Monex Morning Report – Wed 21 Oct 2020

OVERNIGHT HIGHLIGHTS

U.S. shares pared gains in the final hour but still ended up on the day; Asia stocks set for muted open amid stimulus talks

Pelosi, Mnuchin move closer to stimulus deal amid Senate doubts; U.S. Justice Department files antitrust lawsuit against Google

Top Market News

Pelosi, Mnuchin move closer to stimulus deal amid Senate doubts

House Speaker Nancy Pelosi said Tuesday she’s hopeful for a stimulus agreement this week, which would be crucial to getting a bill passed by Election Day, although Senate Majority Leader Mitch McConnell has warned the White House against a bigger Pelosi-led deal before Nov. 3. “That’s the plan. That’s what I would hope,” Pelosi said about reaching a compromise this week. She spoke to reporters after her latest call with Treasury Secretary Steven Mnuchin Tuesday. The White House also expressed some optimism on progress. Chief of Staff Mark Meadows said on CNBC that “everybody is working real hard” to get an agreement by the weekend, although he cautioned that there are still some outstanding issues. “I want to stress: We’re not just down to a difference of language and a few dollars,” Meadows said. “We still have a ways to go.” Even if remaining differences can be bridged, Senate Republicans remain a key roadblock, as many oppose a bill on the scale of what’s now under negotiation. Majority Leader Mitch McConnell has warned the White House not to rush into an agreement before the election, according to a person familiar with the matter. The administration’s offer has increased to $1.88 trillion, Meadows said. Pelosi is pushing for $2.2 trillion, while President Donald Trump reiterated Tuesday he could be willing to go even bigger.

Originating Source

RBA minutes of the October meeting confirm decision to cut rates on November 3

The Minutes of the October Board meeting of the Reserve Bank of Australia confirm the key themes of Governor Lowe’s speech which was delivered on October 15. They indicate that the Board had effectively decided to ease policy at the October meeting. One reason for delaying the announcement would have been to allow the government “clear air” to sell the Budget, which was announced later on that same day, October 6. The Minutes even cleared up the possibility that the Board would have waited to assess the Budget. The Minutes point out that “The Secretary of the Australian Treasury briefed members on the main features of the Budget”. But another reason would be to have given more time to the market to absorb the dimensions of the upcoming policy decision. The concepts which the Governor outlined in his speech last week to a Banking Conference were profound “game changers” for policy and the strategy of allowing ample time for the market to digest these changes makes considerable sense. We provided a detailed analysis of that speech in a bulletin on October 16.

Originating Source

Netflix slides after results suggest pandemic boom is waning

Netflix Inc. tumbled in late trading after its results and outlook both missed Wall Street estimates, renewing doubts about its ability to maintain growth as pandemic lockdowns go away and competition intensifies. The world’s largest paid streaming service added just 2.2 million new subscribers last quarter, well short of the 3.32 million predicted by analysts, as well as the company’s own more conservative projection. Netflix also predicted that it will sign up 6 million new subscribers this period, below the 6.54 million Wall Street estimate. Netflix added 25.9 million customers in the first half of the year, its strongest start ever. Yet throughout the pandemic, the company has warned that the subscriber boom wouldn’t last — and in fact, that its surge in new customers could suppress growth in the future. But predicting subscriber growth in such a climate has proved trickier than ever. While Netflix’s forecasts for the second quarter proved too cautious, its outlook for the third quarter was too rosy.

Originating Source

Brazil, U.S. sign memorandum of understanding for up to $1 billion trade financing

Brazil and the United States on Tuesday signed a memorandum of understanding to forge closer trade links, a step that could see U.S. Export-Import Bank finance up to $1 billion of exports to and projects in the Latin American nation. According to Brazil’s economy ministry, the agreement will see ExIm-Bank expand loans, guarantees and insurance to fund investment projects in Brazilian energy, mining, manufacturing, infrastructure, logistics and telecommunications, as well as other areas. Brazil’s Economy Minister Paulo Guedes said the agreement comes at the right time for Brazil, which is trying to deregulate and liberalize many areas of its economy, will boost bilateral trade, and help align regulatory frameworks. Exim-Bank Chief Executive Kimberly Reed said it reflects the “solid and cooperative” relationship and alliance between the two countries. The signing of the agreement coincides with a U.S. delegation visit to Brazil headed by National Security Adviser Robert O’Brien, in which Washington stepped up its offensive to keep China’s Huawei Technologies out of Brazil’s 5G market.

Originating Source

Fed’s Evans sees less economic drag from new COVID-19 wave

The current rise in COVID-19 infections in the United States may not dent the recovery too much, Chicago Federal Reserve Bank President Charles Evans said on Tuesday, adding that he remains “reasonably optimistic” U.S. unemployment will fall to 5.5% by the end of next year. “I sort of put less weight on the adverse economic consequences of a second or third wave based upon the experience that we’ve seen – so it would have to be even worse than what we see” to impede the recovery, Evans told reporters after a speech to the Detroit Economic Club. “We seem to be powering through this no matter how adverse and horrific those consequences are for households, families around the country.”

Originating Source

Fed’s Quarles says pandemic stresses highlighted fragility in nonbanks

U.S. Federal Reserve Vice Chair Randal Quarles said Tuesday that the market stresses created by the coronavirus pandemic showed the nonbank financial system is “significantly more fragile” than its traditional counterpart. Quarles said that while decisive action from central banks and regulators helped ease market turmoil, recent events have shown global regulators have “work to do” to shore up nonbanks, including improving resiliency in money market funds. Speaking in his capacity as head of the Financial Stability Board, Quarles did not lay out precise policy prescriptions, but rather said the global regulatory group is hard at work examining the issue and expects to lay out recommendations soon. “Addressing vulnerabilities in the financial system going forward…will require a holistic perspective given the various linkages within nonbank financial intermediation and between nonbanks and banks,” he said, according to prepared remarks. “We have gained some clarity regarding areas of the market that needed significant bolstering and have to look closely at whether and how resilience in these segments can be improved.”

Originating Source

Brexit negotiators to talk in bid to break deadlock over trade

Brexit negotiators from the European Union and Britain will speak on Tuesday in an attempt to break the deadlock over a trade deal, after both sides demanded concessions to prevent a disruptive finale to the five-year Brexit drama. A tumultuous “no-deal” exit when Britain leaves a standstill transition period on Dec. 31 would sow chaos through supply chains and undermine Europe’s economy just as the coronavirus pushes whole sectors to the edge of insolvency. After an EU demand for concessions, Prime Minister Boris Johnson broke off talks and said it was time to prepare for a no-deal Brexit: the nightmare scenario for business. EU chief negotiator Michel Barnier offered on Monday to intensify talks and open discussions on legal texts of a draft deal, though Britain said there was still no basis to resume discussions unless there was a fundamental change in approach.

Originating Source

BoE’s Vlieghe eyes more stimulus as COVID risks grow

Bank of England policymaker Gertjan Vlieghe said on Tuesday that the central bank could well need to add more stimulus as risks to the economy had grown in response to rising COVID cases, and voiced some cautious support for negative interest rates. The BoE has almost doubled its asset purchase programme since the start of the pandemic, to 745 billion pounds ($966 billion), and economists polled by Reuters expect it to announce a further 100 billion pounds of bond purchases on Nov. 5 after its next meeting. “In my view, the outlook for monetary policy is skewed towards adding further stimulus,” Vlieghe said in a speech published by the BoE. “Given that virus prevalence has been increasing again recently, it is likely to weigh more heavily on economic activity. Indeed, it appears that the downside risks to the economic outlook are starting to materialise,” he added. The BoE is also considering whether it is practical and effective to cut interest rates below zero, as the European Central Bank and Bank of Japan have done.

Originating Source

Top Trump News

Google

The U.S. Justice Department sued Alphabet Inc.’s Google, accusing it of abusing its monopoly in search in the most significant antitrust action against an American company in more than two decades, with more action by states likely to follow. Google, which controls about 90% of the online search market in the U.S., is the “unchallenged gateway” to the internet and engaged in a variety of anticompetitive practices to maintain and extend its monopoly, the government said in a complaint filed Tuesday in Washington. The company has used exclusive deals costing billions of dollars to dominate search and lock out competition from rivals, the U.S. said. “No one can feasibly challenge Google’s dominance in search and search advertising,” Attorney General William Barr said. “If we let Google continue its anticompetitive ways, we will lose the next wave of innovators and Americans may never get to benefit from the ‘next Google.’”

Originating Source

Second debate

Former Vice President Joe Biden and President Donald Trump will have their microphones muted during portions of the second and final presidential debate on Thursday night, the Commission on Presidential Debates announced on Monday. The decision came after the commission met Monday afternoon to discuss potential rule changes to the debate format. They decided the changes were needed because of how the first debate between Biden and Trump devolved into chaos. The muting will work like this: At the start of each of the six segments of the debate, each candidate will be given two minutes to answer an initial question. During that portion, the opposing candidate’s microphone will be muted.

Originating Source

Joe Biden’s son

President Donald Trump demanded that Attorney General William Barr open an investigation of former Vice President Joe Biden’s son, just two weeks before Election Day. “We’ve got to get the attorney general to act,” Trump said Tuesday in a phone interview with the TV show “Fox & Friends,” in response to a question about whether a special prosecutor should be appointed to probe unsubstantiated allegations against Hunter Biden. “And he’s got to act fast. He’s got to appoint somebody,” Trump added, saying it should be done before the Nov. 3 election. The president has publicly called for Barr to probe a number of his political opponents ahead of the election, including former President Barack Obama and Minnesota Congresswoman Ilhan Omar, in addition to the Bidens.

Originating Source

Economic Indicators

China Loan Prime Rate

The People’s Bank of China (PBoC) left its benchmark interest rates steady for the sixth straight month at its October fixing, after the central bank maintained borrowing costs on medium-term loans last week, amid continued efforts from policymakers to support recovery in the world’s second-largest economy from COVID-19 disruption. Recent economic data showed the economy has steadily recovered from the pandemic. The one-year loan prime rate (LPR) was left unchanged at 3.85 percent after two cuts this year, while the five-year remained at 4.65 percent.

Euro Area Current Account

The Eurozone current account surplus narrowed sharply to EUR 21.8 billion in August 2020 from EUR 32.1 billion in the corresponding period of the previous year, as the services surplus declined to EUR 6.4 billion from EUR 13.3 billion while the primary income account posted a EUR 0.2 billion deficit, compared to an EUR 8.4 billion surplus in August 2019. Meanwhile, the goods surplus increased slightly to EUR 24.8 billion from EUR 22.7 billion last year, while the secondary income gap fell to EUR 9.3 billion from EUR 12.3 billion.

United States Building Permits

Building permits in the United States rose 5.2 percent from a month earlier to a seasonally adjusted annual rate of 1.553 million in September of 2020, the highest level since March 2007 and above market expectations of 1.52 million. Single-family authorizations increased 7.8 percent to a rate of 1,119 thousand while permits for the volatile multi-segment fell 0.9 percent to a rate of 434 thousand. Across regions, permits went up in the South (2 percent to 814 thousand), the West (3.2 percent to 382 thousand), the Midwest (9.6 percent to 206 thousand) and the Northeast (25.8 percent to 151 thousand).

Germany Producer Prices

Producer Prices in Germany increased to 103.60 points in September from 103.20 in August 2020.

Economic Calendar

Wednesday

U.K. Consumer Price Index (CPI) YoY

Thursday

U.S. Cushing Crude Oil Inventories

Thursday

U.S. Initial Jobless Claims

Friday

Existing Home Sales (Sep)

Friday

U.S. Markit Composite PMI