Stocks Surge: Pfizer Vaccine News Triggers Huge Risk on Rally
Positive vaccine news from Pfizer and Biotech has triggered a huge risk on surge in global financial markets. In a Press release, a Pfizer executive announced that their experimental vaccine had been found to be over 90% effective in preventing Covid-19. Thus, they plan to seek US emergency use authorization soon after the next safety milestone is reached in late November. Additionally, the Biontech CEO told Reuters that he is optimistic that immunisation effect of Covid-19 vaccine will last for a least a year though this is not certain yet. The Pfizer CEO called today’s news the most significant medical advance in the last 100 years.
In terms of the trail, no serious safety concerns were identified as of first interim analysis of the Covid-19 vaccine; the first interim analysis evaluated 94 confirmed cases of Covid-19 in trial participants. The final analysis point of the trail, where the vaccine will be tested by infecting a total of 164 infections is hoped to be achieved by the first or second week of December.
Pfizer expects to produce up to 50 million doses of Covid-19 vaccines in 2020 and then up to 1.3 billion doses of Covid-19 vaccines in 2021. Note: 10 million of the Covid-19 vaccines produced by the years end will be going to the UK.
In reaction to the above news, we have seen a textbook risk on move.
Global equity markets surged; (at the time of writing) S&P 500 futures are now up 3.5% and hit all time highs above 3600. Meanwhile, Nasdaq 100 futures fell into the red; remember that some of the biggest Tech stocks such as Amazon have actually been huge beneficiaries of the pandemic and lockdowns. Likewise, the Stoxx 600 is up over 4%, with Spanish, Italian and French equities leading (IBEX 35 was up as much as 9%, CAC 40 as much as 7% and FTSE MIB as much as 6%). With their economies more reliant upon Covid-19 hit sectors such as travel and tourism, this makes sense; a sooner than expected vaccine means a sooner and stronger than expected economic recovery. In terms of equity market sectors; Pfizer and Biotech are of course up big, while the sectors worst hit by the pandemic, those linked with hospitality and tourism such as airlines, cruises etc are also surging like mad.
Global bond markets crashed on a lack of safe haven demand as did gold; one thing to consider is that this vaccine news means we might not need as much QE as previously thought from major global central banks in 2021 (QE being a HUGE positive for bond and gold prices). Meanwhile, crude oil markets surged (WTI and Brent both 8% higher on the day) on the prospect for a stronger recover for demand in crude in 2021 than previously anticipated.
In terms of FX markets, the reaction in USD, EUR and GBP was mixed, but JPY was slammed (USDJPY surged above 104.00), while CAD, AUD, NZD, NOK, SEK and EM currencies all surged like mad.
Why did markets react like this?
Quite an obvious question but worth unpacking.
If this vaccine is as effective as the data being presented by Pfizer and Biotech suggests, it means an end to the pandemic is in sight. Still a few months away, but in sight. With Pfizer only able to produce 50mln doses by the end of the year, only the most vulnerable in select countries (such as the US and UK) will be able to immunize. The virus will thus continue to be rampant.
However, once a country can gets its most vulnerable people immunised, it is likely that lockdowns will end, given that the effect the virus has on those who are not classified as vulnerable is more in line with a normal flu. Nasty, but very unlikely to do any lasting damage/cause death and certainty not worth destroying the economy with lockdowns anymore.
Thus, with Pfizer getting this vaccine out earlier than expected and the most vulnerable people in major developed markets set to be immunized within the next few months, countries are likely to pursue a herd immunity strategy with the rest of the population. Of course countries will still try to immunize everyone, but as explained above, it will no longer matter as much.
Today’s news certainly gives me hope that we might see an end to all economic restrictions and lockdowns by the end of Q1 2021. The rest of the year should thus be a strong one for global economic growth, as countries race to heal their Covid-19 scarred economies. This post Covid-19 era is what markets are focusing on right now.
Note that while growth in 2021 ought to be strong, support from major central banks is not going to be wound in just yet; e.g. the Fed are saying no tightening until 2023! However, better conditions might mean that even more stimulus might be less forthcoming in 2021, so markets might have be prepared to settle with what we have got right now.
Bear in mind that the vaccine news might be positive, but the pandemic is worsening still in Europe and the US. Therefore, the risk of more lockdowns in Q4 2020 both sides of the Atlantic remain high. This can still weigh on risk appetite, but with markets now increasingly focused on life after Covid-19, the effect might not be quite as pronounced as the global stock market sell off that we saw back in the week before the US election.
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