The first half of last week was busy thanks to the progress made with respect to potential vaccines for Covid-19.
Moderna announced that its drug was 94.5% effective. A couple of days later Pfizer-BioNtech revealed that their possible vaccine was 95% effective, improvements on previous announcements that the drug was more than 90% effective. At the back end of last week, Pfizer-BioNTech announced they were seeking emergency authorisation from the Food and Drug Administration (FDA).
As much as the positive news with respect to the drug stories were welcomed, the updates were having a reduced influence on the markets. It is almost as if traders started to become immune to the positive news. Over the weekend, Regeneron’s drug was granted emergency approval as a treatment for Covid-19 from the FDA. The drug in question was administered to President Trump when he contracted the coronavirus. Yesterday, it was reported the Pfizer-BioNTech drug might receive approval for authorisation in the UK by the end of the week. The pharma sector has taken another step towards getting a handle on the situation.
Equity markets on both sides of the Atlantic rallied on the back of the drug news. Broadly speaking, it was the sectors that suffered the most because of the pandemic that saw the biggest rallies – travel, transport, leisure and hospitality. The upward moves in stocks in the early part of the week were impressive but not outstanding. The FTSE 100 didn’t retest the June high, while the DAX 30 didn’t even reach the highs of early November. On the other hand, the CAC 40 hit an eight-month high.
In the US, the small cap index, the Russell 2000, was the outperformer as it hit a record high. In recent months the equity benchmark was overshadowed by the stellar performance in the tech-heavy NASDAQ 100 and to a lesser extent the S&P 500 – it has a sizeable tech component. Tech stocks have underperformed lately as traders rotated out of the sector in favour of traditional industries.
US politics was back in focus at the end of last week. Steven Mnuchin, the US Treasury Secretary, said he would allow the emergency funding capabilities of the Federal Reserve to expire at the end of the year. That raised a few eyebrows because it means the US central bank’s powers will be curtailed. It is worth noting that Mr Mnuchin clearly feels a corner has been turned with respect to the health of the US economy. The coronavirus relief package talks will be back in focus seeing as the dust has settled with respect to the US presidential election. Additional pressure will be put on policymakers to reach an agreement seeing as the Fed’s lending capabilities will be reduced at the end of December.
In the US, the number of Covid-19 cases topped the 12 million mark and the growing case numbers have prompted several states, including California, to introduce restrictions. The health crisis is being tempered by a report that a vaccine could be rolled out to health workers by the middle of next month.
The planned travel bubble between Singapore and Hong Kong was delayed because of rising Covid-19 cases numbers in the latter. The Hang Seng is flat while stocks in mainland China are up. European indices are called a little higher.
Metals and oils rallied last week on the back of optimism circulating because of the vaccine stories. WTI and Brent crude oil were also given a lift by the chatter that Opec+ will not increase output in January, which was originally the plan. Industrial metals like copper and platinum gained ground as dealers bet on an economic recovery in light of the vaccine news.
Prime Minister Johnson is expected to announce plans today that will relate to the end of England’s lockdown in early December and it will cover the relaxation of restrictions in the UK over Christmas. A tougher three-tiered system for England is to be revealed too.
It was reported that Mr Johnson is getting ready to make significant interventions with respect to the UK-EU trade talks. Last week it was announced that both sides were focusing on discussions. The moves witnessed in sterling last week would suggest that traders are hopeful for an agreement.
The major economies of Europe and the US will post their flash manufacturing and services PMI reports today. In light of the lockdowns in France, Germany and the UK, the reports will be in extra focus as traders will get an idea of how bad the economic downturn is due to the tougher restrictions. The French manufacturing PMI reading is tipped to be 50.1, which would only be a slight dip from the 51.3 posted in October. The services sector is expected to fall from 46.5 last month to 37.1. Economists are not expecting a big drop off in economic activity in Germany. The manufacturing and services reports are tipped to be 56.5 and 46.3 respectively.
The UK services PMI reading for November is expected to be 42.5, and that would be a big decline from the 51.4 registered in October. Things are a little more optimistic in the manufacturing sector as the reading is expected to be 50.5, and keep in mind the October metric was 53.7. Since the US hasn’t gone down the lockdown route like the certain European countries, the levels of output are not expected to fall by a major amount. The US manufacturing and services reports are tipped to be 53 and 55.3 respectively.
EUR/USD – has been in an uptrend since the start of the month and while it holds above the 50-day moving average at 1.1775, the positive move should continue. 1.2000 might act as resistance. A break below 1.1602 should pave the way for further losses.
GBP/USD – in the past two months it has been in an uptrend and if the positive move continues, it could target 1.3515. A pullback might find support at 1.3106, and a break through that metric should put 1.3000 on the radar.
EUR/GBP – the downtrend has been in place for two months and while it holds below the 0.9000 metric, the bearish move should remain intact. A break below 0.8864, should pave the way for 0.8800 to be tested. If 0.9000 is retaken, 0.9059, the 50-day moving average, should be brought into play.
USD/JPY – the broader bearish trend is still in place and a move through 103.08 should see it target 102.00. A rebound could see it target 105.63, the 50 day moving average.