US equities were stronger overnight as tech stocks did slightly better than the previous two days. The NASDAQ closed up 1.7%, lifting the broader market indices.
However, the bond sell-off has extended for a third day, US10Y yields now up to 0.98%. 2s10s, now at 79bps, is at its steepest since October 2017.
More positive vaccine news might be on the way soon. At an FT summit, US infectious disease expert Anthony Fauci expects Moderna to begin assessing its Phase 3 trials “within a week” and indicated he “would be surprised if we didn’t see a similar degree of efficacy” to the Pfizer/BioNTech results.
With more vaccines on the way and if the efficacy rate holds up, this could reduce some of the Pfizer candidate’s logistical distribution challenges and increase the chances that in H2 2021, the pandemic will be history in large parts of the world. And yet there will continue to be a massive monetary stimulus and very accommodative fiscal environment as well.
So, once we have made it through what is still bound to be a winter of despair for health care concerns, it could trigger the mother of all economic rebounds boosted by unprecedented policy support.
Darkest before the dawn?
Vaccines are coming. There is a weird narrative conflict right now as COVID-19 is worse and gets much worse quickly while the vaccine timeline and efficacy stories look suddenly better.
For stock market concerns, I would think that the negative from the current wave of COVID-19, no matter how bad this wave is, will eventually be overpowered by the positive of vaccine optimism because the recent surge is temporary.
In contrast, the end of COVID-19 will be perpetual. If you discount all the positive vaccine knock-on effects back to now, which is easy to do given the near-zero policy offered up by the Federal Reserve Board, the vaccine matters much more than the current surge of the COVID-19 malady.
I understand vaccine approval and delivery are wildly complicated, but the market could eventually see the light of day as it is always darkest before the dawn.
We cleared two significant risk events this past week – we got a (somewhat) clear US election result and a vaccine.
However, challenges remain as a vaccine will not come soon enough to inoculate the world from the current spike in COVID -19 cases. The Georgia senate run-off in January keeps the Democratic sweep scenario on the table.
As a result, the broad risk-on mentality has endured. At this point, the comprehensive buying support from systematic players has subsided and is now skewed to sell. At the same time, hedge funds might continue to de-risk, given the sharp rotations in the market.
The longevity of the rotation remains the most debated topic. Most folks I talked to seem to think that we probably have seen the worst for Growth/Software over the near term as the group is bouncing right off the November lows today.
At the very least, price action Monday/Tuesday was a warning, and a reminder of how crowded trades still are and how powerful an unwind of the Long Momentum/Growth trade can be when there is a catalyst.
Crude Oil Roundup
The official DOE numbers are delayed until later tonight (Asia)by the Veteran’s Day holiday. If the large draws in all products’ stocks are confirmed, the market should benefit from that support, but it feels that the vaccine binge is losing steam, and prices are vulnerable to current COVID-19 setbacks.
At the same time, Christmas came early to the producers where selling was evident as higher prices invited December hedging.
But for those investors chasing the prompt market higher on the vaccine impulse, when they should be getting bulled up on the back end of the curve, they might end up with the proverbial lump of coal in their holiday stocking as its the pandemic that counts first before the vaccine when it comes to the prompt delivery for oil markets.
The medical advances are likely to help the economy and oil market normalise through 2021.
Still, the winter of gloom continues to look challenging, and hence OPEC+ supply-side action to counter demand softness will be critical in the near-term.
And for the gnarly proof in the pudding effect, OPEC’s monthly report was released overnight where they stated, “The oil demand recovery will be severely hampered, and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.”
This provides traders with a stark reminder just how negatively impactful the second wave of mobility restrictions are on oil demand.
International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi