Monex Morning Report – Wed 18 Nov 2020

OVERNIGHT HIGHLIGHTS

S&P 500, Dow fall a day after closing at records as retail sales shows slowest growth in six months; Asian stocks eye muted start

Powell says solid expansion likely with virus surge posing risks; Pelosi and Schumer ask McConnell to restart coronavirus stimulus talks as cases surge

Trump Fed nominee Shelton blocked in Senate, for now

The U.S. Senate on Tuesday blocked President Donald Trump’s controversial nomination of Judy Shelton to the Federal Reserve’s board, though a White House spokesman expressed confidence she would eventually be confirmed. Shelton, a former economic adviser to Trump, has come under fire for inconsistent, controversial views, including a past embrace of the gold standard and a shifting stance on interest rates as control of the White House passed from Democrat Barack Obama to Trump. Critics also say she is too partisan for the job and would imperil the Fed’s independence, although Shelton told lawmakers in her confirmation hearing that “no one tells me what to do.” Supporters praise an out-of-the-box thinker who they say can shake up an institution they view as being dominated by “groupthink” because of its consensus-driving decision-making style.

Originating Source

Powell says solid expansion likely with virus surge posing risks

Federal Reserve Chair Jerome Powell said the U.S. economic recovery is likely to continue at a “solid” pace yet risks losing momentum as the virus surges, adding that it was too soon to close the Fed’s emergency lending facilities. Powell called rising virus infection rates a “significant” downside risk “especially in the near term,” during an online event Tuesday hosted by the Bay Area Council. “The concern is that people will lose confidence in efforts to control the pandemic and they will pull back from activities that they think might put them at risk of infection, and there are some signs of that already.” While U.S. payrolls have recovered for six consecutive months, a resurgence in infections threatens to curtail activity and slow the recovery with millions of Americans remaining out of work. Still, stocks hit record highs this week on the promise of vaccines against the coronavirus. Powell said recent progress on finding a vaccine was good news in the medium term, but the U.S. economy still has a “long way to go” before it fully recovers from the pandemic. “The Fed will stay here and be strongly committed to using all our tools” to support the economy, Powell said. “The next few months may be very challenging.” Fed officials have cut the benchmark lending rate to nearly zero and are currently buying $120 billion of Treasury and agency mortgage-backed securities a month to keep longer-run borrowing costs low. They have also pledged to keep providing policy support to the economy until inflation measures achieve rates that are consistent with an average of 2% over time.

Originating Source

Fed’s Bostic: U.S. faces short-run problems, medium-term hopes on vaccine

Weak October retail sales point to short-term risks to the U.S. economy as coronavirus infections surge and families “get to the edge” of cash reserves set aside from now-expired government aid programs, Atlanta Fed President Raphael Bostic said on Tuesday. “We have short-term and immediate-term concerns with the spike in the virus and what that is going to do in terms of businesses and the things that they are able to produce, in terms of consumers in terms of their willingness to go out and buy things. … That is paired with some medium-term positive signs” that a possible vaccine could reinvigorate the economy next year, Bostic said in comments to CNBC. “The vaccine is definitely positive news and it will definitely lead to a pretty robust recovery once it gets into the population deep enough,” Bostic said. But as the Fed’s Dec. 15-16 meeting approaches, “we are going to be paying really close attention to the numbers moving forward to see whether this weakness in retail sales translates into something more deep.” Some investors expect the Fed at that meeting to change its bond buying program to provide more support to the economy in response to the renewed outbreak.

Originating Source

BoE’s Ramsden sees possible plus for economy from vaccine news

Bank of England Deputy Governor Dave Ramsden said on Tuesday that positive news about COVID-19 vaccines could help to reduce the risks facing Britain’s economy but the central bank was unlikely to revise up its forecasts as a result. Announcements over the last two weeks that two vaccines were effective in trials have raised hope that COVID-19, which has infected 54 million people worldwide and killed 1.3 million, will be largely defeated over the coming year. “Assuming the recent positive developments do translate into delivery of vaccinations, then they could … bolster resilience and mitigate some of the risks of long-term scarring,” Ramsden said in an online speech hosted by the University of Nottingham.

Originating Source

“Christine Lagarde says covid vaccine ‘no game changer’ for ECB stimulus plans ”

European Central Bank President Christine Lagarde doesn’t see the news that a coronavirus vaccine is near as fundamentally altering the institution’s plan to add monetary stimulus. Lagarde said in an interview at Bloomberg’s New Economy Forum on Tuesday that the central bank is focused on stopping the current economic slump from worsening, and that it always assumed a medical solution would be available in 2021. “I’m not sure that it’s going to be a major game changer for our forecasts,” she told Francine Lacqua. “Before we had the news about a vaccine, we had negative news about the second wave and containment measures that affected one country after another.” New lockdowns have put the euro zone on the verge of another contraction as winter starts. Lagarde reiterated that her institution will “recalibrate” its stimulus in December, widely understood as meaning it’ll add more monetary support for the economy. The president also signaled that policy makers expect to focus on their 1.35 trillion-euro ($1.6 trillion) emergency bond-buying program and their long-term bank loans as the main tools. Investors see an interest-rate cut as unlikely.

Originating Source

Pelosi and Schumer ask McConnell to restart coronavirus stimulus talks as cases surge

ongress appeared nowhere close to passing another coronavirus relief bill Tuesday as infections surge across the country and new public health restrictions threaten businesses and jobs. Lawmakers have not passed new aid in months during the health and economic crisis. As the virus again overwhelms hospitals and forces state and local officials to restrict economic activity, Republicans and Democrats have not budged from their positions on stimulus. Senate Minority Leader Chuck Schumer and House Speaker Nancy Pelosi have not spoken with Senate Majority Leader Mitch McConnell about another relief bill since the Nov. 3 election, congressional leaders said this week. They appear stuck in their pre-election stances, when Democrats pushed for a package that costs at least $2.2 trillion and Republicans sought a roughly $500 billion bill. In a letter to McConnell on Tuesday, Schumer, D-N.Y., and Pelosi, D-Calif., asked the Kentucky Republican to “join us at the negotiating table this week so that we can work towards a bipartisan, bicameral COVID-19 relief agreement to crush the virus and save American lives.” As they called for money for schools, small businesses, state and local governments and unemployment insurance, the Democrats wrote that the “pandemic and economic recession will not end without our help.” Asked whether any discussions would take place this week, a McConnell spokesman directed CNBC to comments the senator made earlier Tuesday.

Originating Source

RBA Minutes: Ready to provide yet more policy stimulus

The Reserve Bank of Australia’s Minutes has sown that the central bank is ready to provide yet more policy stimulus if needed after cutting rates to record lows, a pledge that may be tested given the latest outbreak of coronavirus in the country. ”Minutes of the Reserve Bank of Australia’s (RBA) Nov. 3 policy meeting released on Tuesday showed the bank’s Board felt taking interest rates negative was not “sensible” and any further action would involve increased bond purchases,” Reuters reported. ”The Board had decided to cut its main cash rate by 15 basis points to just 0.1% and launch a new bond buying program that would see the bank scoop up A$100 billion of longer-dated debt in six months.” “The focus over the period ahead will be the government bond purchase program,” the minutes showed. “The Board is prepared to do more if necessary.” Reuters reported that much depended on how the country fared in containing the coronavirus, with its relative success so far leading to a better outlook than feared a few months earlier. ”However, the November policy meeting came before a fresh outbreak of the virus in the state of South Australia which threatened to chill consumer sentiment and spending.” RBA Governor Philip Lowe on Monday emphasised that Australia had to lower its rates in line with other developed economies or risk an unwelcome appreciation in the local dollar.

Originating Source

China will promote economic growth to a ‘reasonable’ range: Premier Li

China will promote economic growth to a “reasonable” range while pursuing higher quality development, Premier Li Keqiang was quoted as saying on Tuesday by state radio. Li, who did not give specific growth targets, was also quoted as saying that the government would continue to implement policies to support sectors in difficulties in this time of the coronavirus pandemic. China’s factory output rose faster than expected in October and retail sales sped up, as the recovery in the world’s second-largest economy from its COVID-19 slump gathered momentum. The government will “make an overall consideration of macro policies for the next phase, and enhance their effectiveness and sustainability”, Li said. “Currently, the domestic and international situation remains complex and severe,” Li was quoted as saying.

Originating Source

Top Trump News

McConnell says there will be ‘orderly transfer’ of power

Senate Majority Leader Mitch McConnell on Tuesday said there will be an “orderly transfer” between administrations Jan. 20, though he did not mention President-elect Joe Biden or President Donald Trump, who is refusing to concede, by name. McConnell, R-Ky., has not yet publicly recognized Biden’s victory, but his comments Tuesday following a Senate Republican luncheon signaled he is prepared for a Biden presidency. Asked about the General Services Administration’s refusal to ascertain Biden’s victory, which triggers important components of the transition, McConnell did not push for the Trump administration to begin that process but said “we’re going to have an orderly transfer from this administration to the next one.” “What we all say about it is frankly irrelevant,” he said, adding, “All of it will happen right on time, and we will swear in the next administration on January 20th.” Earlier, McConnell described the next steps in the electoral process, pointing to the upcoming certification of results in key swing states.

Originating Source

Biden calls for Congress to pass another coronavirus relief package

As coronavirus outbreaks continue to surge across the U.S., President-elect Joe Biden called on Congress to put its differences aside and provide “immediate relief” for millions of struggling Americans. “For millions of Americans who’ve lost hours and wages, or have lost jobs, we can deliver immediate relief, and it need be done quickly,” Biden said on Monday, in his first speech on the economy as president-elect. “Congress should come together and pass a Covid relief package.” Biden said he supports a stimulus package like the HEROES Act, the $3 trillion relief package passed by House Democrats in May, that included provisions for enhanced unemployment benefits, a second stimulus check, aid for state and local governments and housing relief. He also noted that sick leave and more money for child care are economic imperatives. So far, Senate Republicans have not agreed to a bill with such a large price tag. They introduced their own $500 billion “skinny” bill in September, that did not include stimulus checks or enhanced unemployment benefits. The two sides have been negotiating for months but have been unable to come to an agreement. “The refusal of Democrats and Republicans to cooperate with one another is not due to some mysterious force beyond our control,” Biden said. “It’s a conscious decision. It’s a choice that we make.”

Originating Source

Biden names top White House aides

President-elect Joe Biden on Tuesday named several top advisers from his election campaign and a Democratic congressman as senior White House aides, sticking with a tight inner circle as he transitions to the White House. Biden has been preparing to take over the presidency on Jan. 20, meeting with advisers and mapping out his policy plans, despite President Donald Trump’s increasingly tenuous effort to reverse the outcome of the Nov. 3 election. Biden presidential campaign manager Jen O’Malley Dillon, the first woman to lead a winning Democratic presidential bid, will be named a deputy chief of staff, Biden said in a statement released by his transition team. Longtime close advisers Mike Donilon and Steve Ricchetti will join the White House as senior advisor to the president and counselor to the president, respectively. Dana Remus, the campaign’s top lawyer, will be counsel to the president. Another close adviser, Ron Klain, was already named chief of staff.

Originating Source

Economic Indicators

U.S. Retail Sales

Retail sales in the US edged up 0.3% mom in October, following a downwardly revised 1.6% gain in September and below forecasts of a 0.5% increase. Sales at motor vehicles dealers (0.4% vs 2.9%) and gasoline stations (0.4% vs 2%) rose at a slower pace while sales declined at furniture stores (-0.4% vs 0.6%); food and beverages (-0.2% vs 0.2%); health and personal care (-0.1% vs 1.3%); clothing (-0.2% vs 13.6%); sporting goods, hobby, musical instrument and book (-4.2% vs 8%); general merchandise stores (-1.1% vs 1.7%); miscellaneous retailers (-0.9% vs 1.1%); and food services and drinking places (-0.1% vs 2.4%). In contrast, sales rebounded at electronics and appliances (1.2% vs -1.1%) and nonstore retailers (3.1% vs -1.7) and rose faster at building material dealers (0.9% vs 0.4%). Retail sales could fall further in the coming months amid renewed restrictions to curb the spread of the coronavirus and as a government programs providing benefits to unemployed are set to expire.

United States Export Prices

Export prices in the US went up 0.2 percent from a month earlier in October 2020, following a 0.6 percent rise in September and below market expectations of 0.3 percent. It was the fifth straight monthly rise in export prices, driven by higher agricultural export prices. Cost of agricultural export increased 3.4 percent, the largest rise since December 2018, due to higher prices for vegetables, corn, soybeans, and dairy products. Prices for nonagricultural exports were unchanged in October, after rising in each of the 4 previous months, as lower prices for nonagricultural industrial supplies and materials and capital goods offset an increase in automotive vehicles prices. Year-on-year, export prices dropped by 1.6 percent.

United States Import Prices

Prices for US imports fell 0.1 percent from a month earlier in October 2020, the first monthly decline for the index since a 2.6 percent drop in April and compared with market expectations of a 0.2 percent rise. Import fuel prices decreased 1.9 percent (vs -5.2 percent in September) due to lower prices for both natural gas and petroleum; while cost for nonfuel imports increased 0.1 percent (vs 0.5 percent in September) led by higher prices for nonfuel industrial supplies and materials and foods, feeds, and beverages which more than offset falling prices for consumer goods and automotive vehicles. Year-on-year, import prices decreased 1.0 percent in October.

United States Industrial Production MoM

Industrial production rose 1.1 percent from a month earlier in October 2020, rebounding from a revised 0.4 percent drop in September and slightly beating market expectations of 1.0 percent. The index has recovered much of its 16.5 percent decline from February to April, but output in October was still 5.6 percent lower than its pre-pandemic level. Manufacturing output increased 1.0 percent and the output of utilities rose 3.9 percent, while the output at mines declined 0.6 percent. Total industrial production was 5.3 percent lower in October than it was a year earlier.

Economic Calendar

Wednesday

UK CPI (OCT)

Wednesday

EU CPI (OCT)

Thursday

AU Employment Change

Thursday

US Building Permits (Oct)

Thursday

US Crude Oil Inventories

Friday

US Initial Jobless Claims

Friday

“US Existing Home Sales (Oct) ”