Trouble in the Pfizer vaccine supply chain

• OPEC deals, but rifts widen?

Stock gains faded after it was reported that Pfizer expects to ship half the Covid-19 vaccines it originally planned for 2020 due to supply-chain problems.

But the overall sentiment remains supported after US Senate Republican Leader McConnell cited “a few hopeful signs” on stimulus negotiations in recent days and suggested that compromise was “within reach.”

In particular: “strong bipartisan support” for certain stimulus elements, including a “targeted” round of the Paycheck Protection Program.

Investors continue to knock their Yule logs that a pre-holiday Christmas stimulus bill will provide the ultimate holiday stocking stuffer this year. And continue to look on the sunny side of the eventual vaccine rollout.

But before we can make new gains, there is the usual sentiment tug of war between medium-term optimism and near-term COVID-19 despair.

I do not know how many times we have been down this road before. Still, all roads lead to prosperity eventually as the post-pandemic market rally has moved seamlessly from policy-driven to mobility-driven to vaccine-driven and should continue so even if some investors are sitting on the fence waiting for a new stimulus deal.

Democratic leaders appear to have yielded on their insistence on a multi-trillion-dollar fiscal stimulus package, raising the odds that an agreement can be reached before the end of the year.

On the Pfizer front, is anyone surprised that there are not enough sub-arctic temperature shipping containers instantly available to make good on their 2020 delivery channel commitment; Answer: NO.

The reopening trade was well bid from the open on Thursday despite paring some gains into the close, with most moves getting to extend through the early goings. Airlines, in particular, rallied as many short covered as possible with a ton of options activity going through. So, this is proving very painful for many. Investors remain negative in the sector but are being forced to act.

Bonds

There are many questions and few answers on what is going on in fixed income here. Everything was popping, but it is long-end led with 5/30 about 0.5bp flatter in the last 10 minutes or so. Once again, equities are not moving. Indeed, this is a fixed income event rather than a risk event. Dip buying after the recent selloff is my explanation, though I admit I am just throwing spaghetti at the wall on this one.

OPEC and Oil

All eyes were on the OPEC+ meeting overnight where oil ministers ended up meeting at the halfway house and sharing a glass half full in a typical OPEC + fudgy. They came up with the ultimate compromise as the producer’s group agreed to taper production increases.

They will start with 500k barrels from January and hold monthly meetings to review prices and decide on output policies. These meetings will bring some volatility to the market and, importantly, stand to make hedging harder for US producers.

On interesting but not so cohesive front was Saudi Arabia and Russia usually chair the meeting; only Russia did the honours this time. Some see this as a clear sign of the conflicts within the organization.

And the time it took for OPEC+ to agree on the next phase of its cuts is symptomatic of the depth of differences emerging as the group starts to see a higher production path.

How this outlook interprets into prices will largely depend on the degree to which OPEC+ cohesion remains intact.

As the market returns to normality via vaccine rollout, one would expect recent tensions over compliance and quota levels to resurface.

If OPEC+ can fortuitously superintend these tensions and accommodate higher supply in a disciplined manner, it could lead to a rapid erosion of the global inventory excess.

However, if the agreement fractures prematurely, the downside to prices could be significant.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi