• Joel

Vaccine Hopes, Strong U.S. Data Spur Risk on Flows

Risk appetite took a turn for the worse in the early part of the European trading session; two key European stock exchanges, Eurex and Xetra, were offline for a few hours this morning. Upon their reopening at just after 1000BST/0500EDT, European equity markets stumbled, dragging US equity bourse futures and other risks assets with them, while giving a boost to USD.

However, these flows have now reversed; with risk assets getting a decent boost from the early European afternoon on the news that a Pfizer and BioNTech Covid-19 vaccine had shown positive results, as well as solid US data.

Starting with the good vaccine news, STAT news reported that “an experimental Covid-19 vaccine being developed by the drug giant Pfizer and the biotech firm BioNTech spurred immune responses in healthy patients, but also caused fever and other side effects, especially at higher doses” said the article, which continued that “the first clinical data on the vaccine were disclosed Wednesday in a paper released on MedRXiv, a preprint server, meaning it has not yet been peer-reviewed or published in a journal.”

Furthermore, in separate news, an Oxford scientist leading the development of another Covid-19 vaccine said we are “happy we’re seeing the right sort of immune response” and that 8,000 have been vaccinated in UK so far as part of a Phase III trial. No firm timeline for a vaccine could be given thought, they added.

Moving on to the strong US data; US ISM Manufacturing data for June was much better than expected;

US ISM manufacturing PMI came in at 52.6, above expectations for a rise to 49.5 and a solid rise from last month’s 43.1 reading. Prices paid rose to 51.3 from 40.8, Employment rose to 42.1 from 32.1 and New Orders rose to 56.4 from 31.8. All in all, a solid beat on expectations, with the headline now back in expansionary territory. Though employment remains in contraction, new orders, seen as the most forward-looking for the sub-indices, rose back above the 50 mark.

Elsewhere, we also had ADP National Employment data today, which gave revealed a huge upside revision to ADP’s headline national employment number for May.

In June, some 2.369mln jobs were added to the US economy in June, a slight miss on expectations for a 3mln increase (markets will, as ever, be paying much more attention to tomorrow’s official jobs release).

However, May’s number was revised from -2.760mln to 3.065mln, by far and away the largest revision ever made to an ADP data print.

As noted by Zerohedge, based on the revision to May’s data, job hiring is slowed in June. Despite this, Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said that “small business hiring picked up in the month of June” and “as the economy slowly continues to recover, we are seeing a significant rebound in industries that once experienced the greatest job losses. In fact, 70 percent of the jobs added this month were in the leisure and hospitality, trade and construction industries.”

As a result, US equity bourses received a decent boost, as did other risk assets such as AUD, NZD and GBP, while safe havens USD was hit hard; DXY slipped to the low 97.00s from earlier levels above 97.50. 



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