Monex Morning Report – Wed 2 Sep 2020

OVERNIGHT HIGHLIGHTS

Nasdaq, S&P500 close at record highs as big tech and working-from-home shares drive gains; Asia shares to open mixed after fresh U.S. record

RBA September meeting keeps rates on hold as GDP looms; U.S. economy needs more Fed stimulus ‘in coming months,’ Brainard says

Top Market News

RBA holds steady ahead of grim GDP figures

The Reserve Bank of Australia (RBA) has kept the official cash rate at its record low 0.25 per cent in its monthly board meeting. It comes ahead of Wednesday’s national accounts figures for the June quarter, with economists predicting a 6 per cent contraction in Gross Domestic Product (GDP). That would mark the largest contraction since the Australian Bureau of Statistics began measuring in the 1950s, and reflect the beginning of the first recession in nearly three decades. The RBA first cut interest rates to their record low in March, with governor Philip Lowe saying the bank is unlikely to take rates any lower.

Originating Source

U.S. economy needs more Fed stimulus ‘in coming months,’ Brainard says

The Trump administration and Senate Republicans have been in regular contact over possible coronavirus relief measures and the Senate’s top Republican will “hopefully” unveil a new bill next week, Treasury Secretary Steven Mnuchin said on Monday. Asked about the collapse of talks with Democrats over aid legislation, Mnuchin told Fox Business Network that he and White House Chief of Staff Mark Meadows have been speaking regularly with Senate Republican leader Mitch McConnell. “Hopefully Mitch will enter new legislation next week,” Mnuchin said. No negotiations on another round of coronavirus aid have taken place since early August, when talks collapsed as Congressional Democrats and the Republican Trump administration could not bridge a gap of more than $1 trillion between their proposed relief packages for small businesses, state and local governments, school districts and health care providers.

Originating Source

Mnuchin says he hopes McConnell will propose new relief bill next week

Treasury Secretary Steven Mnuchin told Fox News Monday that he is hopeful Senate Majority Leader Mitch McConnell, R-Kentucky, will propose a new plan for the next COVID-19 stimulus relief package. “Hopefully Mitch will enter new legislation next week,” Mnuchin said in an interview on Fox Business Network. Talks over another stimulus plan stalled last month just before members of Congress left Washington for the August recess. Democrats have proposed a more than $3 trillion plan for COVID-19 relief. The GOP plan called for $1.3 trillion in relief that included money for unemployment benefits, a stimulus check and liability protection for businesses.

Originating Source

UNT cancels visa program for Chinese researchers

Fifteen Chinese researchers must leave the country after the University of North Texas cut ties with the organization that funds them. All researchers were in the country and working with UNT based on funding from the Chinese Scholarship Council. The council provides scholarships to people wanting to attend Chinese universities, as well as Chinese researchers who want to conduct research internationally. Funding is provided through the Chinese government as well as Chinese embassies around the world, among other sources. It was not clear Monday afternoon if any other American universities had cut ties with the group.

Originating Source

ECB’s De Guindos sees a strong rebound of euro zone economy in third-quarter

The euro zone economy has experienced a strong recovery in the third quarter even though the most recent incoming data in August have been less robust, European Central Bank Vice President Luis de Guindos said on Tuesday. “In the third quarter there has been a significant increase in economic activity. July’s data were very strong and in August there has been some loss of intensity,” De Guindos said at a financial event. The ECB’s Vice President also said he expected the incoming inflation data of the bloc to continue falling in the short term though he expects “some kind” of rebound in 2021.

Originating Source

China suspends CBH Grain barley imports

China has suspended barley imports from Australian firm CBH Grain Pty Ltd, according to a notice released by the country’s General Administration of Customs. The decision was made after quarantine pests were found in barley exports from Australia’s top grains exporter multiple times, the administration said on its official WeChat account on Tuesday. The move came after China levied hefty tariffs on Australian barley cargoes and launched probes into Australian wine imports, amid worsening relations between Beijing and Canberra. China in May imposed anti-dumping and anti-subsidy duties totaling 80.5 per cent on Australian barley imports, effectively halting a billion-dollar trade. Beijing also retracted CBH’s registration qualification for barley exports to China, according to the government notice. Neither CBH nor Australia’s minister for trade, Simon Birmingham, was immediately available for comment.

Originating Source

Let’s agree simple parts of Brexit deal first, Britain tells EU

Britain wants to agree simpler parts of its future relationship with the European Union in order to create momentum in the negotiations, Prime Minister Boris Johnson’s spokesman said on Tuesday when asked about the stalled talks. “The EU continues to insist that we must agree on difficult areas in the negotiations such as EU state aid before any further work can be done in any other area of the negotiation, including on legal texts,” he said. “We would instead like to settle the simplest issues first in order to build momentum in the talks as time is short for both sides.”

Originating Source

Japan and UK to sign equal-to-EU trade deal by September

Japan and the U.K. will sign a free-trade pact, perhaps by September, Nikkei has learned. The deal will mostly follow the preferential tariffs in the Economic Partnership Agreement between Japan and the European Union, minimizing Brexit’s impact on Japanese businesses. According to customs data, Japan exported goods worth over 1.5 trillion yen ($14.1 billion) to the U.K. and imported goods worth 887 billion yen from the U.K. in 2019. The new trade pact is especially good for Japan, as it will avoid tariff increases. It will be the U.K.’s first trade agreement with a large country since it left the EU and will serve as a model for negotiations with other countries. Japanese Foreign Minister Toshimitsu Motegi and U.K. International Trade Secretary Liz Truss spoke by telephone Wednesday and agreed on most of the substance of the free trade deal. The two sides are looking to sign the pact as early as next moth and aim to have it take effect as early as January next year.

Originating Source

Top Trump News

U.S. airlines

President Donald Trump on Tuesday said his administration would help U.S. airlines facing sharp downturns in passenger traffic as a result of the novel coronavirus pandemic, but gave no details. “We’ll be helping the airlines. You have to help the airlines,” Trump told reporters before departing on a visit to Kenosha, Wisconsin. “Airlines are a tough business in good times.” Airline shares jumped briefly on Trump’s comments but later gave up the gains and were trading in negative territory. American Airlines (O:AAL) was down 0.2% around mid-afternoon, while United Airlines (O:UAL) was down nearly 1%. White House Chief of Staff Mark Meadows last week said Trump was weighing executive action to avoid massive layoffs at airlines if Congress fails to agree on a fresh economic stimulus package to counter the fallout from the pandemic.

Originating Source

TikTok sale

President Donald Trump on Tuesday repeated his demand for a piece of the action from any sale of TikTok’s US operations for forcing such a deal. TikTok has been at the center of a diplomatic storm between Washington and Beijing, and Trump gave Americans a deadline to stop doing business with TikTok’s Chinese parent company ByteDance — effectively compelling a sale of the app to a US company. “Well, I told them that they have until September 15th to make a deal; after that, we close it up in this country,” Trump told journalists. “And I said that the United States has to be compensated — well compensated — because we are the ones that are making it possible, and so we should be compensated.”

Originating Source

Domestic terror’

President Donald Trump Tuesday took his tough law and order message to Kenosha, the latest US city roiled by the police shooting of a black man, as he branded recent anti-racism protests there as “domestic terror” by violent mobs. Mr Trump has been hoping for months to shift the election battle against Democrat Joe Biden from a verdict on his widely panned handling of the coronavirus pandemic to what he sees as far more comfortable territory of law and order.

Originating Source

Economic Indicators

Japan Unemployment Rate

The unemployment rate in Japan edged up to 2.9 percent in July 2020 compared to 2.8 percent in the prior month and market expectations of 3 percent. It was still the highest jobless rate since May 2017 and is higher than the 2.2 percent in the same month of the previous month. The number of unemployed increased by percent to 1.96 million while employment edged up 0.2 percent to 66.48 million. The jobs-to-applicants ratio slumped to 1.08 in July from 1.11 in June, marking the lowest reading since April 2014.

Japan Manufacturing PMI

The au Jibun Bank Japan Manufacturing PMI was revised higher to 47.2 in August 2020 from a flash reading of 46.6 after compared to a final 45.2 a month earlier. The latest reading pointed to a 16th straight month of contraction in the sector, although the weakest since February, as manufacturing remained under pressure amid the ongoing COVID-19 crisis. Production fell the least for six months while new orders declined at the weakest pace since January. At the same time, job shedding eased to its softest in three months. On the price front, input costs rose modestly and output charges fell slightly. Looking ahead, business confidence picked up further from April’s record low, and was the highest since before the pandemic in January.

Australia Building Approvals MoM

The number of dwellings approved in Australia unexpectedly surged by 12 percent month-over-month in July 2020, following a downwardly revised 4.2 percent fall in the previous month and defying market expectations of a 2 percent drop. It was the first increase in the number of dwellings approved since February, reflecting improved consumer sentiment amid the easing of coronavirus lockdown restrictions. Private sector dwellings excluding houses jumped 22.7 percent (vs -5.3 percent in June) and private sector houses rose by 8.5 percent, the strongest monthly increase since January 2014, after declining 4.9 percent in the previous month.

Australia Interest Rate Decision

The Reserve Bank of Australia kept the cash rate unchanged at a record low of 0.25 percent during its September meeting, but expanded the Term Funding Facility to around AUD 200 billion at a fixed rate of 25 bps for three years to keep funding costs low and assist with the supply of credit to lenders. Banks will be able to draw up the scheme until the end of June 2021. Policymakers reiterated that a recovery from the COVID-19 crisis is now underway in most of Australia. However, the recovery is likely to be uneven and bumpy, with the outbreak in Victoria having a major effect on the economy. The board said it is committed to do what it can to support jobs, incomes, and businesses. Policymakers added it will maintain highly accommodative settings and continue to consider how further monetary measures could support the recovery.

China Caixin Manufacturing Purchasing Managers Index (PMI)

The Caixin China General Manufacturing PMI rose to 53.1 in August 2020 from 52.8 in the previous month, beating market consensus of 52.6. The latest reading pointed to the biggest improvement in the health of the sector since January 2011, adding to signs of an economic recovery after the pandemic hit the economy earlier this year. Output and new orders grew by the most since the start of 2011 with new export sales rising for the first time since December 2019. Also, buying activity continued to increase, while staffing levels fell fractionally, hinting that employment was close to stabilization as firms registered a further increase in backlogs of work. On the price front, both input costs and output charges increased at a softer pace. Finally, business optimism eased to a three-month low.

Germany Manufacturing Purchasing Managers Index (PMI)

The IHS Markit Germany Manufacturing PMI was revised lower to 52.2 in August from a preliminary of 53. Still, the reading pointed to the second straight month of rising factory activity and the strongest growth since October of 2018. New orders continue to rebound from the lows during the coronavirus lockdown and growth of production reached the strongest for two-and-a-half years, led by the intermediate and consumer goods, while makers of investment goods lag behind. Goods producers meanwhile noted a further marked round of job cuts, though the decline in employment eased amid improved expectations and steadily rising backlogs of work. The degree of optimism was the highest since February 2018, with a growing number of companies hopeful of a sustained recovery in domestic and export demand.

Germany Unemployment Rate

Germany’s seasonally adjusted harmonized unemployment rate edged up to 6.4 percent in July 2020 from an upwardly revised 6.3 percent a month earlier. This was the highest jobless rate since February 2016, as the number of unemployed rose by 1.6 percent from the previous month to 1.94 million while employment was unchanged at 42.35 million. Youth unemployment rate, measuring job-seekers under 25 years old, was 5.7 percent in July.

The IHS Markit Eurozone Manufacturing PMI came in at 51.7 in August 2020, little-changed from the previous month’s 51.8 and in line with preliminary estimates. Manufacturing output growth was recorded for a second successive month during August and accelerated to reach its highest level for over two years, new orders eased slightly, and new export orders rose at a relatively modest pace. Continued gains in new business led to a slight increase in backlogs of work during August, the first growth in two years. Job numbers were cut for a sixteenth successive month, albeit at the slowest rate since March. On the price front, input costs were broadly unchanged and output prices contracted marginal and the weakest recorded in the past year. Finally, confidence about the future continued to pick up during August, reaching its highest level for over two years as firms looked forward to the ongoing recovery from the impacts of the pandemic on economic activity.

U.S. Manufacturing Purchasing Managers Index (PMI)

The IHS Markit US Manufacturing PMI was revised lower to 53.1 in August of 2020 from a preliminary of 53.6. Still, the reading pointed to the strongest expansion in factory activity since January of 2019, following the easing of coronavirus restrictions and the reopening of large sections of the manufacturing sector. New orders increased the most since the start of 2019, due to stronger client demand and increased marketing. New export orders grew the most in four years, as companies registered the first upturn in foreign client demand in 2020 so far and output growth was the quickest since November 2019. At the same time, employment increased the first time since February. Meanwhile, input price inflation accelerated, amid raw material shortages and supplier price hikes. Finally, business confidence was the strongest since April of 2019 amid hopes of a return to stronger demand conditions and an end to the pandemic.

U.S. API Weekly Crude Oil Stock

Stocks of crude oil in the United States slumped by 6.4 million barrels in the week ended August 28th of 2020, following a 4.5 million gain in the previous week and compared with market expectations of a 1.9 million decline, data from the American Petroleum Institute showed.

Economic Calendar

Tuesday

AU RBA Interest Rate Decision (Sep)

Tuesday

DE Manufacturing PMI (Aug)

Tuesday

EUR CPI (YoY) (Aug)  

Wednesday

US ISM Manufacturing PMI (Aug)

Wednesday

AU GDP (QoQ) (Q2)

Wednesday

US ADP Nonfarm Employment Change (Aug)

Thursday

US Crude Oil Inventories

Thursday

US Initial Jobless Claims

Friday

US Nonfarm Payrolls (Aug)