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Dow pops 650 points on Election Day, as Wall Street extends rally

EconNov 03. 2020

By The Washington Post · Taylor Telford · BUSINESS, US-GLOBAL-MARKETS 
U.S. markets jumped at the open on Election Day, as investors expressed optimism that a clear winner would emerge in the presidential race, fanning hopes for economic stimulus.

Tumult reigned in trading last week, with U.S. indexes notching their worst week since March as the U.S. shattered records for new coronavirus cases and several European nations reintroduced lockdowns. But on Tuesday, the markets are poised to build on Monday’s gains, as upbeat investors react to projections of a Blue Wave, Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in comments emailed to The Post.

“Currently the consensus is that a Blue Wave (Democrats hold the House and win the Senate and White House) scenario will lead to a much larger stimulus package next year,” Zaccarelli wrote, “which would be good for the stock market in the short run, despite the fact that it will also lead to higher corporate and personal income taxes.” 

For the first time in history, most Americans cast their ballots before Election Day. The massive increase in early and mail voting, with many voters seeking to avoid crowded polling places, has reshaped how and when most ballots are counted, creating uncertainty around when results will be known. According to The Washington Post’s average of national polls, Democratic nominee Joe Biden leads President Trump 52% to 42%. The former vice president holds a bigger lead than Hillary Clinton had in 2016, before her surprise loss to Trump.

Shortly after open, the Dow Jones industrial average was up more than 650 points, or 2.4%, at 27,581. The S&P 500 index had risen 2.2% to 3,383. The tech-heavy Nasdaq 100 – battered by the recent steep sell-offs in Big Tech – rose 2.0% to 11,180.

The optimism was shared overseas. Asian markets all closed in positive territory, with Hong Kong’s Hang Seng Index and the Australian ASX 200 both gaining nearly 2%. Japan’s Nikkei 225 and the Shanghai Composite index both climbed about 1.4%. In midday trading, European indices were all positive, led by France’s CAC and Britain’s FTSE 100, which were both up 2.1%.

“It’s a firm risk-on mood for investors as equities rise across Europe and Asia,” Russ Mould, investment director at AJ Bell, said in Tuesday comments emailed to The Post. “Investors seem to be pricing in a victory by Joe Biden in the US Presidential Election and anticipation is high that he will have a more favorable trade policy with China and the EU.” 

Investor ease was reflected in the yield on the 10-year U.S. Treasury note, which edged up to 0.878% Tuesday morning, nearing its highest level since June as investors seek out riskier territory. Bond yields move inversely to prices.

Even oil markets, which have been choppy as renewed movement restrictions spur fears of wider lockdowns, were steady Tuesday. Brent crude, the international oil benchmark, was trading up 3.2% at $40.23 per barrel. West Texas Intermediate crude, the U.S. oil benchmark, was trading up 3.6% at $38.13 per barrel.

The rally reflects a hunger for change amid the ongoing public health crisis and the uneven economic recovery, Chris Rupkey, chief financial economist at MUFG Union Bank, said Tuesday in comments emailed to The Post.

“History is repeating itself where four years ago, the Dow industrials rallied Monday and Tuesday into the presidential election on November 8, and now stocks are up Monday and Tuesday again this year before the election results start to trickle out after the close of trading today,” Rupkey wrote. “Stocks are rallying today in hopes of a better tomorrow.” 

On Sunday, the U.S. Centers for Disease Control and Prevention published guidance saying people who are in isolation after testing positive can still cast ballots in person.

“Voters have the right to vote, regardless of whether they are sick or in quarantine,” the CDC says on their website. Under federal law, turning someone away from a polling site is considered illegal and an act of voter intimidation.

The guideline could add another layer of tension for those voting in person on Election Day, as some states prepare the National Guard for potential post-election unrest. The surge of voters to the polls Tuesday comes amid what one top health official called “the most concerning and most deadly phase” of a the coronavirus pandemic. The virus has already claimed at least 230,000 American lives, and record numbers of coronavirus-related hospitalizations are straining hospitals in rural states.

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German factories led Europe’s recovery before lockdowns hit

EconNov 03. 2020

By Syndication Washington Post, Bloomberg · Jana Randow · BUSINESS 

German manufacturing drove Europe’s uneven recovery in October, a pickup that will almost certainly be derailed now by tough new restrictions to contain covid-19.

Last month saw a fourth consecutive increase in euro-area factory output, underpinned by stronger demand from within the region and beyond. Companies remained positive about future production, but still continued to cut staff.

“Euro-zone manufacturing boomed in October, with output and order books growing at rates rarely exceeded over the past two decades,” said Chris Williamson, an economist at IHS Markit. “While the data bode well for production during the fourth quarter, the expansion is worryingly uneven.”

Germany was the standout performer, benefiting from strong demand for cars, business equipment and machinery. Austria, Italy and Spain also saw solid expansions.

Manufacturing has been relatively resilient in the face of a resurgent pandemic. Reports out of Asia also painted a positive picture in October. Factory growth continued in China, with that economy’s ongoing recovery giving the rest of the region a lift.

Euro-area services, however, have struggled with hesitant consumers, and will see business deteriorate sharply in November when restaurants, hotels and shops will be closed in many parts of the continent.

The European Central Bank has already signaled that more monetary stimulus is on its way in December. Governments have also announced new support to help companies through the crisis and retain jobs, so that consumers can continue to spend.

“While manufacturing as a whole may be booming for now, the sustainability of the recovery will depend on household behavior returning to normal and labor markets strengthening,” said Williamson. “Given second waves of virus infections, this still looks some way off.”

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ECB six-week countdown to stimulus action has banks guessing

EconNov 03. 2020

By Syndication Washington Post, Bloomberg · Paul Gordon · BUSINESS 

The European Central Bank’s exceptionally clear pledge to come up with a new package of monetary stimulus at its next policy meeting has given markets plenty to think about.

President Christine Lagarde was forthright last week in saying her institution will provide all the support needed for a euro-area economy that is again shutting down under the onslaught of the coronavirus.

But she was also insistent that simply doing more of the same is not the plan. To hammer home that message, she referred to the “recalibration” of the ECB’s measures 20 times in her one-hour news conference.

So financial professionals immediately got to work figuring out what that might entail.

– Bond Binge 1

Economists and investors are essentially unanimous on one thing: the 1.35 trillion-euro ($1.6 trillion) pandemic emergency purchase program will be expanded.

The powerful bond-buying plan — agreed at an extraordinary ECB meeting in March, and only half of which has so far been used — can crush signs of stress in government finances by buying up the debt of struggling nations.

JPMorgan Chase & Co., UBS AG and Barclays Plc all expect an extra 500 billion euros to be added. Morgan Stanley expects a little less, Commerzbank AG a little more. The general view is that the program will be extended by six months to the end of 2021.

The weekly pace of purchases could also be stepped up even before the meeting, according to Evercore ISI.

– Bond Binge 2

Some economists see a chance of another bond program being boosted as well — the asset purchase program that was launched in 2015 to fend off the risk of deflation. After a brief halt in 2019, it was resumed and is running at 20 billion euros a month, plus a “temporary envelope” of 120 billion euros. It’s currently scheduled to run until the end of this year.

ABN Amro Bank NV, Barclays and Pictet & Co. are among those saying the program will likely be extended into 2021 and stepped up — Pictet says it might be doubled to 40 billion euros a month.

A related, and much thornier, topic is whether the asset purchase program should be granted the type of flexibility used in the pandemic version.

Some ECB policymakers have pushed back against that idea. Executive Board member Yves Mersch said at a conference on Monday that the pandemic program is temporary and the asset purchase program will “not inherit” its features.

Pictet says it’s also possible the ECB could buy so-called fallen angels — securities that have seen their credit rating cut to below investment grade because of the crisis — in its private-debt programs. Junk bonds are currently ineligible.

– Bank Relief

The ECB is proud of its six-year-old innovation of giving banks cheap long-term loans to spur them to keep credit flowing, so economists widely expect that to be key to the December package.

More funding rounds are seen as likely, as only one is planned in 2021, perhaps with even looser terms. JPMorgan and others think three more operations will be added next year, and the terms adjusted so that it’s easier for banks to get the lowest interest rate of -1%.

JPMorgan says the standards on the collateral deemed acceptable for the loans could be loosened to make it easier for banks to access them.

Such generosity will feed into another tricky debate though — whether banks should be allowed to resume paying dividends.

– Rate-Cut Resistance

One change that looks less likely is the once-standard central bank tool of an interest-rate cut. The policy rate is already at a record-low -0.5% and hasn’t been reduced at all during the pandemic, for fear of crimping bank profitability to the point that they make credit harder to get.

Those concerns have been mitigated by some exemptions from the negative rate — which works as a charge on bank deposits — and by the long-term loan program. ABN Amro sees a strong case for exemptions to be increased.

Still, Austrian central-bank Governor Robert Holzmann said on Friday that he doesn’t see a rate reduction as being effective, and economists reckon many of his colleagues will agree. Commerzbank is among the few that sees action, saying the ECB will probably cut by 10 basis points in combination with other measures.

– December Tease

Holzmann was also keen to stress that policymakers will “perhaps have new instruments” — though he wouldn’t speculate on what they might be. Nor would his colleagues who spoke after Lagarde’s news conference.

One idea that surfaces occasionally, and has so far always been turned down, is to help strengthen banks by buying their debt. Patrick Perret-Green, head of research and strategy at AdMacro Ltd., says “it’s always struck me as strange that they’ll buy corporate paper and accept the credit risk but not that of banks.”

That still looks unlikely though. The ECB is also the supervisor for euro-area banks, and so risks running into a conflict of interest.

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One year in, Lagarde stamps her style on crisis-fighting ECB

EconNov 03. 2020Christine Lagarde speaks to journalists upon arrival at the ECB on Nov. 4, 2019. MUST CREDIT: Bloomberg photo by Alex Kraus 

By Syndication Washington Post, Bloomberg · Alexander Weber · BUSINESS 

“I’m going to be myself, and therefore probably different,” Christine Lagarde declared in a defining monologue at her first news conference as European Central Bank president in late 2019.

That moment, signaling her intention to put a personal stamp on the institution’s communication, has been matched by a distinctive approach since taking office on Nov. 1 last year. It’s very much a break with the past, even considering the extraordinary events of the coronavirus crisis that have dominated her reign.

The new style, in keeping with Lagarde’s stated aim to build a “bridge with the public,” often means more frequent remarks by the president and Executive Board than under her predecessor, Mario Draghi. That brings with it the advantage of more engagement and openness, but also the risk that mixed or unscripted messages can roil markets.

A major test of her communication approach was met last week with a decisive and clear message that was widely praised by investors. It was helped by the Governing Council’s unanimity in the view that Europe will need more stimulus to deal with the recession likely to accompany the second wave of the coronavirus pandemic.

At times, “it has been difficult to tell who to listen to, whereas with Draghi it was clear,” said Carsten Brzeski, an economist at ING Germany. Nevertheless Lagarde is now “accepting what’s required of an ECB president in terms of communication.”

In the seven weeks between the September and October policy meetings, the six-member board racked up more than 60 public appearances via online conferences, blogs and interviews on a wide range of topics.

The president herself has been prolific with media. The ECB’s website lists 14 interviews by Lagarde in the last 12 months. That compares to a single one in the final year of her predecessor, who rarely spoke to individual news outlets.

Some of the board’s frenzy of utterances might be explained by the ECB’s state of alert giving officials plenty to talk about. Working via video rather than attending events has also made it far easier to accept invitations coming their way.

Nevertheless, the ECB’s multi-channel, all-hours approach to broadcasting its views has been remarkable. Lagarde even managed almost to upstage herself on Oct. 19 when she spoke at a French event and released a prerecorded statement at a separate conference within the span of a few minutes.

More communication can reinforce public engagement and repair what Lagarde sees as a lack of understanding of the ECB. That’s part of the institution’s strategy review, which has given civil-society organizations an opportunity to voice concerns. She has also spent time charming Germans miffed at poor returns caused by negative interest rates.

“If you’re only talking to the markets, which was the ECB’s modus operandi before, you’re not reaching the general public,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “Lagarde is trying to change that. But if you’re talking to two different groups, you need to be thinking carefully about who you’re talking to and when.”

That tension between balancing plain speaking with communicating to investors was a lesson she learned the hard way. In March, when Lagarde seemed to suggest the ECB didn’t see its role as backstopping the integrity of the euro, investors dumped Italian bonds.

More frequent messaging by multiple board officials has also made it harder assess ECB policy, according to ING’s Brzeski. He says the advantage of the Draghi era was that following what the president and his chief economist at the time Peter Praet had to say was enough to form a view.

But criticisms leveled at the former chief charged that he took decisions in a small circle rather than building a wider consensus. Draghi bequeathed a strongly divided Governing Council, which comprises the board and the 19 national central-bank governors.

That legacy has already forced Lagarde to speak less openly on policy unless colleagues have been consulted. While that has helped reestablish the notion that disagreements should stay behind closed doors, rifts are almost certain to reemerge, for instance on exactly how the ECB should expand stimulus in December.

How the question of Governing Council unity develops will be a key challenge next year for the ECB’s incoming communications chief, Wolfgang Proissl.

The result for now is that Lagarde has established herself as the ECB’s public figurehead who is central to projecting the image of her institution, but is less recognized as the key communicator of its messaging.

“She’s not really the one that shows the force in terms of where the ECB’s is headed, so you have to pay more attention to the other ones as well,” said Jan von Gerich, chief strategist at Nordea Bank ABP. “Time will tell how the Lagarde approach will do. From a market perspective, the Draghi way was more clearer and more efficient.”

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Biden win would boost Thai economy: Research house

EconNov 03. 2020

By The Nation

If Democratic candidate Joe Biden wins the US presidential election as polls predict, it will be a boon for US, global and Thai economies, said Kasikorn Research Centre.

Americans are voting in the high-stakes election on Tuesday, though about 100 million have voted in advance.

The research house forecast that a Biden victory would lead to robust US economic growth of 3 per cent-plus in 2021. Democrats are expected to win majorities in both houses, which would enable a Biden administration to pass the budget bill and economic policies smoothly, boosting the US economy, according to Kasikorn Research.

Global economic risks would also drop under Biden, while the baht would strengthen from its current rate of Bt31.15/dollar.

“Every 1 percentage point of US growth will translate into Thai economic growth of 0.2 points,” said the research house.

A Biden win would also see a 10-20 per cent surge in Thai exports to the US, it forecast.

However, if Donald Trump wins a second term, global markets would be hit by high volatility with US stocks falling, said the research centre. 

The US economy would face more downside risks, while economic growth would be lower than 2 per cent next year. The dollar would weaken and the baht rise – but less than if Biden won. Thai exports to the US market would grow at less than 5 per cent.

However, a more cautious view of the next US presidency’s impact on Thailand was offered by Amonthep Chawla, head of research at CIMB Thai Bank. 

He said that if Trump wins, the US-China trade war may not escalate as the US had little room to raise duties further on Chinese imports. But trade disputes would shift to tension over technology. Trump’s policies would encourage more Chinese tech factories relocate to Thailand. And as Thailand is part of China’s production chains, Thailand needs to take advantage by joining the Regional Comprehensive Economic Partnership (RCEP), he said.

If Biden wins, Thailand should instead join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), he added.

Trade tensions between the US and China are unlikely to ease under Biden, but Chinese factories would be less likely to shift to Thailand.

Amonthep said both Biden and Trump favoured nationalistic policies over free trade, promoting US-made goods and job-creation. 

He predicted their stance would result in de-globalisation and the US losing its status as the world’s largest economy to China in the next 10 years. 

A Biden win would see the baht rise to Bt29-30 against the dollar, as he would borrow more money to boost the US economy, Amonthep predicted. A Trump win would push the baht up to Bt30/dollar from its current level just above Bt31.

Thailand needs to have a strong trade relationship with both China and the US, he added.

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Govt showers more soft loans on shrivelling tourism sector 

EconNov 03. 2020PM Prayut Chan-o-cha chairs the Cabinet meeting in the resort city of Phuket on Tuesday.The government will offer more soft loans to support tourism businesses hit by the Covid-19 pandemic, said Finance Minister Arkhom Termpittayapaisith after Tuesday’s Cabinet meeting in Phuket. 

By The Nation

The Cabinet approved raising the ceiling for government soft loans from Bt20 million to Bt100 million. The Government Savings Bank (GSB) will apply annual interest of 0.01 per cent to banks who offer the loans to tourism businesses. The two-year loans are being offered by commercial banks at annual interest of 2 per cent. 

The soft-loan scheme has also been extended to June 30 next year, said Arkhom.

The Thai Credit Guarantee Corporation (TCG) will provide loan guarantees worth Bt57 billion, for which small and medium-sized businesses will also be eligible.

The TCG will collect a 1.75 per cent annual insurance fee from the third year of borrowers’ eight-year contracts. 

The GSB will also extend its Bt5-billion soft-loan scheme for micro businesses engaged in tourism activities and supply chains to June 30 next year. Each can borrow up to Bt500,000 on a five-year term with no repayments in the first year and annual interest of 3.99 per cent.

The Small and Medium Enterprise Development Bank of Thailand will extend its Bt10-billion cash loan scheme until June 30 next year. Individuals or SME’s can borrow up to Bt3 million on a five-year term at 3 per cent interest in the first two years.

To help airlines to reduce costs, the Cabinet approved cutting tax on jet fuel from Bt4.726 per litre to Bt0.20, effective from November 3 at midnight until April 30 next year. The tax cut will cost Bt700 million, but the government expects it to help boost travel and tourism by keeping prices low. The Transport Ministry will also ask Thai airlines not to raise fares too high, said Arkhom.

Airlines have requested soft loans worth Bt24 billion, but the Finance Ministry would look into details before sending requests to Cabinet for approval, he said.

The Finance Ministry expects the new financial aid will cover everyone in the tourism industry and ease their burdens during the Covid-19 crisis, he added.

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SET crosses 1,200 barrier despite uncertainty

EconNov 03. 2020

By The Nation

The Stock Exchange of Thailand (SET) Index closed at 1,221.33 on Tuesday, up 19.17 points or 1.59 per cent. The volume of total transactions stood at Bt45 billion with an index high of 1,222.78 and a low of 1,209.90

In the morning session, a Krungsri Securities analyst expected the day’s index to rise to between 1,210 and 1,215 before falling from rising oil price after Opec+ postponed its plan to increase production capacity.

“Uncertainty over European countries’ second lockdown to contain the spread of Covid-19 will also pressure the index,” he said.

The top 10 stocks with the highest trade value were KBANK, PTT, CPALL, IVL, PTTGC, SCGP, PTTEP, ADVANC, SCC and CPF.

As of 4.30pm, the price of oil rose by US$1.10 or 2.99 per cent to $37.91 per barrel, while gold rose by $5.30 or 0.28 per cent, to $1,897.80 per ounce.

Other Asian indices were also on the rise:

China’s Shanghai SE Composite Index closed at 3,271.07, up 45.95 points or 1.42 per cent, while Shenzhen SE Component Index closed at 13,580.04, up 159.07 points or 1.19 per cent.

Hong Kong’s Hang Seng Index closed at 24,939.73, up 479.72 points or 1.92 per cent.

South Korea’s KOSPI Index closed at 2,343.91, up 43.15 points or 1.88 per cent.

Taiwan’s TAIEX Index closed at 12,736.61, up 144.70 points or 1.15 per cent.

Japan’s Nikkei Index was closed for Culture Day.

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Domestic airport considered for Satun province

EconNov 03. 2020

By The Nation

The Department of Airports (DOA) has completed an initial feasibility study for an airport in the southern province of Satun.

The study will first be vetted by relevant agencies such as the Civil Aviation Authority of Thailand (CAAT) and Office of Transport and Traffic Policy and Planning before it is handed over to the Transport Ministry and Cabinet.

The study found that the most feasible location of the airport would be in the Jebilang sub-district of Satun’s Muang district as it is the least densely populated area. The airport will cover 2,797 rai, and will be approximately 25 kilometres from the city centre. The airport complex, estimated to cost Bt4.133 million, will include a 9,600-square-metre terminal, a 45-metre wide and 2.5-kilometre runway, with 7.5 metres on either side. Under this plan, the airport can support Airbus 320-200, Boeing 737-800 and Boeing 737-900.

Once the project gets the final okay from the Cabinet, the DOA is expected to come up with a final design, construction details including an environmental impact analysis and budget proposal by 2023 and launch bidding the following year.

The airport, expected to serve approximately 500,000 passengers in the first year, should be open for operation by 2028.