Tuesday, May 19, 2020

Asia Times: Risk-on sentiment spikes after Moderna posts positive data on its experimental vaccine in its initial phase of testing

Tags
  • China
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil

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Market Recap: Risk-on sentiment spikes after Moderna posts positive data on its experimental vaccine in its initial phase of testing

US equities jumped on Monday as hopes for a vaccine for the Covid-19 disease fueled risk-on sentiment among investors. Drug maker Moderna posted positive phase one data for its experimental mRNA-1273 Vaccine against the novel coronavirus that's responsible for the Covid-19 disease on Monday. The company said in its announcement that the phase one data shows signs that the vaccine may have the potential to prevent the Covid-19 disease. No major safety issues were present in the first phase as well, allowing the company to proceed with the next phase of trials. It is however, also important to note that the experimental vaccine is still in the early stages of testing. The company said that it expects a phase two study to begin soon, while a phase three study is planned for as soon as July 2020 if safely possible, which if successful will prompt the company to file a Biologics License Application (BLA). Only after regulatory approval can the company start producing the vaccine and move into the distribution phase. Moderna's stocks surged 11.39% as a result. Small-cap indices were the top performers on Monday, with the S&P600 surging 4.11% while the Dow and S&P500 advanced 3.85% and 3.15% respectively.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +3.85% +911.95 24,597.37
S&P500 +3.15% +90.21 2,953.91
Nasdaq +2.44% +220.27 9,234.83
*Source: Bloomberg

In the forex market, the dollar fell sharply as investor optimism spiked. Commodity-linked currencies surged as hopes for an economic recovery was lifted by positive data from Moderna's experimental vaccine trials. Safe haven currencies performed the worst, as risk aversion in the market dived. Safe haven currencies may however be able to find some upside towards the end of the week as optimism for a potential vaccine starts to ease and if US-China tensions start to escalate.

The Australian dollar gained 1.73% on Monday and is likely continue to see more upside later this morning even on the release of the Reserve Bank of Australia's (RBA) meeting minutes for the monetary policy meeting earlier this month. The meeting minutes should provide more insight on the potential path of the Australian economy and the RBA's monetary policy. The RBA's statement for its decision on May 5th implies that the central bank's outlook for the Australian economy continues to be skewed to the downside as a result of the lockdowns. The meeting minutes will probably continue to signal the RBA taking note of downside risks that poses headwinds for the Australian economy which should include extended lockdowns and a second wave of the virus. However, positive data on a potential vaccine for the novel coronavirus, a better-than-expected recovery in China's demand for oil and surging oil prices are likely to make most of the RBA's meeting minutes less relevant for pricing the currency for the day ahead, and continue to push the Australian dollar higher today as speculation for a potential global economic recovery in the short-term is likely to drive the currency higher.

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Safe haven assets were down on Monday as risk aversion faded from investor sentiment. Gold prices dropped 0.64% while the Japanese yen fell 0.26% against the dollar. US Treasuries dipped across the board. Benchmark 10-year yields rose 8.3bps to 0.73%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.64% -11.12 1,732.55
Silver +2.14% +0.36 16.68
JPY -0.26% -0.28 107.34
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +3.2 0.18%
10-Year +8.3 0.73%
30-Year +11.0 1.44%
*Source: Bloomberg

Oil prices surged on Monday after reports signalled that Chinese oil demand had returned to pre-Covid-19 levels. Reports from traders who monitor the country's consumption suggested that it was at about 13mn barrels per day, slightly lower than the 13.4mn barrels per day in May 2019, although this is only just an approximation. The International Energy Agency's report last week does contrast this, suggesting that it expects China to consume less oil each month for the rest of the year compared to 2019. Data (Shandong Independent Refineries Run Rates hit nearly 75% for the week ended May 15th compared to roughly 60% in the year before) also suggests that Chinese oil refineries are purchasing physical barrels of oil at rapid rates to take advantage of the low prices as demand for gas and diesel consumption spiked in the country. The uptick in demand and reduced worries of supply helped oil surged in recent days, pushing WTI crude oil futures up more than 75% since the start of May and more than 34% in the last two weeks. Oil prices looks likely to continue to rise today, as Asian markets open in the morning are likely to start to price in the positive data from Moderna today.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +7.11% +2.31 34.81
WTI Crude +8.12% +2.39 31.82
*Source: Bloomberg

Asian stocks will likely track gains in the US today as the market starts to price in the potential for a possible vaccine. The Nikkei, KOSPI and ASX200 already surged at the start of the trading session and the HSI and STI are likely to follow suit as well. Futures tracking major indices in the US were trading higher as of Tuesday 8.26am (GMT +8) as well, suggesting that we may see a second day of gains in the US although it is unlikely of the same level as yesterday's.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +2.53% +509.86 20,643.59 8:15:55 AM
KOSPI Index +1.95% +37.71 1,974.82 8:35:50 AM
ASX200 Index +2.01% +109.86 5,570.40 8:35:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.14% +34.00 24,541.00 8:26:03 AM
S&P500 Futures +0.08% +2.25 2,950.25 8:26:03 AM
Nasdaq Futures +0.22% +20.75 9,346.25 8:26:01 AM
*Source: Bloomberg

Companies reporting earnings in the day ahead include (all timings in GMT +8 where available):

  • Walmart (7pm)
  • Kohl's (9pm)

Economic releases for the day ahead include (all timings in GMT +8):

  • RBA Monetary Policy Meeting Minutes (9.30am)
  • Japan Mar Industrial Production (12.30pm)
  • UK Mar Unemployment Rate (2pm)
  • US Fed Chair Powell Testifies Before Senate Banking Committee (10pm)