Monex Morning Report – Wed 26 Aug 2020

OVERNIGHT HIGHLIGHTS

S&P500 and Nasdaq book fresh record highs, but Dow slumps as Apple and Boeing weigh; Asia stocks head for softer start

U.S., China reaffirm commitment to Phase 1 trade deal in phone call; U.S. New-Home Sales Surge to Highest Since December 2006

Top Market News

U.S., China reaffirm commitment to Phase 1 trade deal in phone call

Top U.S. and Chinese trade officials have reaffirmed their commitment to a Phase 1 trade deal, which has seen China lagging on its obligations to buy American goods, giving a boost to financial markets on Tuesday. The pledge was made in a telephone call between U.S. Trade Representative Robert Lighthizer, U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He – their first formal dialogue since early May – amid concern the deal could be on shaky ground because of worsening U.S.-China ties. “Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” the U.S. Trade Representative’s office (USTR) said in a statement after what it described as a regularly scheduled call.

Originating Source

Bank of Canada says pandemic to test inflation expectations

The economic shock from the coronavirus pandemic will test public confidence in the Bank of Canada’s 2% inflation target, a senior official at the bank said on Tuesday. Deputy Governor Lawrence Schembri said Canadians’ faith in the ability of the bank to keep inflation close to 2% had allowed it react effectively at the start of the crisis by cutting rates three times to record low levels. “While we have benefited from having well-anchored inflation expectations in the past, this mooring will be tested by the very rough economic waters caused by the pandemic,” Schembri told a business audience, without elaborating.

Originating Source

China determined to keep ‘normal’ monetary policy: cenbank official

China will maintain a “normal” monetary policy, a senior central bank official said on Tuesday, as Beijing holds off on more easing as its post-COVID economic recovery gathered pace. Sun Guofeng, head of the monetary policy department at the People’s Bank of China, told a press conference the central bank would not change its monetary policy direction or its flexible approach to policy. Liquidity would also stay reasonably ample, which would allow China’s economy to return to its potential growth, he said.

Originating Source

Hurricane Laura poses biggest storm threat to U.S. oil output in 15 years

The U.S. energy industry on Tuesday was preparing for a major hurricane strike, cutting crude production at a rate approaching the level of 2005’s Hurricane Katrina and halting oil refining at plants along the Texas-Louisiana coast. Officials in the two states ordered hundreds of thousands of coastal residents to flee inland as Hurricane Laura strengthened and forecasters predicted it would become a major hurricane with sustained, 115 mile per hour (185 kph) winds. At least a 10-foot (3-meter) storm surge will likely hit the upper Texas coast later this week, said Chris Kerr, a meteorologist at agriculture, energy and weather data provider DTN. He said rapid intensification could even produce a devastating Category 4 hurricane.

Originating Source

German finance minister says confident we can agree on blueprint for digital economy taxation in autumn

German Finance Minister Olaf Scholz said on Tuesday he was confident that a “blueprint” for deals at the Organisation for Economic Cooperation and Development on taxation of the digital economy and minimum taxation can be agreed in autumn. “I am very confident at the moment that we can agree on a blueprint for both issues in autumn of this year,” he told a news conference.

Originating Source

Germany Extends Job-Preserving Aid to Underpin Crisis Recovery

Germany extended a program that has kept millions of people from losing their jobs to help Europe’s biggest economy recover from the coronavirus crisis. At a meeting in Berlin on Tuesday, Chancellor Angela Merkel’s coalition agreed to provide job-preserving subsidies until the end of 2021. The subsidies, originally intended for 12 months, pay the bulk of paychecks and allow companies to hold on to workers during an economic shock. “The virus continues to change and affect our lives and our economies,” said Annegret Kramp-Karrenbauer, head of Merkel’s Christian Democratic party. “We want to stabilize our economy and save jobs.”

Originating Source

American Air Sees 19,000 Job Cuts Once U.S. Payroll Aid Ends

American Airlines Group Inc. will cut 19,000 workers once federal payroll aid expires Oct. 1, capping a 30% workforce reduction since the coronavirus pandemic began to torpedo travel demand. About 17,500 employees will be furloughed, meaning they are eligible to be called back when conditions improve, and 1,500 previously announced cuts to management staff will take effect, the airline said by email Tuesday. American is the first major carrier to disclose how much it will shrink operations as it adjusts to passenger numbers that are down 70% from last year.

Originating Source

Germany on ‘road to recovery’ as business morale brightens further

German business morale improved more than expected in August as both manufacturing and services picked up steam, a survey showed on Tuesday, boosting hopes that Europe’s largest economy is set for a strong recovery following the massive coronavirus shock. The Ifo institute said its business climate index rose to 92.6 from a downwardly revised 90.4 in July. This was the fourth monthly increase in a row and came in better than economists’ expectations for 92.2. Ifo economist Klaus Wohlrabe said he expected the economy to grow by almost 7% on the quarter in the July-September period after it posted a record plunge of 9.7% in the previous three months at the height of the pandemic.

Originating Source

Top Trump News

China’s trade deal

Trump administration officials are satisfied that China is implementing the Phase 1 trade deal with the United States, following a high-level call to review progress, White House Economic Adviser Larry Kudlow said on Tuesday. U.S. Trade Representative Robert Lighthizer is “fine” with China’s implementation so far and China is buying more farm commodities, which will aid U.S. job growth, Kudlow said on Fox News Channel. “The meeting went quite smoothly. It was a normal review meeting,” Kudlow added.

Originating Source

Chad Wolf

US President Donald Trump said on Tuesday he will nominate acting Secretary of Homeland Security Chad Wolf to the top spot in the agency. The president made the announcement on Twitter, praising Wolf’s leadership of an agency that plays a significant role in the key Trump administration policy areas of immigration and crime. “I am pleased to inform the American Public that Acting Secretary Chad Wolf will be nominated to be the Secretary of Homeland Security,” Trump tweeted. “Chad has done an outstanding job and we greatly appreciate his service!”

Originating Source

Accusing China of ‘genocide’ over Uighurs

The United States is weighing formally labeling China’s brutal repression of ethnic Muslim minority Uighurs a “genocide,” two Trump administration officials said. Activists and lawmakers have been pushing for the genocide designation in recent months, but mere consideration of the possibility by the U.S. government could further damage badly frayed ties between Beijing and Washington. It also comes in the heat of the 2020 presidential campaign, in which the two sides have jousted over which candidate would be tougher on China. A spokesperson for Joe Biden noted that the former vice president supports the label — a factor that could influence President Donald Trump’s calculations.

Originating Source

Economic Indicators

U.S. CB Consumer Confidence

Consumer confidence in the US continued to deteriorate in August with the Conference Board’s Consumer Confidence Index dropping from 91.7 (revised from 92.6)in July to 84.8. This reading missed Reuters’ estimate of 93 by a wide margin. Further details of the publication revealed that the Consumer Expectations Index worsened to 85.2 from 88.9 and the Present Situation Index dropped to 84.2 from 95.9.

U.S. New Home Sales

Sales of new single-family homes in the United States soared 13.9 percent from the previous month to a seasonally adjusted annual rate of 901 thousand in July of 2020, easily beating market expectations of 785 thousand. It is the highest reading since December of 2006 as the housing market continued to recover from the coronavirus hit amid record low interest rates and as people move away from the big cities. New home sales increased in the Midwest (58.8 percent to 127 thousand), the South (13 percent to 513 thousand) and the West (7.8 percent to 221 thousand) but fell in the Northeast (-23.1 percent to 40 thousand). The average sales price went up to $391,300 from $373,500 a year earlier. The number of new houses for sale available on the market fell 1.6 percent to 299 thousand.

U.S. API Weekly Crude Oil Stock

Stocks of crude oil in the United States decreased by 4.5 million barrels in the week ended August 21st of 2020, following a 4.3 million gain in the previous week and marking the fifth straight weekly decline, data from the American Petroleum Institute showed.

New Zealand Trade Balance

New Zealand’s trade balance swung to a NZD 282 million surplus in July of 2020 from NZD 732 million deficit in the same month of the previous year. Merchandise goods imports fell NZD 1.0 billion (18 percent) to NZD 4.6 billion, while exports were down NZD 9.8 million (0.2 percent) to NZD 4.9 billion. The annual trade balance for the year ended July 2020 was a deficit of NZD 115 million, the lowest annual trade deficit since the October 2014 year.

Economic Calendar

Wednesday

US Core Durable Goods Orders (MoM) (Jul)

Thursday

US Crude Oil Inventories

Thursday

US GDP (QoQ) (Q2)  

Thursday

US Initial Jobless Claims

Thursday

US Fed Chair Powell Speaks  

Friday

US Pending Home Sales (MoM) (Jul)

Friday

UK BoE Gov Bailey Speaks