions for 16 products from the United States including lubricants, whey and fish meal by an additional year. The products received exemptions from retaliatory tariffs imposed by China on U.S. goods as counter measures to U.S. Section 301 action in 2019. The extension will last through Sept. 16, 2021, the ministry said.

Originating Source

RBA calls on governments to spend big as unemployment tipped to rise

The Reserve Bank has once again urged state and federal governments to take advantage of record-low interest rates and spend big to rebuild the economy. In the publicly released minutes of its September board meeting, the Reserve Bank board said the Australian and state governments were well placed to support the recovery as debt levels were low “relative to the size of the economy” and borrowing costs were extremely modest. “Members noted that public sector balance sheets in Australia were strong, which allowed for the provision of continued support,” the minutes read. “They considered it likely that fiscal and monetary support would be required for some time given the outlook for the economy and the labour market.” The board members described the recession as the biggest economic shock since the 1930s, but noted the downturn was not as severe as earlier expected and “a recovery was under way in most of Australia”.

Originating Source

Pelosi threatens to keep House in session until fiscal stimulus deal done

U.S. House Speaker Nancy Pelosi said Tuesday she may keep the chamber in session, and House lawmakers in Washington, until another fiscal stimulus deal is done, raising the ante on the issue. “We are committed to staying here until we have an agreement, an agreement that meets the needs of the American people. We’re optimistic that the White House at least will understand that we have to do some things,” Pelosi said in an appearance on CNBC. Later, though, Pelosi’s top lieutenant, Democratic Whip Steny Hoyer, said House members may simply be on call to return to Washington to vote on a bill, not necessarily staying in the capital. That was the case in August, when House lawmakers returned to their districts but were called upon to return to Washington to vote on a postal bill.

Originating Source

Gains in U.S. factory production slowed in August, Fed says

U.S. manufacturing production rose in August by less than forecast, signaling a more moderate pace of progress for factories as the economy recovers from pandemic-related shutdowns earlier this year. Output at factories increased 1% from the prior month after an upwardly revised 3.9% gain in July, Federal Reserve data showed Tuesday. The median projection in a Bloomberg survey of economists was for a 1.3% rise. Manufacturing capacity utilization increased to 70.2%. Total industrial production, which also includes mining and utility output, rose 0.4% in August after an upwardly revised 3.5% advance a month earlier. Mining was restrained by a temporary decline in oil and gas extraction related to tropical storms along the Gulf Coast.

Originating Source

Oil demand set for slow recovery from virus: IEA

With novel coronavirus cases surging in many parts of the world and more people working from home, the recovery in global oil demand is likely to be slow in the coming months, the IEA said on Tuesday as it lowered its forecasts. Oil demand quickly recovered part of the lost ground from April when much of the world was in lockdown to slow the spread of the virus that causes the Covid-19 illness. But the International Energy Agency said in its latest monthly report it expected the recovery in demand “to decelerate markedly in the second half of 2020, with most of the easy gains already achieved”. “The economic slowdown will take months to reverse completely, while certain sectors such as aviation are unlikely to return to their pre-pandemic levels of consumption even next year,” it said. It also warned that a potential second wave of the virus could propel governments impose renewed restrictions on movement, while the uptake of remote working is also dampening demand for fuel.

Originating Source

ECB not entirely happy with the results of its policy, Panetta says

The European Central Bank must remain on alert about the state of the euro zone’s pandemic-struck economy and the euro’s exchange rate as the results of its stimulus measures are “not fully satisfactory yet”, ECB board member Fabio Panetta said on Tuesday. “The results achieved by our monetary policy measures are remarkable, but they are not fully satisfactory yet, as price pressures and inflation expectations are expected to remain subdued,” Panetta said. “In light of the current outlook for inflation, we need to remain vigilant and carefully assess incoming information, including exchange rate developments.”

Originating Source

Top Trump News

Oracle-TikTok deal

Approval of Oracle’s deal to become a “trusted technology provider” for ByteDance’s TikTok will be announced on Tuesday afternoon, CNBC’s Jim Cramer reported. A source familiar with the matter later confirmed to CNBC’s Eamon Javers that a decision could come Tuesday. Oracle confirmed Monday it had struck a deal with the popular video-sharing app’s Chinese parent company. Oracle had been a dark horse in the competition over TikTok, with Microsoft emerging as the first known bidder with Walmart later joining its offer. But ByteDance rejected Microsoft’s bid to buy TikTok’s U.S. assets, Microsoft confirmed Sunday. Oracle’s plans to become a “trusted technology provider” for TikTok falls short of President Donald Trump’s demand for a full acquisition of the company’s U.S. business.

Originating Source

Vaccine

Trump said a vaccine could be ready to distribute in as little as four to eight weeks, a highly condensed timeline for approval and distribution that many experts have questioned. “We’re going to have a vaccine in a matter of weeks, it could be four weeks it could be eight weeks…will it be before the Election, it could be…we’ll start delivering it immediately upon getting it,” he said. The aggressive timetable has heightened the debate surrounding the deployment of a potential COVID-19 cure, which is perceived as crucial to restarting public life and ending the threat of lockdowns.

Originating Source

Dawn of new Middle East

US President Donald Trump has hailed the “dawn of a new Middle East”, amid Israel’s landmark deals with the United Arab Emirates (UAE) and Bahrain. The three countries hailed the deals as historic, as did Mr Trump, whose administration helped broker them. “After decades of division and conflict we mark the dawn of a new Middle East,” Mr Trump told a crowd of hundreds gathered at the White House on Tuesday.

Originating Source

Economic Indicators

Australia House Price Index (HPI) QoQ

The house price index in Australia dropped by 1.8 percent quarter-on-quarter in the three months to June of 2020, after rising 1.6 percent in the previous period and compared to market expectations of a 1 percent fall. This was the sharpest decrease in residential property prices in over a year amid the coronavirus crisis. Sydney led the declines (-2.2 percent vs 1.9 percent), followed by Melbourne (-2.3 percent vs 2.1 percent), Brisbane (-0.9 percent vs 0.6 percent), Adelaide (-0.8 percent vs 0.4 percent), Perth (-0.7 percent vs 0.6 percent), Hobart (-0.4 percent vs 2.4 percent), and Darwin (-1.4 percent vs 0.7 percent). In contrast, property prices rose further in Canberra (0.8 percent vs 0.2 percent). On an annual basis, prices increased 6.2 percent, after a 7.4 percent gain in the March quarter, with rises in all capital cities except Perth and Darwin.

China Fixed Asset Investment YoY

China’s fixed-asset investment declined 0.3 percent year-on-year to CNY 37.88 trillion in the first eight months of 2020, compared to a 1.6 percent drop in January-July and better than market consensus of a 0.4 percent decrease, after the economy began to open up and authorities loosened coronavirus-related restriction measures. Private investment decreased 2.8 percent (vs -5.7 percent in January-July) while public investment rose at a softer 3.2 percent (vs 3.8 percent). Investment in the primary industry grew 11.5 percent (vs 7.7 percent), while that in the secondary industry went down 4.8 percent (vs -7.4 percent) on the back of manufacturing. Investment in the tertiary industry advanced more (1.4 percent vs 0.8 percent) due to transport, storage & postal industry; education, health and social work; and recreation & culture activities.

China Industrial Production Year to Date (YTD) YoY

China’s industrial production rose by 5.6 percent from a year earlier in August 2020, the most since December 2019 and above market expectations of 5.1 percent, as the economy recovers from the COVID-19 shock. Output expanded for manufacturing (6 percent, the same as in July), electricity (5.8 percent vs 1.7 percent) and mining (1.6 percent vs -2.6 percent). Among major industries, production grew for machinery (15.1 percent vs 15.6 percent), communication (8.7 percent vs 11.8 percent), general equipment (10.9 percent vs 9.6 percent), ferrous metals (9.2 percent vs 7.9 percent), chemicals (6.9 percent vs 4.7 percent), non-metal minerals (5 percent vs 3.1 percent), power equipment (5.9 percent vs 1.7 percent), and textiles (3.3 percent vs 0.7 percent). Meantime, transport equipment output fell less (-0.3 percent vs -1.4 percent). For the first eight months of the year, industrial output increased by 0.4 percent.

U.K. Claimant Count Change

The number of people claiming for unemployment benefits in the United Kingdom increased by 73.7 thousand to 2.7 million in August 2020, following a downwardly revised 69.9 thousand rise in the previous month and below market expectations of a 100 thousand gain. It was also an increase of 120.8 percent since March, or 1.5 million, as the coronavirus pandemic hit the labor market.

U.S. Industrial Production MoM

Total industrial production in the United States rose 0.4 percent in August 2020, missing market consensus of a 1 percent growth. It was the fourth consecutive monthly increase in industrial output, although it remained 7.3 percent below its pre-pandemic February level. Manufacturing production advanced 1 percent, with the gains for most industries having gradually slowed since June. Durable manufacturing rose 0.7 percent, as a decline in the output of motor vehicles and parts was more than offset by broad-based increases for other durable goods industries. Nondurables output rose 1.2 percent, with gains of more than 3 percent for apparel and leather and for plastics and rubber products. By contrast, mining production fell 2.5 percent, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas drilling and extraction. The output of utilities moved down 0.4 percent, with small decreases for both electric and gas utilities.

U.S. API Weekly Crude Oil Stock

Stocks of crude oil in the United States slumped by 9.5 million barrels in the week ended September 11th of 2020, following a 6.8 million drop in the previous week and compared with analysts’ expectations for a build of 2.1 million barrels, data from the American Petroleum Institute showed. It was the biggest fall in oil inventories since the week ended August 23rd, 2019.

Germany Zew Economic Sentiment Index

The ZEW Indicator of Economic Sentiment for Germany rose by 5.9 points from the previous month to 77.4 in September 2020, the highest since May 2000 and well above market expectations of 69.8, signalling expectations of a noticeable recovery of Europe’s largest economy. Stalled Brexit talks and rising COVID-19 cases could not dampen the positive mood, but the negative outlook for the banking sector revealed fears of a rising number of loan defaults in the coming six months. The assessment of the economic situation in Germany also improved, with the corresponding indicator increasing by 15.1 points to -66.2.

Economic Calendar

Wednesday

UK CPI (YoY) (Aug)

Wednesday

“U.S. Retail Sales (MoM) (Aug) ”

Thursday

U.S. Crude Oil Inventories

Thursday

“U.S. Fed Interest Rate Decision ”

Thursday

New Zealand Gross Domestic Product

Thursday

Bank of Japan Monetary Policy Statement

Friday

U.K. Retail Sales MoM