Judging by yesterday’s euphoric stock market reaction to the news that Pfizer and BioNTech had seen a 90% success rate in a vaccine study, you would have been forgiven for thinking that the coronavirus crisis, which has caused so much global misery this year, was on the cusp of coming to an end.
The new record highs for the Dow, S&P 500 and Russell 2000 certainly point to a much greater sense of optimism than at any other time this year, however it still doesn’t hurt to exercise a degree of caution, at a time of still highly-elevated levels of uncertainty. There is also the prospect that yesterday’s news could prompt US politicians to pull back in trying to implement further fiscal stimulus measures in the weeks ahead.
The results of the Pfizer study are certainly welcome news; a 90% success rate is certainly well above expectations, and as such is a very much needed beacon of light in what has been a dark year for the global economy. However, one swallow does not make a summer, and there still remains a some way to go before life as we knew it a year ago can return to any semblance of normal, in the short or medium term.
Not only do we have the small matter of trying to navigate the current problems the virus is causing in terms of new lockdowns, the vaccine trial data still needs to be parsed, and as WHO special envoy, David Nabarro stated yesterday, last stage assessments will still be key in determining whether the vaccine obtains final approval. Even then people will still have to continue adopting the current measures of face masks, social distancing and washing hands, which will still need to be undertaken for months to come, given the logistical challenge of rolling the vaccine out in sufficient quantities to start making a difference.
This means that for all of the optimism that we saw in yesterday’s rebounds in travel, leisure, pubs, restaurants and other hospitality sectors, we need to see evidence that consumer behaviour will start to change as well, and even then, overall capacity in all of these sectors is likely to be much lower than was the case pre-pandemic.
Yesterday’s news appears to have come too late to save Norwegian Air after the Norway government said it would no longer provide support. Without further funds the airline could well struggle to survive unless it can raise extra cash to carry on trading.
While stock markets got the week off to a decent start, oil prices also enjoyed some solid gains to start the week in anticipation of a better economic outlook as we look towards 2021. Gold prices on the other hand slid sharply heading back towards their September lows in the process.
Having sprinted out of the blocks on Monday, stock market reaction today looks set to be slightly more tempered, as we look to open lower and yesterday’s sugar high starts to wear off, and we start to focus on the more mundane matters of economic data, starting with the UK economy and the latest set of unemployment numbers. In the latest unemployment data, we started to see the beginnings of an acceleration higher in the ILO unemployment rate, which tends to lag behind when it comes to the real levels of joblessness. In the three months to August, this saw a sharp jump from 4.1% to 4.5%, as more employers decided to squeeze down on costs as it became apparent that there would be no V-shaped recovery from this crisis.
With furlough helping to disguise the rise in unemployment levels initially, the extension last week until March next year is likely to have come too late for a lot of people in vulnerable jobs, given that a lot of employers had already started to cut back on their head count, and today’s jobless numbers are expected to reflect that further, with another increase in the headline number to 4.8%, for the three months to September, which would take it back to levels last seen at the end of 2016. The monthly jobless claims total has already risen to 7.6%, a level which is likely to more accurately reflect where the UK jobs market currently is at the moment, and this could rise further in today’s October numbers with claims set to rise by another 50,000.
The French economy is expected to see ILO unemployment rise to 7.5% for Q3, from 7.1%, while the latest industrial production numbers are predicted to show modest improvements in the September numbers.
The latest German ZEW survey is expected to paint a much more negative picture than was the case in October. Then, we saw a sharp fall from the 20-year peak of 77.4 in September, with a fall to a 5-month low of 56.1. This optimism was based on the mistaken premise that we’d somehow avoid a second wave as well as a series of lockdowns. This turned out to be somewhat premature and could lead to further sharp falls in this week’s November numbers, with an estimate of 40 being predicted, now that we know that the German economy will be subject to further restrictions, along with the rest of Europe, until the beginning of next month. Given yesterday’s events this particular survey could now be a little bit dated, and there may be a sharp rebound in the weeks ahead over optimism about the prospects for a vaccine candidate.
EUR/USD – pulled back from the 1.1920 area yesterday before sliding back. While above the 1.1780 area, as well as the 50-day MA, momentum should remain positive, for the current move towards 1.2000 to continue. A move below 1.1780 could well signal further weakness towards the 1.1680 area.
GBP/USD – the failure above the 1.3200 area yesterday, has seen the pound slide back, however momentum continues to be positive. While above the 1.3070 area we can still hope to see a move towards the 1.3250 area. There is interim support around the 1.3070 area, which if broken could see a slide back to the 1.2980 area.
EUR/GBP – still looking bearish with resistance up near the 50-day and 100-day MA’s up near the 0.9060 area. A sustained move back below the 0.9000 area retargets the lows last week at 0.8940.
USD/JPY – yesterday’s move back above the 104.00 level saw the US dollar surge back to cloud resistance at 105.60, with broader resistance just above that at 106.20. A move through 106.20 targets a return to the 107.00 area. Support now comes in at the 105.00 area.