European markets got off to a positive start this week, shrugging off concerns about a continued global surge in coronavirus cases, and focusing instead on the prospect of an imminent rolling out of a vaccine, with US officials citing the prospect of a rollout as early as next month, subject to approval.
While the potential for vaccines to start in a matter of weeks is a reason to celebrate, the reality is that there is currently no logistical process in place for this to happen quickly. Furthermore, US Covid cases are still rising rapidly with millions of Americans set to find this week’s Thanksgiving break severely disrupted due to various state travel restrictions.
Sentiment in Europe was given a further lift this morning, after more positive news on the vaccine front this time from AstraZeneca, with the company announcing that their vaccine candidate prevents an average of 70% of coronavirus cases. While on the face of it this comes across as disappointing, when compared to last week’s news on Pfizer and BioNtech efficacy rates, and appears to be being reflected in some early share price weakness, there are some important differences which investors appear to be missing.
Firstly, it is an average, with one dosing regimen having a 90% efficacy rate and another a 62% efficacy rate. The 90% efficacy rate was given as a combined half a dose, followed by a full dose a month later. The 62% efficacy comprised two full doses at least one month apart. This does come across as rather counterintuitive, and probably requires further investigation, however the more important factor lies in the vaccine’s potential logistical advantages. It is hugely significant from a logistics point of view that storage can be achieved at a normal refrigeration temperature of around -3 degrees. This makes it much more scalable and as such easier to deliver on a global scale. While more testing is likely to be required on this AZD1222 vaccine candidate, the early results are encouraging, and from a scalable point of view makes it much easier to deliver to a much wider demographic.
This welcome news has once again translated into a positive vector for travel and leisure stocks, along with a boost to oil prices on the hopes of a much quicker return to normal levels of economic activity. British Airways owner International Consolidated Airlines is among the best performers on the FTSE 100, along with Rolls-Royce, while BP and Royal Dutch Shell are also on the rise.
On the FTSE 250, TUI Travel, pub chain Mitchell and Butlers and Cineworld are all leading the way there, though Cineworld is receiving an additional boost after the company secured a fresh lifeline of $450m of additional funding for three years, while agreeing an extension of bank covenant waivers until June 2022. The struggling cinema chain also managed to extend the maturity of $111m of incremental revolving credit to May 2024, which was due to expire next month.
With Aviva set to announce their Q3 numbers later this week, amid speculation that they were looking to pull back from some of the non-core business, this morning the company announced the sale of its joint venture Italian business, Aviva Vita to its Italian partner UBI Banca for €400m. When the company reported in August, new CEO Amanda Blanc indicated that the main focus of the business going forward would be on the company’s core markets of UK, Ireland and Canada. Today’s sale looks to be the first indication that its less profitable businesses are likely to be sold off, with the remaining businesses in Italy as well as the France and Singapore businesses also likely to be in line.
There was little in the way of surprises in this morning’s full-year numbers from Daily Mail this morning. The company which also owns the Metro and the “i” paper, was more optimistic when it published its pre-close update in October, after a strong rebound in September advertising revenues, but it still warned that revenues and profits were going to be sharply lower from a year ago. Full-year revenues came in as expected at £1.21bn, a decline of 10%, from last year, with an adjusted operating profit of £90m, also in line with expectations. The company was able to increase the full year dividend to 24.1p, up from 23.9p.
This morning has given us an early insight into the economic damage done to the French and German economies as a result of the tighter restrictions being implemented on both countries in November as a result of higher covid-19 infection rates. Not surprisingly the services sector bore the brunt with economic activity in France contracting even further to 38, from 46.5 in October, and the third monthly contraction in succession. In Germany the picture was more positive, as services activity contracted to 46.2, from 49.5. Manufacturing was slightly more positive for both, with France coming in at 49.1, and Germany at 57.2.
The pound is the best performing currency so far this morning, hitting its best levels since early September against the US dollar, buoyed by optimism over a possible outline of a UK/EU trade deal sometime this week, as well as securing the rolling over its deal with Canada, which was confirmed over the weekend.
As far as the latest UK flash PMI are concerned these are also likely to come in much weaker when they are released shortly, with expectations of a big hit to services, down from 51.4 to 43. The bigger question is likely to be how much of a bounce back we get in December. That will depend on how much the current set of restrictions are relaxed next week as the UK goes into a tougher, more regional approach of measures. It seems likely there will be some modest loosening, however any regime is likely to be much tougher than was the case in October, in order to prevent a pre-Christmas spike which might endanger the ability of families to meet up over the Christmas bank holiday period.
US markets look set to get a lift from this morning's positive AstraZeneca vaccine news, in a week that is likely to see liquidity somewhat limited by the Thanksgiving holiday break on Thursday. This in turn could prompt higher than normal volatility, due to lower volumes. The main focus will be on the latest flash PMI numbers for November which are expected to show economic activity remained resilient in both manufacturing and services.