Risk assets soar on upbeat COVID-19 vaccine news

Only one news headline mattered to financial markets yesterday and it had nothing to do with US politics.

News that the COVID-19 vaccine from Pfizer was effective in combating the virus in 90% of their trials led to
sighs of relief around the world and provided a ray of hope that an end to the pandemic may be in sight. A
number of hurdles still remain, however, notably how to mass produce the vaccine and transport it in ultra-cold
temperatures. The vaccine also still needs to be reviewed by the appropriate regulatory authorities, although
there are hopes that doses could be distributed by the end of the month, with more widespread vaccinations
on course to be made available early next year. Similar news from other parts of the medical community could
follow soon, with many others also in the final stages of testing.

An effective vaccine that can be produced en masse is expected to be the ultimate weapon to help end the
current crisis and restore lives (and economies) back to normality. Investors unsurprisingly welcomed the news,
flocking into high risk assets, notably emerging market currencies, and selling the traditional safe-haven
Japanese yen, which experienced its biggest overnight loss since March. High risk major currencies, including
the Australian, New Zealand and Canadian dollars, also all jumped.

Euro falters as investors fret about European economy

The euro briefly rallied above the 1.19 level on the vaccine news, although quickly fell against the US dollar,
ending the day around half a percent lower. Perhaps the fact that Pfizer is an American pharmaceutical
company has helped boost the dollar, given that the US would be at the front of the queue for any potential
mass vaccinations.

Investors also are likely to remain concerned about the ongoing pandemic situation in the European continent.
New cases of the virus have risen to fresh record highs in a number of the major countries in the Euro area in
the past few days, notably in France, Italy and Germany. With lockdown measures re-imposed, the fourth
quarter looks set to be a fairly dire one for the bloc’s economy. We should get some more evidence of that this
week with this morning’s ZEW economic confidence indices. Investors are now pricing in action from the
European Central Bank at its next monetary policy meeting in December, which is almost certain to yield an
increase in its PEPP measures.

Pound rallies as Johnson talks up Brexit deal chances

The vaccine news provided a little bit of a boost to sterling yesterday, although the UK currency appears to be
largely trading in a bubble and mostly immune to outside news. Sterling is instead trading off Brexit news,
rallying this morning after both Boris Johnson and chancellor Rishi Sunak said on Monday that talks were
making progress and that there was a deal to be done with the EU.

This week is a busy data week for the pound. Thursday will see the release of the third quarter GDP numbers,
which are set to show that the UK economy posted a record quarter-on-quarter expansion in the three months
to September. Earlier this morning, data from ONS showed that the unemployment rate had increased in
September to 4.8%. This is, however, only a relatively modest move higher from the 4.5% recorded a month
previous. The number of those claiming unemployment benefits in October also fell by around 30,000 after
investors had eyed a 36,000 increase. These are all encouraging signs that suggest the UK labour market is
holding up relatively well, supported by the UK government’s furlough scheme that was last week extended
until March.

2020-11-10T10:16:44+00:00 November 10th, 2020|