Morning Markets Brief 9-15-2020

Summary and Price Action Rundown

Global risk assets are rising again this morning as upbeat economic figures and some hopeful news on US fiscal stimulus prospects help brighten the market mood as investors await tomorrow’s Federal Reserve decision. S&P 500 futures point to a 0.8% higher open after the index advanced 1.3% yesterday, retracing around half of last week’s downside and upping its year-to-date gain to 4.7%, which is 5.5% below last Wednesday’s record high. The tech-heavy Nasdaq is set to extend yesterday’s 1.9% bounce, which also nearly halved last week’s losses and took its robust year-to-date gains to 23.2%. Equities in the EU are rising this morning while Asian stocks were mostly higher overnight. A broad dollar index is turning back toward its recent 28-month low, while longer-dated Treasury yields are edging upward, with the 10-year yield at 0.68%. Brent crude prices are back above $40 per barrel despite more bearish forecasts.

Encouraging Global Economic Data

Upbeat growth readings from China and rising sentiment indicators in the EU point to a continuing economic recovery overseas, sending the dollar back toward multi-year lows. The euro is edging back toward its recent 28-month highs versus the dollar, while the renminbi hit its strongest level since May 2019 following solid economic data that points to a continuing recovery from the pandemic-induced recession. China’s August reading of industrial production (IP) growth printed 5.6% year-on-year (y/y), topping a consensus forecast of 5.1% and July’s 4.8%. This follows yesterday’s better-than-expected IP readings from the EU and Japan, while analysts are awaiting the US IP print for August later this morning, with expectations for the month-on-month pace of growth to slacken to 1.0% from 3.0% in July. China’s August retail sales also surprised to the upside, expanding 0.5% y/y versus expectations for a flat reading after lagging at -1.1% in July. Analysts had pointed to the tepid recovery of the Chinese consumer as one of the lingering economic headwinds from the pandemic. Fixed asset investment for August also outpaced estimates, although only slightly, improving to -0.3% year-to-date from -1.6% in July, bettering a forecast of -0.4%. Meanwhile, EU data this morning also reflected a brighter growth picture, with Germany’s ZEW survey of economic expectations for September perking up to 77.4 versus an expectation of 69.5 after registering 71.5 in August. The current situation assessment also improved to -66.2 from -81.3, topping estimates of -72.0. For the whole EU, the ZEW outlook also improved markedly to 73.9 from 64.0 in August.

Flickers of Hope on the US Fiscal Stimulus Front

A group of moderate House Democrats are set to unveil their plan for a compromise $1.52 trillion pandemic relief bill today, potentially breathing some life back into the deadlocked negotiations. Reports indicated that the group is pressing Speaker Pelosi to restart talks with the White House in continued pursuit of an elusive deal on the next round of fiscal support for the pandemic-impacted US economy. Their draft bill is scheduled to be released later this morning. Although Speaker Pelosi has thus far held to her current $2.2 trillion position, which is more than $1 trillion below the initial size of the HEROES Act passed by House Democrats, she has continued to indicate that further compromise would be possible. Meanwhile, past communications from the White House have suggested that $1.5 trillion may be an acceptable figure. The bipartisan House Problem Solvers Caucus, comprised of 50 relatively centrist lawmakers, also arrived at a roughly $1.5 trillion compromise figure. Yesterday, Treasury Secretary Mnuchin urged action on economic stimulus during his appearance on CNBC, saying “[n]ow is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet” and indicating that he is prepared to continue working toward a deal on the stalled bill.

Additional Themes

More Dire Oil Forecasts – Following yesterday’s downbeat assessment of the oil market outlook by OPEC, the monthly report from the International Energy Agency (IEA) painted a similarly grim picture. The IEA flagged increasing fragility in oil markets, calling the outlook “treacherous” due to the continued dampening of demand due to the ongoing impact from the pandemic. Notably, oil giant BP expressed an even more dismal view on the future of crude markets this week, projecting that demand will remain “broadly flat” for the next two decades as energy transitions will reshape the world away from traditional sources. CEO Bernard Looney indicated that he would shrink oil and gas output by 40% over the next decade and spend nearly $5 billion a year investing in renewable power.

TikTok Deal Under Review – Following reports early yesterday that Oracle had won the bidding for TikTok’s US business, with the tech giant confirming this later in the day, the Treasury Department is said to be initiating a review of the arrangement, which is not an outright sale.