It's difficult to fade this move as global risk markets should rally more on what is truly a remarkable breakthrough on the vaccine front
A lot of today's price action makes sense. The tech-heavy NASDAQ has underperformed, while industrial names are making the most of it. Russell 2000 futures are limit up with a gain of 6.999% on the day, while the e-mini NASDAQ has declined 0.5% since the Pfizer (NYSE:PFE) vaccine breakthrough news came out. It’s very much a rotation at the expense of the tech/growth names—which tend to do well from lower for a lot longer. Now the question might be which central bank will be the first to raise rates.
For oil, the news really came in the nick of time. The prospect of harsher lockdowns, alongside rising supply (Lybia), had kept prices under pressure and reignited concerns of dysfunctional price action due to the tank top fears. A gain of about $2 in WTI makes the market look somewhat alive, but there is a long way for the oil market to regain its health
Fixed income has come off, but it’s interesting to see that although equities are doing their best to grind out further gains, fixed income has found a level.
Price action following the vaccine news—including a sharp sell-off in the safe havens yen, gold, and franc—has been frenetic. This contrasts with the post-election days when it seemed that the market was looking for hedges in a protracted low growth period. These positions are now being unwound as the outlook changes with the debate moving to how quickly the vaccine will get rolled out across the US/Europe and the rest of the world.
Moreover, the FX market may well differentiate and single out specific beneficiaries—especially those with larger servicing and travel sectors that should benefit the most from the vaccine.
Beyond the first-pass gap in G10, some currencies should benefit more than others. The UK, for example, has struggled the most with managing the pandemic without a vaccine. In other words, a vaccine could make the biggest difference to the economic outlook for those countries that have struggled the most.
Fixed Income Sells Off On Pfizer Vaccine News
Not only do markets get some certainty from the US presidential election, but they also get a boost from the latest vaccine headlines. The move-in US Treasuries on the Pfizer vaccine news is remarkable with the 10-year up 10bp in a knee-jerk reaction, illustrating that the bond shorts got properly cleaned out in the post-election no-blue-wave squeeze.
That Pfizer and BioNTech's COVID-19 vaccine is over 90% effective and looks like the game-changing panacea the oil market has been waiting for.
Oil Leaps On Vaccine Optimism, Indication OPEC+ To Alter Deal
Oil rallied on the vaccine news by over 9% after an initial leg-up when Saudi Arabia's energy minister, Prince Abdulaziz bin Salman, at the ADIPEC conference, said OPEC+ cuts were to be extended to 2022.
Saudi Arabia's Energy Minister says OPEC+ cuts could be extended through 2022 and that the group can "tweak" the agreement as needed. He was speaking at the ADIPEC energy conference. This is more evidence of a 'whatever it takes' message from OPEC+ in a difficult and uncertain environment for demand. It seems increasingly likely current cuts will be extended into 2021 at the OPEC meeting later this month instead of being scaled back as planned from January.