News

Vaccine optimism fuels monster equities rally

CMC Markets

Stocks soared on the back of the news that a potential Covid-19 vaccine, being developed by Pfizer and BioNTech, revealed a success rate of over 90% in its late stage trials. 

Europe

This is a major step in the right direction, but there is still some way to go before it gets regulatory approval. The Covid-19 crisis is far from resolved, but with the way that some traders have been reacting, one could think the pandemic has been put to bed. Markets tend to overreact to the downside and to the upside – which is what we are seeing today.

Airline, transport and hospitability stocks were some of the worst hit because of the pandemic, and in light of the drug story, those stocks are booming. Some of the moves seen in the mentioned sectors are colossal, for example, easyJet is up over 30%. Rolls-Royce has been hammered lately because of the major trouble in the air travel sector, and the stock is up 44%. The pub trade also took a beating because of the lockdown, and now it is seeing a surge in demand. JD Wetherspoon, Marston’s and Mitchells and Butler are up more than 20%. Stagecoach and National Express are also enjoying massive gains as a big step forward on the vaccine front offers a lot of hope in regards to more people taking public transport again.

Banks, mining, oil and house building stocks are rallying too as a part of the wider rally. Cineworld and the Gym Group are in high demand as the stocks suffered severely during the pandemic-related sell off. Ocado Group benefitted greatly from the lockdown, so it is not surprising that it has tumbled today as investors are unwinding their long positions in the online grocery.  

Taylor Wimpey shares were already driving higher in advance of the vaccine story being released as the company said that it expects full year operating profit to be at the top end of forecasts. Persimmon will be in focus as the company will post a quarterly update tomorrow.                

US

The Dow Jones and S&P 500 set fresh all-time highs on the back of the optimism surrounding the possible coronavirus vaccine. This story has been bubbling away in the background for several months now, hence the upward move in Pfizer US Inc isn’t that big all things considered, the share price is up 9%. Similar to European markets, airlines and cruise companies are showing huge gains as those sectors have been reduced to a fraction of their former selves. Banks, construction and oil companies are up on the day too amid the broad rally.

A handful of big name tech stocks, such as Amazon, Zoom Video Communications Inc, and Netflix benefitted greatly from pandemic as a huge volume of people were driven online for various different activities, such as shopping, video conference calls and entertainment. Today we are seeing the opposite of that. It is fair to say that technology will play a bigger role in our everyday lives in the years ahead, and therefore so will those companies, but at the moment dealers are content to rotate out of those stocks.

Biogen IDEC shares have tumbled on the back of the news that the FDA didn’t give approval to its experimental Alzheimer’s drug. The regulator voted it down by a margin of 8-1 as it didn’t provide sufficient evidence to justify its approval.                                               

FX

The US dollar has seen a fair amount of volatility today as the currency initially sold off on the back of the Pfizer-BioNtech story as traders turned their backs on the currency as they were quick to pour their funds into equities. It would appear that bargain hunters have swooped in and snapped up the relatively cheap dollar. It is possible that some traders are taking the view that if an approved Covid-19 vaccine is brought to the market, the Fed would reign in their extremely loose monetary policy. GBP/USD and EUR/USD are in the red on account of the rally in the dollar         

Commodities

Gold has been clobbered by the upward move in the US dollar, and the rally in equities is playing a role too. The metal is listed in the US dollars so a firmer greenback is making it relatively more expensive. In the current climate, traders are rushing to buy stocks and with that, so they are cashing in their assets that are considered to be lower risk, hence the underperformance in gold.

WTI and Brent crude have surged today because of the hopes in regards to the potential coronavirus vaccine. The energy market is very sensitive to the perception of the health of the economy so the progress being made with respect to a possible vaccine has sparked a huge wave of demand for oil.