Stocks Jump to More Than Month High; Yields Climb

Stocks climbed to a more than one-month high on renewed optimism that US lawmakers could still reach an agreement on additional stimulus. Treasuries and the dollar fell. The S&P 500 fell by 1.74% to 3,419.45 while Dow Jones was down 530.77 points (1.91%) to 28,303.46.

Top Fed Economist Says Much More QE Needed to Offset Zero Bound

The damage of the Covid-19 recession will be doubled by the Federal Reserve’s inability to cut interest rates further, unless it employs massive additional asset purchases, one of the central bank’s top researchers said in a new paper. Bond purchases equal to 30% of US economic output, or about US$6.5trn, are required to offset the impact of the Fed’s benchmark rate already being nearly zero, wrote Michael Kiley, a senior Fed economist and deputy director of the bank’s financial stability division.

US Consumer Borrowing Falls on Smaller Credit-card Balances

US consumer borrowing unexpectedly fell in August as credit-card balances declined for a sixth consecutive month with the coronavirus pandemic continuing to limit some purchases amid elevated unemployment. Total credit decreased US$7.2bn from the prior month after an upwardly revised US$14.7bn July gain, Federal Reserve figures showed.

ECB’s Lagarde Pledges No Premature Removal of Monetary Aid

European Central Bank President Christine Lagarde pledged not to remove monetary support until the coronavirus crisis is over, reinforcing her message that central banks and fiscal authorities must work together. “Macroeconomic policies in the euro area have acted forcefully, geared toward protecting productive capacity and jobs,” she said.

Johnson Plans Extra Help for UK Firms as New Restrictions Loom

Boris Johnson’s government has drawn up rescue plans for UK businesses struggling to cope in areas that have been forced into local Covid lockdowns, as ministers consider imposing new restrictions within days. No firm date has been set for rolling out the package, which is dependent on the evolution of the pandemic and changes to the rules, according to people familiar with the matter.

German Industrial Output Unexpectedly Drops as Virus Spreads

German manufacturers unexpectedly cut production, underlining the risks resurgent infections pose for the economic recovery. Industrial output declined 0.2% in August following three consecutive gains. Economists had predicted an increase of 1.5%.The Economy Ministry said the weakness was chiefly driven by a drop in auto manufacturing.

Thailand Widens Fiscal Stimulus With Tax Breaks to Spur Growth

Thailand will extend tax incentives to millions of its middle and upper income groups to fire up consumption and counter the nation’s worst economic slump triggered by the coronavirus pandemic. The concession will allow about 3.7 million taxpayers to deduct 30,000 baht (US$96) each from their total taxable income and will cost the government 11bn baht, Deputy Prime Minister Supattanapong Punmeechaow told reporters.

Oil Slumps With Rising US Supplies Adding to Demand Worries

Oil declined after a US government report showed an expansion in crude stockpiles during a time when fiscal relief from Washington remains up in the air. Brent crude for December settlement lost US$0.66 to US$41.99 per barrel.

Source: Affin Hwang Research - 8 Oct 2020