Monex Morning Report – Wed 7 Oct 2020

OVERNIGHT HIGHLIGHTS

Dow closes 375 points lower as Trump calls end to fiscal stimulus talks until after election; Asia stocks to drop

Donald Trump calls for negotiations to stop on coronavirus aid plan until after election; Australia central bank holds rates, but signals more easing soon

Top Market News

Australia central bank holds rates, but signals more easing soon

Australia’s central bank held its cash rate at a record low on Tuesday but hinted at further monetary easing as it looks to create jobs in the coronavirus-ravaged economy, which is suffering its worst contraction since the Great Depression. The Reserve Bank of Australia (RBA) kept the rate unchanged at an all-time low of 0.25%, as widely expected in a Reuters poll. The central bank also affirmed its target for three-year bonds and the recently increased cheap funding program for lenders, but signalled it was considering other measures to boost activity. “The Board views addressing the high rate of unemployment as an important national priority,” RBA Governor Philip Lowe said in a statement announcing the outcome of the policy meeting. “The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

Originating Source

Australian budget focused on lowering unemployment, treasurer says

Creating jobs is the focus of Australia’s annual budget set to be unveiled on Tuesday, Treasurer Josh Frydenberg said, as Canberra seeks to revive an economy ravaged by the COVID-19 pandemic. Australia is grappling with its first recession in three decades, with unemployment rising to a 22-year high in July after authorities imposed lockdown measures to slow the spread of the coronavirus. The government has pledged A$314 billion ($225.8 billion) of fiscal stimulus to soften the economic blow, and Frydenberg said the budget will include sweeteners aimed at lowering unemployment. “I will lay out our economic recovery plan to rebuild the Australian economy,” Frydenberg told reporters in Canberra. “It’s all about helping those who are out of a job get into a job. It’s all about helping those that are in work, stay in work.” Australia’s central bank left its cash rate at a record low of 0.25% on Tuesday, as expected, and said it continues to consider how additional easing could support jobs as the economy reopens.

Originating Source

Fed’s Harker: Recovery plateauing, return to old levels ‘will take some time’

The U.S. economy will probably not regain pre-COVID-19 pandemic levels of employment until 2023, and recent signs that the recovery is plateauing suggests a return to baseline economic growth “will take some time,” Philadelphia Federal Reserve President Patrick Harker said on Tuesday. “The virus itself, more than anything else, is determining the trajectory of the economy,” Harker said in prepared remarks delivered to a conference focused on whether the pandemic is accelerating adoption of automation and artificial intelligence. Harker said his forecast hinges on success in containing the pandemic and rolling out an effective and “widely available” vaccine by the latter part of next year. It also assumes an additional $1 trillion of federal pandemic relief, “which has yet to materialize.”

Originating Source

Donald Trump calls for negotiations to stop on coronavirus aid plan until after election

US President Donald Trump has ordered his negotiators to halt talks over a new stimulus package, after the two sides have struggled for months to reach a deal. “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Mr Trump wrote in a series of tweets Tuesday afternoon. Mr Trump weighed in shortly after a private conference call with Senate Majority Leader Mitch McConnell, House GOP Leader Kevin McCarthy and Treasury Secretary Steven Mnuchin, the administration’s top negotiator, who was scheduled to speak Tuesday with House Speaker Nancy Pelosi, who has been leading Democrats’ negotiations.

Originating Source

New pandemic wave could delay euro zone rebound, Lagarde says

A second wave of the coronavirus pandemic risks delaying the euro zone’s economic recovery, European Central Bank President Christine Lagarde said on Tuesday. “We now fear that the containment measures that have to be taken by authorities will have an impact on this recovery, so instead of that V shape that we all long for and hope for, we fear that it might have that second arm of the V a little bit more shaky,” she told the Wall Street Journal CEO Council in a pre-recorded conversation.

Originating Source

U.S. recovery would be stronger, faster with more aid: Fed’s Powell

The US recovery from the pandemic downturn would be “stronger and faster” with more government aid to protect against the possibility of accelerating job losses, Federal Reserve chief Jerome Powell said Tuesday. The central bank chief’s comments come amid an ongoing impasse between Democrats and Republicans in Washington over how much more to spend to bolster the economy after crucial provisions of the $2.2 trillion CARES Act expired. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in an address to an economics conference. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste.” Powell, who has long said more economic support is likely needed, warned that if economic improvements slow, that “could trigger typical recessionary dynamics, as weakness feeds on weakness.” A long period of “unnecessarily slow progress” could continue to exacerbate existing disparities in the economy, he said, which “would be tragic.”

Originating Source

Fed’s Bullard: Economy may improve faster than expected, but will keep current policy

The US economy may recover quickly from coronavirus pandemic but that would not call for a change in the Federal Reserve (Fed) bank’s current policy, said St Louis Fed President James Bullard. He added: “I like the monetary policy right now.” “Don’t think the Fed has to do anything differently now or going into next year.” “Economy may improve faster than markets think, but Fed will keep the current policy.” “Hopeful that policy is right to spur a faster recovery.” “More fiscal stimulus will make forecasts “that much rosier”.

Originating Source

WTO revises up forecast for goods trade to 9.2% decline in 2020

The World Trade Organization upgraded its forecast for trade in goods this year to a level still comparable to the decline during the global financial crisis, but better than initially predicted due to a rebound in June and July. The WTO said on Tuesday that global merchandise trade would fall by 9.2% this year and then increase by 7.2% in 2021. The WTO forecast in April that merchandise trade would decline by between 13 and 32% this year, figures described by the WTO chief as “ugly”, before rebounding by between 21 and 24% in 2021 if countries worked together. The Geneva-based trade body said that its estimates were subject to a high degree of uncertainty related to the evolution of the pandemic and government responses and noted that next year’s pick-up would leave trade well below its pre-pandemic trend.

Originating Source

Top Trump News

Covid-19 vaccine

The White House blocked new Food and Drug Administration guidelines for the release of a coronavirus vaccine that would almost certainly have ensured the vaccine would not be approved before the presidential election on 3 November. The FDA planned to instruct that vaccine developers follow patients in trials for at least two months, to rule out safety issues before seeking emergency approval. The proposed guidelines were submitted to the White House on 21 September, meaning the two-month period would extend beyond 3 November, when Donald Trump will seek re-election to the backdrop of a pandemic that has infected more than 7.5 million and killed more than 210,000 in the US. Polling has consistently shown majority disapproval of Trump’s handling of the pandemic.

Originating Source

Second debate with Biden

President Donald Trump on Tuesday said that he’s looking forward to next week’s debate with former Vice President Joe Biden as scheduled. The president announced his plans participate in the second debate less than 24 hours after he was discharged from Walter Reed National Military Medical Center for treatment of Covid-19. “I am looking forward to the debate on the evening of Thursday, October 15th in Miami,” Trump wrote on his Twitter feed. “It will be great!” Asked whether the Trump campaign will comply with testing requirements and any additional health measures in light of the president’s diagnosis, communications director Tim Murtaugh said: “The President intends to participate in person.”

Originating Source

Pelosi

Democratic House Speaker Nancy Pelosi said on Tuesday that President Donald Trump’s decision to walk away from talks on a coronavirus stimulus bill shows he is unwilling to crush the virus, as cases continue to rise across much of the country. “Today, once again, President Trump showed his true colors: putting himself first at the expense of the country, with the full complicity of the GOP Members of Congress,” Pelosi said in a statement. “Walking away from coronavirus talks demonstrates that President Trump is unwilling to crush the virus, as is required by the Heroes Act.”

Originating Source

Economic Indicators

Australia Balance of Trade

Australia’s trade surplus decreased to AUD 2.64 billion in August 2020 from a marginally revised AUD 4.63 billion in the previous month and missing market consensus of a AUD 5.15 billion surplus. This was the smallest trade surplus since October 2018, amid sluggish global demand as some countries or states faced a second wave of coronavirus. Outbound shipments plunged 4 percent month-over-month to a near three-year low of AUD 32.64 billion, while imports rose 2 percent to a five-month high of AUD 29.99 billion. Considering the first eight months of the year, the country’s trade surplus widened to AUD 48.75 billion from AUD 40.54 billion in the same period of 2019.

Australia Job Advertisements

Australia’s job advertisements in newspapers and on the internet surged 7.8 percent month-over-month to 118,424 in September 2020, after an upwardly revised 2.6 percent rise a month earlier. This was the fifth straight month of gain in job advertisement, as the economy reopened from coronavirus lockdowns and a resurgence in local virus cases in Victoria state was under control. “The question now is whether a return to pre-pandemic levels of job ads and vacancies would be enough to entrench a solid labor market recovery,” said ANZ senior economist Catherine Birch. “Right now, we need to get a huge volume of people – who were until recently employed – back into the workforce, along with new entrants and those wanting to re-enter the workforce,” she added. On an annual basis, ads tumbled 25 percent.

Euro Area Construction Pmi

The IHS Markit Eurozone Construction PMI dropped to 47.5 in September 2020, signaling the quickest rate of contraction since May, led by falls in activity across Germany and France. Home building, infrastructure work and commercial projects all contracted, amid increases in coronavirus cases and the potential for stricter restrictions to be imposed. Overall new orders and employment fell for a seventh straight month and input buying declined at the fastest pace since May. On the price front, input cost inflation eased. Looking ahead, business confidence remained negative.

United Kingdom Construction Pmi

The IHS Markit/CIPS UK Construction PMI rose to 56.8 in September 2020, up from 54.6 in the previous month and well above market expectations of 54.0. The latest reading pointed to a reacceleration in the rate of activity growth and a sharp increase overall, boosted by home building activity and work on commercial projects. Meanwhile, civil engineering activity fell for the second month running and at the sharpest rate since May. Overall new orders rose the most since before the pandemic-induced lockdown and purchasing activity growth accelerated to the fastest since October 2015. On a more negative note, employment contracted for a seventh consecutive month. On the price front, cost burden inflation slowed for the first time in six months to the weakest since May. Finally, confidence towards the 12-month business outlook was the strongest since February.

United States Balance of Trade

The trade gap in the US widened to USD 67.1 billion in August of 2020 from a downwardly revised USD 63.4 billion in July and higher than market forecasts of USD 66.1 billion. It is the biggest trade deficit since a record high in August of 2006 as imports returned to pre-pandemic levels while exports rose at a slower pace. The goods gap reached a record high of USD 83.9 billion while the services surplus shrank to USD 16.8 billion, the lowest since 2012. Imports increased 3.2% to USD 239 billion, the highest level since February, mainly led by purchases of pharmaceutical preparations; passenger cars; and crude oil while declines were seen for nonmonetary gold and finished metal shapes. Exports increased 2.2% to USD 171.9 billion, with sales rising mostly for nonmonetary gold and soybeans while shipments of semiconductors went down. The trade deficit with China fell 6.7% to USD 26.4 billion.

United States Job Openings

The number of job openings in the US fell by 204,000 from a month earlier to 6.493 million in August of 2020, below market expectations of 6.685 million and pre-pandemic level of 7 million. The number of job openings edged down for private (-242,000) and was little changed for government. By industry, declines were seen in construction (-68,000), and information (-25,000). The number of job openings decreased in the Midwest region. Meantime, the number of hires were little changed at 5.9 million, while total separations including quits, layoffs and discharges, and other separations dropped by 394,000 to 4.6 million.

Economic Calendar

Wednesday

U.S. Fed Chair Powell Speaks

Thursday

U.S. Crude Oil Inventories

Thursday

U.S. Federal Open Market Committee (FOMC) Meeting Minutes

Thursday

European Central Bank Monetary Policy Statement

Thursday

U.S. Initial Jobless Claims

Friday

Japan Gross Domestic Product (GDP) QoQ

Friday

China Composite Purchasing Managers’ Index (PMI)