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Written by: Craig Erlam | OANDA Europe
There's been plenty to celebrate recently and the stock markets are evidence of this but once again we're seeing them run out of steam as the Moderna announcement quickly wears off.
Not that this is anything to do with the vaccine itself; it's probably more a reflection of the fact that a Moderna announcement has been spoken about since the Pfizer news broke last week due to the similarities between the two, in terms of the technology used. What we're probably seeing is the Moderna announcement being largely priced in ahead of time. The fact that it's so effective obviously gave stocks an extra bump.
Even the Pfizer rally came on the back of a strong election week for stock markets, with indices up well more than 10% in a little over two weeks. More positive vaccine results will continue to be supportive for these markets now as investors begin to position for the new normal and when that will happen. There's far more organic optimism than this time last month.
Stimulus from central banks and governments around the world has done a decent job of supporting these markets over the last eight months but this is the news we've all been waiting for. And we're now in a bit of a sweet spot because not only are we looking at the prospect of a vaccine in a matter of weeks, but more positive results could follow from other candidates and for the foreseeable future, the cash is going to continue to be pumped.
Central banks and governments aren't going to slam on the breaks now. They now have an end in sight and all of the effort will be for nothing if they trigger an unemployment surge just before the economy can stand on its own two feet. The less mess, the easier the clean up afterwards. What more motivation do governments need.
Obviously, the elephant in the room is the incredible surge in Covid cases we're now seeing as countries either enter back into lockdown or are under such restrictions that they may as well be. This is something investors appear comfortable turning a blind eye to at the minute, as they gaze into the light at the end of the tunnel, full of hope that this will all soon be behind us.
But as we saw earlier this year, this has the potential to be much worse and last longer than we originally anticipate which may prove to be a drag if lockdowns last beyond the end of the year. It has been and remains the greatest downside risk for these markets which are now sitting in pretty frothy territory again. There's room for more optimism but a lot of positive outcomes are suddenly priced in.
And we're already seeing the cost of the surge, even before the restrictions which are now being imposed kick in. Retail sales last month came in lower than expected and the numbers for September were revised lower. This is only the beginning, it's going to get much worse before it gets better and unlike last time, Washington doesn't have people's backs. This is going to take its toll and the price is only going to go up if a stimulus bill isn't agreed.
Tesla jumps on S&P 500 inclusion
Tesla is off to a roaring start on Tuesday, following the decision to include it in the S&P 500 later this year. That means a flood of cash pouring Tesla's way as tracker funds pile in. Not a bad way to cap off 2020, a year in which the share price has risen more than 400% and there's still plenty of time to go. The disappointment back in September was a bitter blow for the company but they didn't have to wait long, with them seemingly now ticking all the right boxes. The decision also helped Elon Musk overtake Mark Zuckerberg to become the world's third richest man. Not a bad year, at all.
Brexit deal may come next week
Talks are ongoing between London and Brussels towards a Brexit deal and despite all the usual assurances that an "Australia-style deal" would be good for the UK, I'm not sure even the Prime Minister believes that. No deal at this moment would be a bitter blow for UK businesses and consumers and it's inconceivable that the UK leaves on these terms, let alone in the midst of a pandemic. There have been suggestions that a deal will be reached next week which doesn't leave long for it to be ratified before the end of the year. But as always, I'm sure they'll just about manage it.
Do vaccine announcements make OPEC+ delay less likely?
Oil prices are pulling back a little today after Monday's rally. The Moderna announcement got pulses racing at the prospect of a return to normality, one in which we can see friends and family, go to work, travel abroad. All things that oil producers appreciate just as much as the rest of us.
Having slipped back inside the post summer ranges shortly after smashing through the top of them last week, oil now finds itself flirting with those late summer levels once again. WTI is seeing resistance around $42 again, where it failed yesterday. The suggestion from Russian Deputy PM Alexander Novak that the oil market is now stable may take the edge off as the JMMC meets virtually today.
It's widely expected that OPEC+ will push back on plans to increase production by two million barrels per day in January but with the Pfizer and Moderna announcements pushing oil back above $40, there may not be the same support there as there was just over two weeks ago.
Gold vulnerable to vaccine news
A softer dollar in recent days has alleviated some of the pressure on gold but it's still struggling to pull it'self considerably off its lows. Once again the yellow metal found support around the $1,850-1,860 region but it has since struggled to break back above $1,900. Perhaps this is a new short-term range that's emerging for gold but with the vaccine news seemingly improving week by week, it's looking a little shaky below. The recovery yesterday may be encouraging to some but unless it breaks $1,900, that won't last.
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