European markets have come under significant selling pressure today, slipping back in the wake of the tepid rebound seen on Monday, although we have recovered off the lows, with the FTSE100 briefly slipping below the 7,000 level.
Investors were spooked early on by an interview with the FT given by Moderna CEO Stephane Bancel, that wasn’t particularly different from several others given over the last 24 hours.
The focus appears to have been on the remarks that he sees a material drop in the efficacy of the vaccine, and that according to him, various scientists have said it’s “not going to be good”.
With market sentiment as fragile as it currently is and putting to one side that a lot more testing still needs to be done on this variant, this comes across as a remarkably careless thing to say this early on, even allowing for the fact that he’s the CEO of a company that is not only producing the vaccine but has made a huge amount of money out of doing so.
On the other side of the argument, Oxford University was far less contentious, saying that there is no evidence yet that vaccines won’t protect against severe disease from Omicron, and more testing needed to be done, which is surely the main point. While the vaccines may not be 100% effective, even if they limit the severity of the disease then surely, they are still doing their job.
Quite simply, at this point its too early to be certain, and maybe the best advice we should give to CEOs of pharma companies is to keep it shut, unless they have something other than conjecture at this point.
Unfortunately, markets tend not to do nuance, and while we’ve seen a recovery off the low’s sentiment remains fragile. The recovery off the lows of the day may well be due to reports out of South Africa that so far, the variant has been of the mild variety, with no hospitalisations so far to speak of, with similar reports out of Europe and the UK.
Oil prices have also come back under pressure as concern over a demand slowdown in the wake of tighter restrictions, which has seen the likes of BP and Shell act as the biggest drag on the FTSE100, while basic resource stocks are higher, led by Anglo American, Evraz and BHP on the back of firmer metals prices.
AstraZeneca shares are also lower over concern its own vaccine may not work as well either, however Oxford University have said it can be modified quickly if needed.
easyJet shares have slipped back after the airline reported a £1bn loss for fiscal year 2021, though the declines are more to do with the fact that the whole travel and leisure sector has come under pressure today because of concerns about how quickly the current uncertainty will affect the travel sector as we look towards 2022. British Airways owner IAG is also lower.
US markets have opened sharply lower, taking their cues from today’s European market session, as the fallout from the Moderna CEO’s comments continue to weigh on the market, with his own company’s shares getting hit along with BioNTech.
Banks are also under pressure as yields once again slide back with the US 10-year yield sliding to a three-week low, with a drop below 1.4% and the 100-day MA potentially triggering further weakness.
It had been a rather mixed day for the US dollar with the euro initially amongst the best performers after November CPI surged to a record high of 4.9% from 4.1% in October, with core prices rising to 2.6%, up from 2%.
This proved to be somewhat short lived after Fed chair Jay Powell said it was time to retire the word "transitory" with regard to inflation from the central bank lexicon. This unexpected turn sent the US dollar sharply higher, as Powell then went on to say that the Fed would use the central banks tools to stop more entrenched inflation. These comments also pulled US yields higher and keep alive the prospect that the Fed could accelerate the tapering process when it meets in December.
In Europe the sharp increases in inflation are also causing significant credibility issues for the ECB, and while given the current uncertainty around Omicron, one can perhaps justify an element of caution, some of the price surges being seen across Europe do warrant concern.
With factory gate prices rising by over 20% on an annualised basis, as they are in Italy, Germany and Spain speak to supply chains that are creaking horribly. Its simply not good enough for ECB officials to simply shrug and say this too shall pass.
One thing does appear certain, any prospect that we might see changes in central bank policy in December from the likes of the ECB, and the Bank of England is probably for the birds, which also helps explain the pounds recent underperformance, with the current uncertainty likely to give the Bank of England cover to do what they do best, nothing! This stance appeared to be confirmed by external MPC member Catherine Mann in comments made earlier today, when she said it was too early to talk about rate hike timings, much less by how much.
As far as the Federal Reserve is concerned, an accelerated taper seems to be back in play given this afternoon's comments from Powell.
Brent crude oil prices have slipped below their 200-day MA for the first time in over a year, as negative sentiment continues to weigh on prices, with prices hitting a three-month low.
Gold prices have risen back above the $1,800 level on the back of today’s risk aversion and the slide in US yields.
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