Risk assets surged on Monday trade, with global equities, crude oil markets, AUD, NZD, CAD, NOK, SEK and EMFX more broadly all making decent gains. A few key factors are behind today’s bullish market sentiment…
1) Could we have a Covid-19 vaccine sooner than expected?
Moderna’s closely watched early-stage human trial for a coronavirus vaccine produced Covid-19 antibodies in all 45 participants, the biotech company announced Monday, sending the company’s shares surging 30% in premarket trading and injecting a strong bout of optimism into broader market sentiment.
In sum, at day 43 (two weeks following the second dose) levels of binding antibodies in participants were at or significantly above (depending on the dosage level) levels generally seen in blood samples from people who recovered from the disease, the company said.
“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 [micrograms],” Moderna chief medical officer Dr. Tal Zaks said in a statement.
Moderna expects to begin the final stage of the trail in July. Most had expected a vaccine not before 2021 at the very earliest. If a vaccine comes midway through 2020, this could be an absolute game-changer for financial markets, as it would signify (once the vaccine has been widely distributed, which would still likely take a few months) a rapid return to normality for the global economy.
2) More Fed Stimulus?
Fed Chair Powell was on TV in the US yesterday and he gave various remarks about the economy (he expects recovery from H2, but no full recovery until we have a vaccine) and Fed policy (he reiterated the Fed is not considering negative rates but that the Fed is not out of ammunition and there is “no limit” to the scope of their lending programmes”. Powell’s tone was very dovish as we have become accustomed too since the start of the Covid-19 crisis, but his hints at increasing the size of lending programmes appear to have given markets a boost.
3) Rapid US Reopening?
US headlines over the weekend focussed a lot on the reopening of the US economy; California is now reportedly 75% open and Apple has reportedly reopened 100 US stores.
Are markets overly bullish?
Some institutions warn that markets may have developed selective hearing regarding what they want to hear. Markets appear to have completely ignored further developments on the US/China/Huawei tensions front;
Nikkei earlier reported that Taiwan Semiconductors, or TSMC, had stopped all orders to Huawei (likely linked to recent US action to prevent Huawei from getting its hands on semiconductors). This is a big deal, as TSMC is a big player in the world of Tech manufacturing, so this is a big blow to Huawei.
Such a move by TSMC may encourage China to retaliate against US actions, which is believed to be via the publishing of an unreliable entities list. As a reminder, the editor of the Global Times Hu Xijin, who is often in the know regarding these political matters in China, suggested that if the US continued to block tech supplies to Huawei, China might restrict or investigate companies such as Apple, Cisco and Qualcomm (all are important US tech firms) and suspend purchases of Boeing planes.
Moreover, markets have largely ignored this story from Bloomberg; “some 108 million people in China’s northeast region are being plunged back under lockdown conditions as a new and growing cluster of infections causes a backslide in the nation’s return to normal”.
In other words, euphoria can quickly subside, so be careful out there!
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