Risk remained on the table on after there was no downside follow-thru following Monday’s sell-off. European stocks and US index futures higher, which stabilised on Tuesday, recovered further this morning, while in FX the AUD/USD crossed above the key 0.70 handle and the EUR/USD reached its best level since March as the US dollar fell on reduced haven flows.
Investors were looking forward to the next batch of earnings from US companies, including banking giant Goldman Sachs, as well as the Bank of Canada’s rate decision, later on today. Thursday will see the release of Chinese GDP, ECB’s policy decision, a handful of US macro pointers including retail sales, and earnings from Bank of America and Netflix, among others.
The above all have the potential to cause a shift in risk appetite, but for now sentiment among market participants remain positive with investors looking through the still-rising number of virus cases and an uncertain economic outlook.
Investors are hopeful that we are getting closer and closer to finding effective treatments for coronavirus and an end to the pandemic, which could then clear the way for a big rebound in economic activity with so much stimulus money already in place by governments and central banks. Moderna’s Covid-19 vaccine produced antibodies in all patients tested in a safety trial, even though some patients experienced side effects. But it is not just Moderna that’s making progress. In the UK for example, scientists at Oxford University are developing a potential vaccine for coronavirus which has shown promising signs and is now in the final-stage trials in a number of countries. If approved, the vaccine could be ready by as early as September.
The vaccine news has revived optimism over the risk rally after Monday’s sell-off, and so travel and leisure stocks were among the top gainers in Europe this morning.
Investors also appear optimistic about the prospects of the EU leaders reaching a compromise on the recovery fund proposal, which explains why the euro has been outperforming. Indeed, the EUR/USD closed in on the 1.15 handle as it hit its highest level since March, while the US dollar slipped across the board on reduced haven flows.
