Investors channel their positive energies back toward the main tasks at hand: the vaccine taming the virus and restoring the economy’s health.
US equity futures opened on a positive note this morning, still riding the vaccine tailwinds.
Indeed, the vaccine enthusiasm booster shot remains the dominant narrative, even with surging infections across the US: now more than 1 million since the start of November. Indeed, the vaccine could prove to be the ultimate market backstop and recessionary economic plugger.
Despite mounting health care concerns, it is improbable the US will shift back to a sudden stop lockdown. “That’s a measure of last resort,” Dr Vivek Murthy, a former US surgeon general tapped to help lead the group, told “Fox News Sunday,” adding that any lockdown at this stage of the pandemic would look different than the sweeping closures which states enacted in the spring to suppress the virus.
Despite the raging global virus case counts, investors show a cheeky bravado realising the Monday trap door for risk will not spring even when the Covid-19 case counts and headlines soar over the weekend. The non-typical risk-on Monday morning is due to the vaccine tailwinds and global central banks that will continue to watch the markets back.
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Coordinated central bank messaging
The three most prominent central banks in the market also sprinkled just enough forward guidance fairy dust to ensure investors are confident the market will be sufficiently flush to bridge the gap between now and hopefully when the vaccines arrive.
The persistent message from US Fed Chair Powell, Bank of England Governor Bailey, and European Central Bank (ECB) President Lagarde is the length of time that exceptional policy will be required.
Indeed, this is very positive mood music to the market ears and allows investors to look through the current level of headline COVID uglies.
Beyond a successful rollout of a COVID-19 vaccine (or the expectation thereof), the extent to which the tech sector can perform from here depends on the Fed’s willingness to cap higher UST yields.
There is this eerie impasse where extreme COVID-19 case rate acceleration and positive vaccine news locked horns last week, creating a frustrating environment for momentum and trend followers after the initial vaccine booster moonshot.
But this could be little more than a case long term vs. short trader term horizon traders butting heads, as it did look like two battling rams going at it at times.
However, I suspect it will be a lot easier to pitch the equation’s positive side once we have another successful candidate and a hopeful one with less logistical distribution challenges.
Bears could rightly argue the vaccine timeline is in the price, and the Pfizer news has not altered it much, so perhaps newly-minted equity rotation trades and risk-on longs are at risk. Optimists would say efficacy was a huge unknown, and it looks better than it looked two weeks ago. My vote is with the optimists but let us see what Moderna reports.
Maybe this bullish sentiment mini balloon does need to deflate a percentage or two before the bull market resumes. But this is a market highly prone to “event-driven,” Covid-19 resurgence, for example, so it is impossible to draw a straight line from 3500 to 4000 on the SPX as we enter the new dawn” hope phase” of a fresh bull market run.
Jobs will disappear regardless of the vaccine
Despite last week’s unmistakable supportive and coordinated central bank messaging, some jobs will disappear forever as the new age technological transition will not be so kind. Some jobs will become obsolete forever, which is something the vaccine can not cure.
On Friday was bad news for Spanish jobs on Friday. Santander told unions it plans to cut 4000 jobs in Spain. That amounts to 13% of the workforce. Indeed, this is just another example of why the vaccine might not be the economic panacea many were hoping for.
The cuts come as the bank plans to close 1000 branches after the pandemic boosted customers’ switch to digital channels.
Given the market’s enthusiastic reaction to vaccine efficacy, the focus will now turn quickly to quantities and distribution. There is an important non-linearity here: every additional vaccine produced will become increasingly valuable on the path to herd immunity.
In other words, production capacity and distribution matters as we move through the hope phase of the Vaccine recovery.
Crude opens higher
Oil is trading a higher at the open after Dr Vivek Murthy’s comments about potential lockdowns.
All the while, oil prices are still riding the vaccine tailwinds supported by OPEC + backstops, as the two sturdy backstops are ruling out of the more worrying demand and price collapse scenarios.
Last week traders speculated that the US could move into very rigid lockdowns over the holiday season, impacting road fuel demand over Thanksgiving and Christmas, so we are seeing some of those shorts give way at the open as traders back some of those US lockdown worries and oil is climbing a bit.
Still, I look for more of the same trading patterns this week as last week, where optimism around key resistance levels quickly ebbs to pandemic realities. It is hard to escape the current virus realities when it comes to the prompt oil market prices.
International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi