Tuesday, November 17, 2020

Asia Times: Risk assets soar after Moderna’s vaccine candidate estimated to remain stable at refrigerator temps for up to 30-days

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  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap: Risk assets soar after Moderna’s vaccine candidate estimated to remain stable at refrigerator temps for up to 30-days

US equities surged on the back of more positive vaccine news after Moderna's experimental vaccine was shown to be 94.5% effective in interim analysis on its phase three study. Modern's first interim analysis was similar to that of Pfizer's, but the main distinction was the reported ability of the Moderna's experimental vaccine to remain stable at standard refrigerator temperatures for up to 30 days, more than four times of its previous estimate of seven days. This likely alleviated key concerns regarding Pfizer's vaccine candidate due to logistics in vaccine delivery and storage for hospitals around the world. With a 30-day buffer, the vaccine is more likely to be able to be more greatly scaled for distribution to different parts of the world, and in the US as well. Moderna also reported that manufacturing remains on track to produce an estimated 20 million doses in 2020 and 500 million to 1 billion doses in 2021 of its mRNA-1273 vaccine. This brings the aggregate estimate from both Pfizer's and Moderna's vaccine candidates to about 70 million doses in 2020 and 1.8 billion to 2.3 billion doses in 2021. We maintain our view that moving forward while current vaccine developments - as well as those to come - are bullish for the market, the key concerns with regards to vaccines are still the time horizon for vaccine distribution, the effective period of the vaccine and the take-up rates of the general population. The Dow and S&P500 both made record highs on the news, driven by bullish investor sentiment.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.60% +470.63 29,950.44
S&P500 +1.16% +41.76 3,626.91
Nasdaq +0.80% +94.84 11,924.13
*Source: Bloomberg

S&P500 sectors were mostly higher, with a strong skew towards cyclical and value stocks for the second session in a row. Work-from-home, tech and health care equipment stocks continued to underperform, but to a smaller extent as compared to last week. Strong performers that drove indices were mostly stocks that had suffered the most during the onset of the pandemic, including companies such as Boeing, and industries including cruise liners and airlines. Energy was also a bright spot, relieved by both the uptick in crude oil prices and increasing optimism that 2021 may see a strong spike in growth of energy demand. Still, Covid-19 concerns are more likely to impact the short-term economic data for the current and coming months. As a result, we maintain our view that a portfolio mix that is weighted more heavily on value and cyclicals while preserving some downside protection in the form of the tech sector holdings or option positioning is likely to benefit from this high volatility environment.

In company news, Tesla gets added to the S&P500, sending its share more than 13% higher in after hours trading. The electric maker will be added to the index on December 21th when the index rebalances. While being added to the index has benefits - such as forced purchases by funds tracking the index and higher volume trading, there are drawbacks as well. Current investors that have been long-time holders of the stock may be more inclined to drop its holdings on the company since they know that index funds now have to buy the stock. This would mean that we will likely see increased volatility in the stock in the lead up to the December 21st addition, which may be tilted to the upside as a result of the current economic environment which benefits the broad stock market as well as the increased level of retail trading more likely to favour high volatility popular stocks like Tesla. However, we should see volatility fade once Tesla gets added to the index, which may put downward pressure on the stock due to reduced volatility, although this will largely depend on the economic environment as well.

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The currency market also displayed strong risk appetite among traders on Monday, pushing every major currency higher against the dollar. Commodity-linked currencies dominated the foreign exchange market, as investors become increasingly bullish on a post-vaccine economic environment. In contrast, risk-off currencies were the worse-performing currencies of the day in the G10 basket. Citigroup's call for as much as a 20% decline in the dollar in 2021 likely provided additional pressure on the greenback as well, as a report from the bank's strategists suggested that the vaccine distribution will meet all of its criteria for a bear market for the dollar, which would send the currency on a trajectory similar to that seen from early-to-mid-2000s following the dot com bubble.

The Australian dollar edged out gains on Tuesday morning in the hour following a set of less-dovish-than-expected meeting minutes from the Reserve Bank of Australia (RBA). The minutes stated that the central bank decided on additional monetary stimulus in its latest monetary policy meeting as it became increasingly clear that unemployment and inflation would both remain subdued for an extended period of time. However, central bankers mostly rejected the use of negative interest rates, regarding the tool as extraordinarily unlikely to be used in the current economic environment. The meeting minutes also showed policymaker discussing of bond purchases targeting five-year yields, but decided against it in favour of yield control on bonds with three-year maturities instead. These factors likely put upward pressure on the Australian dollar rose in the hour following the release, as traders repriced in the lower likelihood of negative rates in the Australian economy.

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Safe haven assets were relatively little changed on Monday in comparison to previous sessions, with a slight tilt towards the downside thanks to optimism from Moderna's vaccine interim results. Gold stayed mostly flat, while silver inched slightly higher. The dollar yen inched lower, while the euro-yen cross strengthened. US Treasuries mostly fell. with benchmark 10-year yields rising 1.6bps to 0.91%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.01% -0.25 1,888.95
Silver +0.41% +0.10 24.77
USD/JPY -0.05% -0.05 104.58
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.18%
10-Year +1.0bps 0.91%
30-Year +1.6bps 1.66%
*Source: Bloomberg

Oil futures experienced an uptick on Monday as well, similar to that of other risk assets. Separately, another driver for the day aside from vaccines was OPEC+'s Joint Technical Committee (JTC) suggesting that the Joint Ministerial Monitoring Committee (JMMC) delay its production hikes scheduled for January by three to six months. The suggestions from the technical panel came on Monday ahead of the JMMC’s meeting set for later today. While we don't expect the JMMC to decide on production hikes during its meeting today, there may be some positive signals on a delay following the JTC's suggestions. A decision is likely to only come during its December meeting in about a couple of weeks. Other positive signs for crude oil is China's crude refining levels reaching that of a record set in June in October, as well as India's total petroleum consumption rising 2.7% in October. However, traders will likely still be concerned with short-term headwinds, which include the current and potential lockdowns in the US, EU and UK. Vaccine concerns may materialise in asset prices as well. This could potentially mean a cap to upside for crude oil prices in the short-term.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.43% +1.04 43.82
WTI +3.02% +1.21 41.34
*Source: Bloomberg

In Asia, stocks were trading higher on Tuesday morning in the region as well, but to a smaller extent to that of the US. A possible reason is caution in the region in regards to positive vaccine developments since short-term impacts from lockdowns in the western hemisphere has likely yet to be fully reflected in asset prices due to optimism from the flood of good news since the start of last week. That being said, the Nikkei, KOSPI and ASX200 were each trading higher in the earlier hours of Tuesday's trading session. Futures tracking major indices in the US were mixed, with a larger skew towards the tech heavy Nasdaq 100 futures as of 9.16am (GMT +8) signalling that gains in risk assets could be starting to ease as investors better process the news on Moderna's vaccine. Walmart will be reporting earnings later today, with investors likely to be keeping a close watch on its new Walmart+ subscription service as well as expectations and adjustments the company is making for the upcoming holiday season amid the Covid-19 pandemic.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.23% +59.82 25,966.75 9:06:55 AM
KOSPI +0.30% +7.53 2,550.56 9:26:50 AM
ASX200 +0.42% +27.57 6,511.90 9:26:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.12% -35.00 29,830.00 9:16:55 AM
US Futures -0.10% -3.50 3,619.50 9:16:55 AM
Nasdaq 100 Futures +0.38% +45.75 12,050.75 9:16:55 AM
*Source: Bloomberg

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

  • US Oct Retail Sales (9.30pm)
  • US Oct Industrial Production (10.15pm)

Companies reporting earnings next include (all timings in GMT +8):

  • Walmart (9pm)
  • Home Depot (10pm)