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Fed’s Powell. Vaccinations, monetary policy and fiscal policy creates brighter outlook

  
  Analysis
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Feds Powell on IMF panel

  • Vaccinations, monetary policy and fiscal policy are creating a brighter outlook in the US
  • Wants to see a string of months like March jobs report
  • unevenness in recovery is a serious issue
  • global vaccination is a risk to progress we are making
  • There is a risk in the US if cases move back up from here. Any pickup and cases will slow the recovery

Fauci on the news wires – sees a whole lot of pain if COVID-19 trends do not change

  
  Analysis
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Dr Fauci, Director of the National Institute of Allergy and Infectious Diseases in the US, in an interview with CNBC

  • sees a whole lot of pain if covid trends don’t change
  • mask-wearing, distancing would have a big impact
  • very little appetite
  • for lockdown in US
  • changes need to be made to combat in US
  • doubtful White House will mandate national mask-wearing

US indices close sharply higher. Dow has best day since July

  
Analysis, US Market
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S&P index has all sectors in the green

The major US stock indices are closing sharply higher on hopes for targeted coronavirus aid

  • All 30 Dow stocks closed in the green
  • All 11 S&P sectors closed higher
  • Dow is up nearly 600 points at the highs
  • Stocks close higher to last 3 trading days
  • Dow closes at the highest level since September 2
  • Dow has best day since July
  • The gains today erased the losses (and then some) from yesterday. Yesterday the S&P fell -1.4%. The NASDAQ index fell -1.57% and the Dow industrial average fell by -1.34%.
The final numbers are showing:
  • S&P index rose 58.47 points or 1.74% at 3419.43. The high reached 3426.26. The low extended to 334.56
  • NASDAQ index closed up 209.99 points or 1.88% at 11364.59. The high reached 11380.55. The low reached 11258.35
  • Dow rose 530.7 points or 1.91% at 28303.46. The hi reached 28369.66. The low extended to 27971.36
Some winners include:
  • First Solar, +7.08%
  • Netflix, +5.71%
  • American Express, +4.35%
  • United Airlines, +4.30%
  • Corning, +4.25%
  • Beyond Meat, +4.0%
  • Salesforce, +3.89%
  • Western Digital, +3.56%
  • Slack, +3.53%
  • Boeing, +3.16%
The worst performing Dow stocks include:
  • Verizon, +0.2%
  • Walmart, +0.2%
  • Merck and Company, +0.51%
Other losers today included:
  • Exxon Mobil, -2.49%
  • GoodRx, -1.14%
  • Lyft, -0.49%
  • Papa John’s, -0.38%
  • Crowdstrike, -0.34%
  • Facebook, -0.27%
  • Raytheon, unchanged

Reasons for the sliding oil price pile up

  
Analysis, Crude
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  • Crude oil prices collapsed, with Brent crude closing under USD40/bbl for the first time since June
  • risk-off tone across markets 
  • stronger USD headwinds
  • tone was set earlier this week after Saudi Aramco cut its prices to Asian refiners, suggesting demand is weak
  • Bloomberg survey showed that only four out of ten Asian refiners would be subsequently trying to buy more Saudi crude
  • Abu Dhabi National Oil Co also cut its prices on Tuesday
  • US refiners are also cutting output, as the summer driving season ends and inventories remain high
  • rising COVID-19 infections across the globe doesn’t bode well for demand in the short term
  • futures markets widening in the contango for both Brent and WTI to their widest levels since May

US election outcome poses potential downside risks to US equities

  
  Analysis
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Via HSBC, beginning with where we are at:
  • latest national opinion polls show Senator Joe Biden maintaining a healthy lead over President Trump
  • although lower than the double-digit gap reached in late June
  • Biden’s strong polling performance has coincided with a period of high US unemployment as the country grapples with the Covid-19 pandemic and a period of heightened social tensions earlier this summer
But, that could change:
  • A number of factors could materially shift either candidate’s standing in the coming weeks. 
  • Positive for Trump would be developments that lead to a faster economic recovery. This may include the potential for the pandemic to subside or further progress to be made with treatments and/or vaccines. Congress passing a new stimulus package that includes an extension to the unemployment insurance top-up will also be considered important. 
  • Other factors complicate the picture. There is uncertainty about the impact of increased mail-in voting due to the pandemic. Meanwhile, the US Electoral College system places greater importance on ‘battleground states’ to the final result, making national polls a less useful predictor. In the majority of these states, Biden is forecast to do worse than at the national level.
For markets:
  • The outcome of the election poses some potential downside risks to US equity markets. 
  • These include the possibility of a divided government and “deadlock” over fiscal policy support, while Biden may implement higher corporate taxes. 
  • For the time being, we maintain our overweight view on US equities as the “swoosh” economic recovery remains in play.”

India, Japan and Australia have begun discussions on reducing reliance on China

  
  Analysis
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An ICYMI from this week on the three countries set to discuss a trilateral Supply Chain Resilience Initiative (SCRI) to reduce dependency on China

  • No date has yet been set for initial negotiations but could come as soon as next week
  • initiative first proposed by Japan
  •  Japan is said to be in favour of launching SCRI by November

Why the US dollar continues to fall

  
  Analysis
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USD/JPY declines below 106.00

USD/JPY is at a six-day low as the pressure on the US dollar mounts. There is some broad-based weakness taking hold. It’s increasingly becoming the default mode in the market to sell US dollars, so long as there isn’t genuine risk aversion.
There’s nothing particularly negative for the US dollar today but there are headwinds:
  1. US election risk
  2. Lack of US stimulus will hurt relative growth
  3. Equity market valuation is richer in the US, better value elsewhere
  4. Long-term monetization/inflation worries
Here’s chart on M2 from Nordea comparing the US and Europe:
USD/JPY declines below 106.00
In the smaller picture, risk sentiment is good today and that’s good enough to undercut the US dollar.
As for USD/JPY, it’s not time to worry yet but the drop in late July is starting to look like a warning shot.
USDJPY

UK press (Times) report: US sends stealth bombers to counter Chinese threat

  
Analysis, Politics
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UK newspaper The Times with the info on US military assets deployed

  • Three American B-2 stealth bombers have arrived in the Indian Ocean island of Diego Garcia on the eve of Chinese live-firing naval exercises north of Taiwan.
  • It is the first time the nuclear-capable strategic bombers have been sent to the remote island since 2016, in an indication of the growing concern about China’s intentions towards Taiwan.
  • The bombers flew across the Pacific from Whiteman air force base in Missouri to land at Diego Garcia, part of the British Indian Ocean Territory. With their advanced stealth technology, the B-2s can penetrate enemy territory without alerting air-defence radars.
Link is here, Times (may be gated)
Seems rather a long way away:
UK newspaper The Times with the info on US military assets deployed
Taiwan escalation would be likely risk negative. This seems a bit of a small step. Let’s hope it goes no further (probably a forlorn hope).

China reaffirms that US’ TikTok ban has nothing to do with national security

  
  Analysis
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Comments by the Chinese foreign ministry

US China
  • Beijing has been ‘consistent’ on trade deal
  • Declines to comment on further trade specifics
  • Says position on US sanctions is clear and consistent
  • Says US sanctions are irrational, groundless
  • Reiterates opposition towards ties between US and Taiwan
There’s nothing really new here as this has been China’s stance all along but it does reaffirm expectations that both sides have a lot more than just the Phase One trade deal to discuss if they were to meet later this week.

Crude oil inventories for July 31 -7.373M vs -3.335 est.

  
Analysis, Crude
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Crude oil inventories for July 31

  • crude oil inventories -7.373M vs -3350M estimate. The drawdown is a little lower than the 8.587 from the private data last night
  • gasoline 0.419 million vs. -0.500M estimate
  • distillates 1.591M vs 0.986M estimate
  • Cushing 0.532M vs 1.309M last week
  • crude oil implied demand 18063 vs. 17762 last week
  • gasoline implied demand 9386.6 vs. 9250.1 last week
  • distillates implied demand 4812.7 vs. 4859.1 last week
  • US refinery utilization 0.10% vs. 0.20% estimate. Last week 1.6%
The price of crude oil after a brief dip is back trading near high levels for the day at $43.41. That’s up $1.71 or 4.12%. The high for the day reached $43.52. The 200 day moving average is currently at $43.92. The price of the September contract is not traded above its 200 day
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