Monex Morning Report – Wed 23 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow recovers from intraday drop as S&P500, Nasdaq snap four-day losing streak; Asian stocks look set to drift

Powell and Mnuchin credit stimulus with boosting recovery, but calls for more aid go unanswered; UN warns of lost decade without Covid economic recovery plan

Powell and Mnuchin credit stimulus with boosting recovery, but calls for more aid go unanswered

Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven T. Mnuchin credit the Cares Act with helping to build the recovery — yet their call on Congress to fill the economy’s remaining holes is not triggering action on Capitol Hill. Of increasing concern is whether hundreds of billions of dollars in unused Cares Act money should be reallocated, or if existing programs can be expanded to reach more businesses and municipalities on the brink. At a House Financial Services Committee hearing on Tuesday, Powell and Mnuchin said the lending programs run by the Fed and Treasury could only go so far and cannot replace targeted aid from Congress. Negotiations between Congress and the White House on a second round of stimulus have been stalled for weeks. Asked by committee chairwoman Rep. Maxine Waters (D-Calif.) whether Treasury could further enhance the existing programs, Mnuchin said, “I unfortunately think there’s not more we can do.” “Almost every single one of the facilities has extra capacity,” Mnuchin said, adding that the money could be reallocated “to better use.”

Originating Source

Fed’s Barkin says recent labor market improvements will slow

While the U.S. economy may avoid a second widespread shutdown, the labor market and other aspects of the economy may not fully recover until there is a vaccine or other treatment that helps Americans feel safe spending and engaging in more activity, Richmond Federal Reserve President Tom Barkin said on Tuesday. Many small businesses are reducing staff to adjust to lower demand, and the level of people filing for jobless claims for the first time each week remains elevated six months after the shutdown, Barkin said during a webcast conversation organized by the Rotary Club of Greenville. “If this rate of initial claims continues, you have to imagine the recent improvements in the labor market are going to slow,” Barkin said.

Originating Source

Fed’s Evans sees ‘recessionary dynamics’ without fiscal aid

The U.S. economy risks a longer, slower recovery and “recessionary dynamics” if Congress fails to pass a fiscal package to support out-of-work Americans and state and local governments, Chicago Federal Reserve President Charles Evans said on Tuesday. “Fiscal support is just fundamental,” Evans said at a virtual meeting of the London-based Official Monetary and Financial Institutions Forum. His own forecast for the U.S. unemployment rate to fall to 5.5% by the end of next year assumes not just a vaccine for the new coronavirus but also a U.S. fiscal package of at least $500 billion or $1 trillion, he said. Congress passed a $2.3 trillion package in March, but looks unlikely to deliver any more support before the Nov. 3 presidential election. “Every week and every month that we go without renewing additional fiscal support that we saw strongly sent out in the spring and summer, we risk a longer period of slow growth if not outright recessionary dynamics,” Evans said Tuesday.

Originating Source

US House votes to ban Xinjiang imports over forced labor

The US House of Representatives voted overwhelmingly Tuesday to ban imports from China’s Xinjiang region, vowing to stop what lawmakers say is systematic forced labor by the Uighur community. Despite opposition by US businesses, the act passed 406-3 in a sign of growing outrage over Xinjiang, where activists say more than one million Uighurs and other mostly Muslim Turkic-speaking people have been incarcerated in camps. “Tragically, the products of the forced labor often end up here in American stores and homes,” House Speaker Nancy Pelosi said before the vote. “We must send a clear message to Beijing: These abuses must end now.” The Uighur Forced Labor Prevention Act still needs to be passed by the Senate, which may have limited time before November 3 elections.

Originating Source

Trump lashes China for ‘unleashing’ COVID-19 on the world

US President Donald Trump has lashed China in a blistering UN address, claiming the nation covered up crucial COVID-19 details and must be held accountable. Mr Trump’s rant was recorded at the White House and delivered to the United Nations General Assembly remotely due to social distancing requirements as a result of the pandemic. His stunning attack comes as America’s coronavirus continues to worsen. “We must hold accountable the nation which unleashed this plague onto the world, China,” Mr Trump said in his speech. “The Chinese government, and the World Health Organisation – which is virtually controlled by China – falsely declared that there was no evidence of human-to-human transmission. “Later, they falsely said people without symptoms would not spread the disease … The United Nations must hold China accountable for their actions.”

Originating Source

BOE’s Bailey plays down chance of negative rates on virus risks

The Bank of England isn’t close to negative interest rates despite the resurgence of the coronavirus reinforcing downside risks to the U.K. economy, according to Governor Andrew Bailey. While the bank has “looked hard” at rate cuts and negative rates are in the toolbox, planned technical work on the policy is to examine whether it can be implemented rather than a signal it is coming, he said. The pound pared most of its earlier decline on that comment. It was down 0.2% at $1.2791 at 9:10 a.m London time. Investors pushed back bets on a rate cut to May, compared with earlier speculation that it would happen in March. The U.K. is heading into the final few months of 2020 facing renewed economic pain from virus restrictions, a possible spike in unemployment as wage-support programs end, and a potentially messy Brexit at the end of the year.

Originating Source

Boris Johnson announces new restrictions in UK amid second wave of coronavirus infections

British Prime Minister Boris Johnson has addressed the nation to urge people to comply with new COVID-19 measures. The package of new restrictions, announced by the Prime Minister on Tuesday, includes a continued work-from-home policy where possible and a requirement for pubs, restaurants and other venues in England to close between 10:00pm and 5:00am. People will have to wear face-coverings in taxis, as well as while using public transport, and the size of permitted gatherings is being reduced, with weddings limited to 15 people instead of 30. A plan to bring spectators back to sports stadiums starting in October is also being put on hold. “The struggle against COVID is the single biggest crisis the world has faced in my lifetime,” Mr Johnson said in an address broadcast to the nation.

Originating Source

UN warns of lost decade without Covid economic recovery plan

The global economy faces a lost decade after the Covid-19 pandemic unless policymakers spurn austerity measures in favour of a comprehensive recovery plan built on investment in sustainable growth, the United Nations has said. In its annual trade and development report, the UN’s economic arm said a repeat of the cost-cutting conducted by governments after the financial crisis of 2008-09 would choke off recovery and risk a double-dip recession in 2022. The UN Conference on Trade and Development (Unctad) said that, despite a better than expected growth performance in recent months, the global economy was on course to shrink by 4% this year. The turnaround from the near-3% growth predicted before the pandemic struck would cost $6tn (£4.7tn) in lost output, it added, with international trade down by 20%, foreign direct investment dropping by 40% and remittances cut by more than $100bn. The report warned there would be no full recovery even if governments continued with their current stimulus policies.

Originating Source

Top Trump News

Supreme Court nomination

President Donald Trump said Tuesday he will announce his nomination for the next Supreme Court justice on Saturday.Trump is considering several candidates to replace Ruth Bader Ginsburg, the liberal justice who died Friday at age 87.Two federal appeals court judges, Amy Coney Barrett of the 7th Circuit, and Barbara Lagoa of the 11th Circuit, are considered front-runners for the nomination.The Republican president said in a Twitter post he would make his announcement of his pick at the White House, at a time to be determined.

Originating Source

Republicans

President Donald Trump said Monday he was furious with Republicans in Washington for not doing enough to take up his unsubstantiated claims about former Obama administration officials and Hunter Biden. “Does anything happen? Nothing happens,” Trump said at an event in Dayton, Ohio. “I’m so angry at Republicans. I am. I’m so angry. I am so angry, but a lot of things are happening.”

Originating Source

TikTok

United States President Donald Trump says he would save a deal to boost US control of the popular Chinese-owned video-sharing app TikTok if possible, but would “cut it off” if an agreement is not reached. Trump said on Monday he had given a “preliminary OK” to a plan for US companies Oracle and Walmart to buy stakes in a new US company to run TikTok. But the president also stressed that he could scrap the deal if it didn’t satisfy his demands.

Originating Source

Economic Indicators

U.S. Existing Home Sales

Sales of previously owned houses in the US increased 2.4% from the previous month to a seasonally adjusted annual rate of 6 million units in August of 2020. That is the highest reading since December of 2006 and in line with expectations. Single family sales went up 1.7% and those of condos 8.6%. Home sales have climbed in every region for the third straight month. There were 1.49 million previously owned homes on the market in August, down from 1.83 million a year ago. The median existing house price increased to a record USD 310,600. Year-on-year, existing home sales went up 10.5%. “Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market. Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery.

United States API Crude Oil Stock Change

Stocks of crude oil in the United States increased by 0.7 million barrels in the week ended September 18th, 2020, after a 9.5 million draw in the previous week and compared with market expectations of a 2.3 million drop, data from the American Petroleum Institute showed.

U.K. CBI Industrial Trends Orders

The Confederation of British Industry’s order book balance dropped four points to -48 in September 2020, below market expectations of -40, suggesting the manufacturing sector remained severely depressed despite the country’s reopening efforts. The outlook for production over the next three months also weakened.

Economic Calendar

Wednesday

New Zealand Interest Rate Decision

Wednesday

Germany Manufacturing Purchasing Managers Index (PMI)

Thursday

U.S. Crude Oil Inventories

Thursday

Germany Ifo Business Climate Index

Friday

U.S. New Home Sales

Friday

U.S. Core Durable Goods Orders MoM