US stocks raced higher on Moderna’s upbeat vaccine news, which along with Pfizer’s vaccine raise expectations for a return to pre-pandemic life before next winter. The rotation into value stocks continues as the best-case vaccine scenarios unfold. Last week, Pfizer gave hope that vaccine progress was getting us closer to a post-COVID economy. Today, Moderna’s vaccine news cemented optimism that highly effective vaccines should be readily available next year.
The Russell 2000 index hit a fresh intraday record high, the Dow is poised to surge above 30,000 and the Nasdaq is still seeing some love.
Moderna
On paper, it looks like Moderna won the vaccine race, a slightly more effective rate than Pfizer and much easier to store. But this would be Moderna’s first approved drug for vaccination and will likely mean they will have more hurdles for ramping up production. Operation Warp Speed will provide all the resources to both Pfizer and Moderna and possibly others.
China
The Asia Pacific region just delivered the world’s largest free trade deal. The Regional Comprehensive Economic Partnership (RCEP) includes 15 countries and over 2.2 billion people, or nearly 30% of the world’s population. It took almost a decade, but China, Japan, South Korea, Australia and New Zealand will greatly help the region’s recovery from COVID-19. The Nikkei 225 surged to the highest levels since 1991, the Kospi made a 33-month high, while the ASX had to abandon their session after experiencing their worst glitch since 2016. The Hang Seng and CSI 300 also benefited from China’s better-than-expected factory output data, while retail sales continued to post growth, albeit at a slower-than-forecast pace.
Empire
The latest Empire State manufacturing survey showed another lackluster reading. The headline reading fell over 4 points to 6.3 and missed the consensus estimate of 13.5. It seems the NY region is lagging others as growth continues to slow. New orders and shipments dropped significantly, and this could raise expectations for the other regional surveys to post similar declines. The bright spots of the survey showed employment continues to rise and that firms still remain optimistic. The virus spread should provide further pressure with next month’s readings and raise the pressure for Congress to deliver more fiscal support.
Oil
Crude prices are off to a solid start after President-elect Biden’s advisers noted a national lockdown is not on the agenda and on Moderna’s late-stage clinical trial update that raises expectations for a complete return to pre-pandemic behavior before next November. The short-term headaches for the crude demand outlook however remain firmly in place. COVID new cases, hospitalizations, and deaths are still trending higher, but the rate of increase might be providing some optimism they may have peaked. ICU capacity concerns remain and regional lockdowns appear likely and that should prevent oil prices from completely breaking out higher.
OPEC Secretary-General Barkindo also reminded energy markets that OPEC+ knows they need to be ready to respond to shifts in market conditions. If the demand outlook takes another hit in the first quarter, no one is betting against OPEC+ from extending their production cuts a little longer. COVID-19 vaccine optimism is sky high and that should help bookings for cruises and airplane flights starting in the summer.
Also benefiting oil prices was Asia’s RCEP, the world’s largest trade deal which should support globalization and likely lead to greater trade and thus demand for crude.
WTI crude looks ready to run higher but it may have to wait until the current coronavirus situation is under control in both Europe and the US.
Gold/Dollar
Gold prices plummeted after Moderna’s preliminary phase three trial showed its coronavirus vaccine is more than 94% effective in preventing infection. Financial markets embraced the good news and began fully pricing in a return to pre-pandemic life before the next winter, prompting the abandonment for safe-havens. Gold dropped over $30 but quickly recovered most of its losses after the dollar weakened.
The vaccine news was very bearish for the dollar as it changes the macroeconomic backdrop for the rest of the world. The dollar will surely become a funding currency at some point in 2021 and that should pave the way for significant weakness. Gold may not get massive stimulus from Congress or steady safe-haven flows from COVID-19 concerns, but Fed policy that will ultimately drive dollar weakness should allow the precious metal to make another run towards the $2,000 level.
Bitcoin
Bitcoin shrugged off Moderna’s vaccine news and is resuming its bullish trend. Bitcoin seems to have everything going right for it: Mainstream acceptance is improving, President-elect Biden appointed Gary Gensler, someone viewed as friendly towards cryptocurrencies, to lead his financial policy transition, and steady institutional interest. Bitcoin seems like it might have enough momentum before the end of the year to make that run towards the $2,000 level.
