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No vaccine optimism 3.0, risk assets in consolidation mode

No vaccine optimism 3.0, risk assets in consolidation mode

Despite yesterday’s positive vaccine related news on Pfizer-BioNTech where it was reported that their COVID-19 vaccine was 95% effective after concluding their Phase 3 study, it failed to ignite a “risk-on” spike in the US stock market.

Key benchmark US stock indices had continued to see profit-taking activities for the second consecutive day at a higher magnitude versus Tuesday. All of them ended in the red; S&P 500 (-1.2%), Nasdaq 100 (-0.7%), Dow Jones (-1.2%), Russell 2000 (-1.3%). In addition, market breadth was also lacklustre where there are more declining stocks versus advancing stocks at a ratio of 1.7 and 1.6 in NSYE and Nasdaq exchanges respectively.

All 11 S&P key sectors ended the US session in the red; worst performers were Energy (-2.9%), Utilities (-1.9%) and Health Care (-1.8%). Tesla had continued to buck the trend of the major US stock indices where it rallied by +10.2% to 486.64 with an upgrade from equal weight to overweight by Morgan Stanley. The share price of Tesla had surged by 19% since Monday, 16 November after the announcement by S&P Dow Jones Indices to include Tesla as a component stock in the S&P 500 with effect on 21 December 2020.

Over to the foreign exchange market, the USD continued to wobble as the US Dollar Index inched lower by -0.13% (92.31) to retest the 92.15 major ascending support in place since April 2011 low. The best performing major currency against the USD was the JPY where the USD/JPY declined by -0.36% (103.82) and breached below the 104.00 psychological for the second time since 05 November 2020. There are two catalysts that support the on-going JPY strength against the USD; firstly, the spread between the US Treasury 10-year yield and the Japanese Government Bond (JGB) 10-year yield had continued to narrow since 11 November 2020, making US Treasuries less attractive over JGBs. Secondly, the recent bullish up move seen in the Nikkei 225 that led to a break above a 29-year high since Oct 1991 triggered a positive feedback loop that may see significant equities portfolio allocation adjustments in the near future to overweight Japanese stocks.

No major significant movement in the commodities market; the WTI crude oil futures traded sideways below a key medium-term resistance at US$43.80 per barrel. Gold futures (COMEX) inched down lower by -0.6% to end yesterday’s US session at 1874 after a failure to break above 1905 key short-term resistance in the past 6 days since 10 November 2020.


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