Monex Morning Report – Wed 30 Sep 2020

OVERNIGHT HIGHLIGHTS

Dow ends 131 points lower, snapping three-day win streak ahead of Trump-Biden showdown; Asia stocks to drift before China data flurry

Pelosi and Mnuchin make late push for possible coronavirus aid; Fed’s Kaplan sees costs to pinning rates at zero

Top Market News

Stopgap bill funding U.S government through December 11 advances in Senate

The U.S. Senate voted on Tuesday to advance a temporary funding bill to keep the government open through Dec. 11, with final passage of the measure expected on the deadline, Wednesday. Government funding runs out at midnight Wednesday. The legislation, if passed by then and signed into law by President Donald Trump, would continue funding most programs at current levels, avoiding a government shutdown in the middle of a pandemic and just weeks ahead of the Nov. 3 U.S. election.

Originating Source

NY Fed’s Williams says flexible inflation targeting not based on a formula

The Federal Reserve will need to purposely overshoot on its 2% inflation target temporarily to make up for periods when inflation is lower than desired, and it will need to be flexible in its approach, New York Federal Reserve Bank President John Williams said on Tuesday. “We need to make sure that we’re purposely overshooting that moderately for some time to get that balance,” Williams told reporters. “To me, success is not some arithmetic or some formula but it’s really this notion of inflation expectations, how people think about what’s inflation going to be in the future.”

Originating Source

Fed’s Kaplan sees costs to pinning rates at zero

The U.S. central bank should keep interest rates at their current near-zero levels until the economy is back on track to full health, likely by late 2022 or sometime in 2023, Dallas Federal Reserve President Robert Kaplan said on Tuesday. But because the U.S. economy is likely to change in unforeseeable ways over the next few years, he said, the Fed should not tie its hands on monetary policy after the coronavirus crisis has passed. At that point, he said in an essay explaining his views, the Fed “should be willing to be more accommodative than in the past,” but it can do so even if it raises rates a bit. “I believe there are real costs to keeping rates at zero for a prolonged period of time,” including excessive risk-taking and distortions in financial markets. New tax, regulatory or trade policy; changes in the role of the dollar as the world’s reserve currency; and potentially accelerating technological disruptions could also impact how the economy works, and how the Fed will need to react, he said.

Originating Source

Quarles says central banks played role in treasuries strains

Central banks were likely one of the actors behind a selloff in U.S. Treasuries during the height of the Covid-19 financial strains in the spring, according to the Federal Reserve’s top official for supervision. “Sales by foreign central banks were a significant source — I think right now we would say that it was a more significant source than the unwinding of leveraged hedge fund positions,” Fed Vice Chair Randal Quarles said in answering questions on a panel at a virtual investment conference Tuesday. Trading in Treasuries, the world’s largest government bond market, turned volatile in March as investors dumped off-the-run securities — those that are no longer benchmarks, such as 10-year or two-year notes — in volumes larger than dealers could move. Unusually, 10-year Treasuries, usually a haven asset, slumped in mid-March even amid an exodus from risk, as liquidity in the market dried up. The Fed responded on March 15 by announcing it would purchase $500 billion of U.S. Treasuries. Two days later it opened the Primary Dealer Credit Facility to backstop the market’s brokers.

Originating Source

Pelosi and Mnuchin make late push for possible coronavirus aid

House Speaker Nancy Pelosi (D., Calif.) and Treasury Secretary Steven Mnuchin are making a late push to try to reach a coronavirus-relief deal before the election, despite skepticism on Capitol Hill that an agreement is possible at this stage. The two talked on the phone for 50 minutes Tuesday morning, one day after House Democrats unveiled a new, less expensive version of their previous aid package, which shaved the price tag to $2.2 trillion, down from $3.5 trillion. Mrs. Pelosi and Mr. Mnuchin, who also spoke Monday night, agreed to talk again Wednesday, Mrs. Pelosi’s spokesman said. The string of conversations suggested the two officials were making a substantive attempt to see whether they could agree on a stimulus package to bolster the country’s health and economic recovery from the pandemic. Mrs. Pelosi told reporters after the meeting Tuesday that she was hopeful she could reach a deal with Mr. Mnuchin this week.

Originating Source

WTO backs EU tariffs on $4 billion U.S. goods over Boeing subsidies – sources

The World Trade Organization has authorised the European Union to slap tariffs on U.S. goods worth $4 billion to retaliate against subsidies for U.S. planemaker Boeing Co BA.N, people familiar with the matter said. The move echoes last year’s decision to allow the United States to penalize $7.5 billion of EU goods over support for Airbus AIR.PA, though the EU is expected to argue it has total firepower of $8.2 billion because of separate unused tariffs. The decision by WTO arbitrators will be published in coming weeks, the people said, asking not to be identified. The U.S. Trade Representative and the EU’s Washington office did not respond to requests for comment. Boeing declined comment on the confidential WTO decision and Airbus was not immediately available for comment.

Originating Source

Azerbaijan and Armenia reject talks as Karabakh conflict zone spreads

Armenia and Azerbaijan accused one another on Tuesday of firing directly into each other’s territory and rejected pressure to hold peace talks as their conflict over the enclave of Nagorno-Karabakh threatened to mushroom into all-out war. Both reported firing from the other side across their shared border, well to the west of the breakaway Nagorno-Karabakh region over which fierce fighting broke out between Azeri and ethnic Armenian forces on Sunday. The incidents signalled a further escalation of the conflict despite urgent appeals from Russia, the United States and others to halt it. The conflict has reignited concerns about stability in the South Caucasus region, a corridor for pipelines carrying oil and gas to world markets. Azeri President Ilham Aliyev, speaking to Russian state television, flatly ruled out any possibility of talks. Armenian Prime Minister Nikol Pashinyan told the same channel they could not take place while fighting continued.

Originating Source

Bank of England realistic about challenge of sub-zero rates for banks, Bailey says

Bank of England Governor Andrew Bailey said the central bank was realistic about the challenges negative interest rates would pose for the banking system, but repeated he was not ruling them out as a way to help Britain’s economy. Bailey said the big share of retail deposits – which have tended to continue offering positive rates to investors even in countries which have cut rates below zero – in Britain’s banking system could reduce the effectiveness of any BoE negative rates. “That does not mean to say that we rule out using negative interest rates for a moment,” Bailey said in an online speech given to Queen’s University Belfast on Tuesday. It means to say we are realistic enough, I think, to know that the transmission mechanism would be affected.”

Originating Source

Top Trump News

Biden discloses tax returns

Hours before his first debate with President Donald Trump, Democratic presidential nominee Joe Biden on Tuesday released his 2019 tax returns and his campaign called on Trump, who has come under fire for not releasing his returns, to do the same. Biden, due to share the stage with his Republican opponent on Tuesday evening in Cleveland, Ohio, took the step two days after the New York Times reported Trump paid just $750 in federal income taxes in 2016 and 2017 – and none in 10 of the previous 15 years – following years of reporting steep losses from business enterprises. Trump had long sought to keep his personal financial records secret.

Originating Source

First debate

With just 35 days until the US election, President Donald Trump and Democratic challenger Joe Biden are barrelling into their crucial first debate, the most pivotal moment so far in a race that has remained stubbornly unchanged in the face of historic tumult. Both men huddled with aides in the final hours before the debate on Tuesday, which will offer the candidates their biggest national stage to outline starkly different visions for a country facing multiple crises. Americans are both fearful and impatient about the coronavirus pandemic that has killed more than 200,000 Americans and cost millions of jobs, and many are concerned about racial justice, protest violence or both. Each side hoped the debate would energise its own base of supporters even as the candidates compete over the slim slice of undecided voters who could decide the election.

Originating Source

U.S. Supreme Court

Republican senators meeting with U.S. Supreme Court nominee Amy Coney Barrett on Tuesday praised President Donald Trump’s pick for the lifetime post, rejecting Democrats’ assertion that she should recuse herself from potential election-related cases. Barrett began holding the customary meetings with individual senators that precede Senate Judiciary Committee confirmation hearings, making Majority Leader Mitch McConnell her first stop. A favorite of religious conservatives, Barrett stood silently for reporters and TV cameras, flanked by Vice President Mike Pence and McConnell. Senator Lindsay Graham, the Republican committee chairman who met with Barrett later in the day, said she should not recuse herself if she is confirmed and the justices are called upon to decide disputes arising from the Nov. 3 election in which Trump is seeking a second term in office.

Originating Source

Economic Indicators

EUR Consumer Confidence (Sep)

The consumer confidence indicator in the Euro Area was confirmed at -13.9 in September 2020, higher than August’s final reading of -14.7 but well below pre-pandemic levels. There was a marked pick-up in expectations about the general economic situation and a small improvement in households’ views on their financial conditions over the next 12 months. At the same time, consumers’ assessment of their households’ past financial conditions deteriorated to a new low. Consumer intentions to make major purchases remained broadly stable and markedly below their pre-crisis level.

German CPI (MoM) (Sep)

The Consumer Price Index in Germany decreased 0.20 percent in September of 2020 over the previous month.

USD Goods Trade Balance (Aug)

The US trade deficit on goods widened to USD 82.94 billion in August of 2020 from a revised $80.11 billion in the previous month, a preliminary estimate showed. That is the highest trade gap ever amid higher imports as businesses try to rebuild inventories. Imports increased 3.1 percent to USD 201.29 billion, mainly due to sales of consumer goods (7 percent), capital goods (1.4 percent) and autos (6.2 percent) while those of industrial supplies fell 4.6 percent. Exports rose at a slower 2.8 percent to USD 118.35 billion, boosted by sales of industrial supplies (10.6 percent) and consumer goods (1.2 percent) but fell for capital goods (-3.9 percent).

USD CB Consumer Confidence (Sep)

The Conference Board (CB) Consumer Confidence Index is predicted to rise to 89.2 in September. August’s reading of 84.8 was the lowest of the lockdown era and aftermath and a surprise drop below the April score of 85.7.

API Weekly Crude Oil Stock

Stocks of crude oil in the United States fell by 0.8 million barrels in the week ended September 25th, 2020, after a 0.7 million build in the previous week and compared with market expectations of a 1.4 million gain, data from the American Petroleum Institute showed.

Economic Calendar

Wednesday

CNY Manufacturing PMI (Sep)

Wednesday

UK GDP (QoQ) (Q2)

Wednesday

US GDP (QoQ) (Q2)

Thursday

US Pending Home Sales (MoM) (Aug)

Thursday

US Crude Oil Inventories

Thursday

EUR German Manufacturing PMI (Sep)

Thursday

US Initial Jobless Claims

Friday

“US ISM Manufacturing PMI (Sep) ”

Friday

“US Nonfarm Payrolls (Sep) ”