Markets
It’s the same start to a different trading week. Last Monday, Pfizer/BioNTech announced that its Covid-vaccine prevents 90% of infections in a large study. Today, it’s up to US biotech Moderna to publish an even more astonishing 94.5% efficacy in clinical trials. We argued last week that the Pfizer results presented a narrative change with many competitors soon to follow in a highly competitive market. The Moderna story adds to our view that global vaccination/mass immunity will be the next step in the Corona-pandemic, offering a way out of the vicious circle of consecutive lockdowns and infection waves. The initial market reaction was a copy-paste directionally speaking. The magnitude of the moves was much smaller compared to last week’s game-changing circuit breaker. European stock markets gain around 2% (compared to 6% after Pfizer), but the EuroStoxx 50 for example manages to set a fresh recovery high. Core bond yields spiked higher, but soon went into reverse. Medium term, we expect the vaccine news to create additional upward momentum for yields, both from a reflationary point of view, as from a reduced dependence on monetary support. Day-to-day lockdowns & restrictions and abundant liquidity keep them in check short term. The US November Empire Manufacturing Survey unexpectedly declined for example from 10.5 to 6.3, the weakest print since August. Details showed new orders (12.3) and shipments (6.3) cooling to just above the zero-level which divides growth from correction. The US corona spike recently triggered economic restrictions amongst other in the NY region. On a bright side, the employment gauge set a 2020 high (9.4) with six-month expectations broadly unchanged (33.9). The US yield curve steepens slightly with daily changes ranging between -0.3 bps (2-yr) and +1.3 bps (30-yr). The German yield curve flattens marginally with changes between +0.3 bps (2-yr) and -0.5 bps (30-yr). Last Monday, yields added around 5 bps at the front end and 10 bps+ at the longer end of the curve. 10-yr yield spread changes vs Germany narrow marginally.
• The dollar was one of the main beneficiaries amongst majors after the Pfizer release and manages to eke out some gains today as well. EUR/USD switches sides around the 1.1850 handle, from north to south. USD/JPY spiked to 105, but has difficulties to counter the pair’s sluggish momentum. USD/JPY changes hands around 104.40. Sterling has difficulties to profit in the risk climate with EUR/GBP balancing around 0.8970. It strengthens our view that the risk factor is the only thing keeping sterling alive. EUR/GBP belongs north of 0.90. EU and UK trade negotiators in the meantime work towards a presentable proposal for the virtual EU Summit of November 19.
News Headlines
Hungary plans to veto the EU budget, which includes the €750bn recovery scheme. Hungary objects the rule-of-law condition that is tied to the fund which could exclude countries that don’t abide to it from access to the European funds. Poland is also opposed and could follow Hungary in its vote against.
The Bundesbank said the German economy could stagnate or even shrink this quarter as the virus flare-up prompted the government to reimpose restrictions. The slowdown is expected to be less severe than in the second quarter as the measures are more targeted this time. However, since most of Europe faces these lockdown-lights, Germany’s important export industry suffers nevertheless. “A stabilizing fiscal policy remains important next year”, it added.
French President Macron said the EU must continue its efforts to be able to act independently on issues such as foreign policy, defense, technology and international finance. He referred to the defeat of president Trump as possibly persuading some EU leaders of returning to US and NATO reliance.
