Markets cheered news this week from Pfizer and BioNTech that released late stage phase 3 trial results of their vaccine candidate showing efficacy of more than 90% (see Very positive vaccine news – early Christmas gift?, 9 November). A risk rally consequently captured markets with value stocks strongly outperforming growth stocks and Europe outperforming the US. 10Y US treasury and Bund yields jumped by more than 10bp, inflation expectations got a boost, credit spreads tightened and cyclical currencies performed. Although there are still many questions (see 10 questions on Pfizer’s vaccine news we still need answers to, 10 November), we see the vaccine news as a game changer with effects on the global economy and financial markets alike. We are still facing restrictions throughout the winter and the infection numbers are still on the rise in many countries, but markets can now see an end to the crisis. An efficient vaccine not only increases the likelihood that we can return much faster to a world with no restrictions and no risk of new lockdowns, but also reduces a huge cloud of uncertainty with the potential to boost consumer and business confidence.
Joe Biden was officially declared the winner of the US Presidential election by almost everyone except perhaps President Donald Trump and his supporters. However, it may very well be that Joe Biden won the battle but lost the war, as the Democratic Party may not win the majority in the Senate, rendering it impossible for president-elect Biden to get his economic policy through Congress. It all boils down to whether the Democratic Party is able to win two special Senate runoffs in Georgia taking place on 5 January. Short term, president-elect Biden has made it clear that the first thing on his agenda will be the handling of COVID-19 and he has already created a COVID-19 task force.
EU member states and the European Parliament finally struck a deal on the bloc’s next seven-year budget and the ‘Next generation EU’ package. After the dispute over the contentious rule of law mechanism was resolved last week, a compromise on the EU budget size was finally struck this week, after governments agreed to a top-up of EUR15bn for programmes including science, health and university education. Although this clears two crucial stumbling blocks that held up the approval of the EU recovery fund, it might not be the end of the story yet: further discussion still looms over the terms and conditions of the recovery and resilience facility that lies at the heart of the recovery fund and the ratification in national parliaments could also prove a hurdle, with Hungary already threatening to veto the package over the inclusion of the rule of law mechanism.
Lagarde’s speech at the ECB Forum gave a clear indication that the ECB’s upcoming recalibration of the monetary policy instruments will focus on the PEPP programme and TLTROs. However, the ECB will keep a close eye on economic data in the coming weeks and Friday’s release of consumer confidence will give some insights how much the new restrictions have dented sentiment. Brexit negotiations will continue next week and we expect a deal within two to three weeks (see Deal or no deal? Next two to three weeks are crucial, 12 November). A range of Fed speeches might reveal more about plans to extend current emergency programmes beyond the end of this year. In Japan we are looking forward to the unveiling of a third stimulus package.
