Monex Morning Report – Wed 4 Nov 2020

OVERNIGHT HIGHLIGHTS

Dow gains 550 points on U.S. Election Day as investors brace for results; Asian futures pointed to a mixed start

U.S. Election Day unfolds smoothly, so far defying fears of disruption; Australia’s RBA Cuts Rates, Announces A$100 Billion Bond Buying; China postpones Ant’s colossal IPO after closed-door talk with Jack Ma

U.S. Election Day unfolds smoothly, so far defying fears of disruption

Americans by the millions waited patiently to cast ballots at libraries, schools and arenas across the country on Tuesday, in an orderly show of civic duty that belied the deep tensions of one of the most polarizing presidential campaigns in U.S. history. The face masks worn by many voters and the sight of boarded-up stores in some city centers were reminders of two big issues shaping the 2020 election, with COVID-19 still ravaging parts of the country after a summer of sometimes violence-marred protests against police brutality and racism. While civic rights groups said they were monitoring for any signs of voter interference and law enforcement agencies were on high alert for disruption at the polls, their worst fears had not materialized by early afternoon. In New York City, some voting lines snaked around blocks, but in many places, from Los Angeles to Detroit and Atlanta, lines were short or non-existent. Poll workers guessed this was due to an unprecedented wave of early voting. More than 100 million ballots were cast before Election Day, a new record.

Originating Source

Australia’s RBA Cuts Rates, Announces A$100 Billion Bond Buying

Australia’s central bank cut interest rates and announced a new bond-buying program as it seeks to ensure a rapid recovery across an economy now free of lockdowns. The Reserve Bank of Australia lowered its key interest rate, yield-curve target and bank lending facility rate to 0.10% from 0.25%, as forecast by an overwhelming majority of economists. The board also said it would buy A$100 billion of government bonds with maturities of around 5-10 years over the next six months. “The combination of the RBA’s bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets,” RBA chief Philip Lowe said in his statement after Tuesday’s policy meeting. The move demonstrates the central bank’s desire to quickly drag the economy out of its first recession in almost 30 years and prevent unemployment from becoming entrenched. In addition to cutting interest rates to a fresh record low, the further use of non-conventional policy tools shows the RBA, like its global peers, has reached the end of its conventional ammunition. The action comes with other central banks across the world setting the stage for further stimulus as a resurgence of the virus threatens a global recovery.

Originating Source

Brexit Negotiators Race to Reach Breakthrough as Time Runs Short

Brexit negotiators will begin a brief break on Wednesday, with time running out for both sides to reach a breakthrough over their biggest disagreements. The U.K. and EU teams, which have been working round the clock in Brussels since last week, each plan to hold internal discussions before formal talks resume in London on Sunday. The EU’s chief negotiator, Michel Barnier, will brief ambassadors from the bloc’s 27 countries, most likely on Wednesday, while his opposite number, David Frost, is set to update Prime Minister Boris Johnson. Johnson is now unlikely to speak with European Commission President Ursula von der Leyen this week, as had once been considered, but may do so at the end of next week if a final political push is needed to seal a deal, two people familiar with the discussions said. Officials on both sides say an accord is in sight, and could be reached between Nov. 13 and Nov. 16 — but they caution that the negotiations could still break down. While the two sides have made progress in recent days toward narrowing their differences over fishing, the level competitive playing field and how any deal will be enforced, they haven’t yet reached an accord.

Originating Source

ECB may cut support for indebted countries in nudge towards EU loans

The European Central Bank could offer less generous support for indebted governments when it puts together a further stimulus package next month, to push them to apply for European Union loans tied to productive investments, sources told Reuters. The ECB promised last week to introduce more measures in December to help euro zone countries cope with the second wave of the coronavirus pandemic, including new lockdowns that will curtail economic activity. The four sources who spoke to Reuters said policymakers were debating whether the ECB should extend its Pandemic Emergency Purchase Programme (PEPP), which gives it unprecedented flexibility in buying bonds from any country in distress, or its regular Asset Purchase Programme (APP), under which purchases should mirror the relative size of each country. This is because PEPP has driven down borrowing costs for indebted governments such as Spain and Portugal so much that they are shunning EU loans tied to digital and green investments in favour of raising no-strings cash on the bond market. The composition of the package should be decided at the ECB’s Dec. 10 policy meeting and the sources said a compromise could be on the cards, with both PEPP and APP being expanded but the former remaining the main instrument. An ECB spokesman declined to comment.

Originating Source

EU, UK so far fail to bridge gaps to secure trade deal

The European Union and Britain have so far failed to reach agreement on three most persistent sticking points in talks, both sides said on Tuesday, suggesting any breakthrough in securing a trade deal is still a way off. After nearly two weeks of intensified talks to try to strike a deal to protect nearly a trillion dollars of trade from severe disruption, stubborn differences over fisheries, fair competition and settling disputes have yet to be overcome. Irish Foreign Minister Simon Coveney said time may run out to strike a deal, adding that some progress on safeguarding economic fair play was not enough. “If there is not a basic set of rules around fair competition… and if there is not a governance structure that can deal with disputes, then in my view there will not be a trade deal,” Coveney told an online conference. “There is some progress being made in this area but it’s far from concluded yet.” Any deal should be agreed by Nov. 15 so it can be ratified by the European Parliament before Britain’s standstill transition out of the EU expires at the end of the year. Businesses hope that the time pressure and a COVID-19 crisis spiralling across much of Europe can focus minds on clinching a deal to avoid chaos in commerce, energy ties and aviation. But even then, Britain’s government and businesses will not be prepared, the Institute for Government (IfG) think tank said, describing disruption as inevitable in January with or without a deal.

Originating Source

Trump Has No Economic Plan, Says Republican Economist Glenn Hubbard

Republican economist Glenn Hubbard likes some things President Trump has done (tax cuts, deregulation) and dislikes others (trade wars), but he has little to say about Trump’s plans for the economy if he wins a second term. The reason is simple, he says: “He has no economic plan. I don’t mean that I don’t like it. It doesn’t exist.” Hubbard was chairman of President George W. Bush’s Council of Economic Advisers from 2001 to 2003 and advised the presidential campaigns of Mitt Romney in 2008 and 2012, and of Jeb Bush in 2016. He’s a professor at Columbia University and was dean of Columbia Business School from 2004 to 2019. Hubbard says he could “imagine opportunities” for a second Trump term, such as how to fix problems with the health-care system that have been “laid bare” by the Covid-19 pandemic. “Maybe talk about fiscal reform, or trade in a way that engaged our allies,” but he hasn’t done any of that, Hubbard says. “Anybody who says they know what Trump would do in a second term, I don’t know where they’re getting that from,” he says. Former Vice President Joe Biden, the Democratic candidate for president, doesn’t have much of a plan either, according to Hubbard. “His, too, is a little odd,” he says. “I’d have thought, if I was running for president, I would have focused on recovery and then a variety of renewal, recovery issues. There’s not really much there other than nods to the Democratic plan, which is kind of a Christmas tree.”

Originating Source

China to Halt Key Australian Imports in Sweeping Retaliation

China has ordered traders to stop purchasing at least seven categories of Australian commodities, ratcheting up tensions with a key trading partner in its most sweeping retaliation yet. Commodities traders in China won’t be able to import products including coal, barley, copper ore and concentrate, sugar, timber, wine and lobster, according to people familiar with the situation. The government has ordered the halt to begin on Friday, one of the people said, asking not to be identified as the information is sensitive. The notice was verbally relayed to major traders in meetings in recent weeks, one of the people said. Iron ore, Australia’s biggest export to China, won’t be included in the halt, the people said. The order represents a dramatic deterioration in ties, which have been strained since Australia barred Huawei Technologies Co. from building its 5G network in 2018 on national security grounds. Relations have been in free fall since Prime Minister Scott Morrison’s government in April called for an independent probe into the origins of the coronavirus. “China seems determined to punish Australia and make it an example to other countries,” said Richard McGregor, a senior fellow at Sydney-based think tank the Lowy Institute. “They want to show there’s a cost for political disagreements.”

Originating Source

China postpones Ant’s colossal IPO after closed-door talk with Jack Ma

The Shanghai stock exchange announced postponing Ant Group’s colossal initial public offering, a day after Chinese regulators weighed a slew of new fintech rules and summoned Jack Ma and other top executives to a closed-door meeting. The rare talk between China’s top financial regulators and Ant, which revealed “major changes in the fintech regulatory environment,” may disqualify the firm from listing on November 5, the bourse said in a statement on the evening of November 3. It’s unclear what those “changes” are, though the bourse has ordered Ant to disclose them. It’s worth noting that in late October, Ma gave a provoking speech criticizing China’s financial regulation. The conference was attended by China’s senior leaders and later stirred widespread controversy. Ant has halted its IPO in Hong Kong, where it planned to list concurrently, upon receiving the notice from Shanghai, the firm announced in a statement.

Originating Source

Top Trump News

Trump predicts ‘solid win’ as Biden grows more confident

President Donald Trump has declared he has a “solid chance” of winning a second term in the White House in his final interview before the election results are revealed. The President also vowed in an interview on Fox News that he would not “play games” by declaring an early victory if the results are not clear on election night.

Originating Source

Trump makes late surge as race tightens in must-win states

A late campaign surge has kept Donald Trump’s hopes of winning a shock against-the-odds second term alive, with both sides slugging it out over the pandemic, tax cuts, energy policy and fitness for office. Closing his campaign with 10 rallies over two days – during which he spoke before large, enthusiastic and sometimes hastily organised crowds for a total of more than 10 hours – Mr Trump entered the dying hours of the 2020 race in the fight of his political life to close a persistent gap to Joe Biden.

Originating Source

Democrats favored to win control of U.S. Senate, but results may be delayed

Democrats are favored to emerge from 14 hotly contested U.S. Senate races with full control of Congress in Tuesday’s election, but final results from at least five of those contests may not be available for days, and in some cases, months. With public disapproval of President Donald Trump weighing on Republicans across the country, voters will decide whether to end the political careers of embattled Republican senators, including Trump ally Lindsey Graham of South Carolina and moderate Susan Collins of Maine, among others. In total, 12 Republican-held seats and two Democratic-held seats are in play, based on a Reuters analysis of three nonpartisan U.S. elections forecasters – the Center for Politics at the University of Virginia, the Cook Political Report and Inside Elections. “There are dogfights all over the country,” Senate Majority Leader Mitch McConnell, the top Republican in Congress, said at a campaign stop. He described the possibility of Republicans holding onto the Senate majority as a “50-50 proposition.” Those odds appear optimistic, based on the three forecasters.

Originating Source

Economic Indicators

U.S. Factory Orders MoM

New orders for US manufactured goods jumped 1.1 percent from a month earlier in September of 2020, following a downwardly revised 0.6 percent rise in the previous month and slightly higher than market expectations of a 1 percent advance. Demand rebounded for transport equipment (4.1 percent vs -0.9 percent), namely motor vehicles (0.9 percent vs -1.2 percent); and fabricated metal products (1.2 percent vs -0.2 percent). Orders continued to increase for computers and electronic products although at a slower pace (0.6 percent vs 1.2 percent). On the other hand, orders for machinery went down 0.3 percent, following a 2.6 percent increase in August. Excluding transportation, factory orders went up 0.5 percent, compared to forecasts of 1 percent.

U.S. API Weekly Crude Oil Stock

API Crude Oil Stock Change in the United States remained unchanged at 4.58 BBL/1Million in October 30 from 4.58 BBL/1Million in the previous week.

New Zealand Employment Change QoQ

Employment in New Zealand decreased by 0.80 percent in September of 2020

New Zealand Unemployment Rate

Unemployment Rate in New Zealand increased to 5.30 percent in the third quarter of 2020 from 4 percent in the second quarter of 2020

Economic Calendar

Monday

China Caixin Manufacturing Purchasing Managers Index (PMI)

Monday

Germany Manufacturing Purchasing Managers Index (PMI)

Tuesday

U.S. ISM Manufacturing Purchasing Managers Index (PMI)

Tuesday

Australia Interest Rate Decision

Wednesday

U.S. Presidential Election

Wednesday

Australia Retail Sales MoM

Thursday

U.S. ADP Nonfarm Employment Change

Friday

U.S. Initial Jobless Claims

Friday

U.S. Nonfarm Productivity QoQ

Friday

Fed Interest Rate Decision