Global stocks surged, and US equity futures jumped rising to the Monday pre-dump highs, on coronavirus vaccine optimism (with headlines now conveniently appearing every time stocks appear poised for a selloff) and looking past record daily death rates in some states and brewing tensions between Washington and Beijing. Yields rose and the dollar slumped to a one month low.
US stocks staged a late session surge on Tuesday after news that Moderna’s coronavirus vaccine produced antibodies to the coronavirus in all patients tested in an initial safety trial. The vaccine developments brought optimism to financial markets that have been struggled to make headway recently in the face of new outbreaks across the U.S. and Asia.
Moderna shares surged 18% in pre-market trading following late Tuesday news that it was safe and provoked immune responses in all 45 healthy volunteers in an ongoing early-stage study, while AstraZeneca rose after a report that a medical journal will release positive news on the coronavirus vaccine the company is developing with University of Oxford researchers. American Airlines, United Airlines Holdings, Carnival Corp, Royal Caribbean Cruises Ltd and Norwegian Cruise Line Holdings Ltd rose between 6% and 6.8%.
“The vaccine news is clearly a positive development,” said Mark Nash, head of global fixed income at Merian Global Investors. “But it’s still long way off. The fear of the W-shaped recovery is probably very high at the moment. Good news is that markets still have a chance to ride it out because the Fed has bought time, so financial conditions can stay easy until growth kicks in.”
Europe’s Stoxx 600 Index extended gains to 1.3% shortly before noon in London, with travel leading among sectors, amid positive sentiment in markets on the back of progress in developing a coronavirus vaccine. European index heads for a third day of gains in four sessions The Travel & Leisure sector rose 2.7%, led by Carnival while the Stoxx Europe 600 Industrial Goods & Services +2.5%, boosted by Schneider Electric, Adyen. Banks and telecom gauges are the only two trading lower. Atlantia SpA surged 22% as Italy’s government moved to resolve a long-running dispute linked to a 2018 bridge collapse.
Earlier in the session, Asian stocks gained, led by industrials and materials, after falling in the last session. Most markets in the region were up, with India’s S&P BSE Sensex Index gaining 1.9% and Australia’s S&P/ASX 200 rising 1.9%, while Shanghai Composite dropped 1.6%. Trading volume for MSCI Asia Pacific Index members was 17% above the monthly average for this time of the day. The Topix gained 1.6%, with Danto and SERAKU rising the most.
Surprisingly, Chinese markets underperformed with the Hang Seng and Shanghai Comp. (-1.6%) both negative after US President Trump signed legislation and an executive order to hold China accountable for actions in Hong Kong, with the executive order to remove preferential treatment for Hong Kong and which will now be treated the same as China. Furthermore, China later responded that it strongly opposes US signing the sanctions bill and that it will implement its own sanctions on US officials and entities.
Reports of China state funds continuing to sell shares also did not help in which a pension fund was said to have offloaded 42.3mln BoCom A-shares on Tuesday. Qianjiang Water Resources Development and Shanghai LongYun Media Group Co Ltd posting the biggest drops.
In FX, the Bloomberg Dollar Spot Index fell to a one-month low as Norway’s Krone led G-10 gains followed by the pound; the krone was also supported by higher oil prices, while sterling got a boost after U.K. inflation surprisingly accelerated last month.
The euro rose a fourth day against the dollar to a four- month high of 1.1445, and the cost to hedge one-day fluctuations in euro-dollar suggests market makers see a good chance that year-to-date highs may come to test as Thursday’s European Central Bank meeting comes into focus. Sweden’s krona touched its strongest level in 17 months against the euro as risk sentiment improved and following a report that showed Swedish inflation expectations didn’t drop further.
In rates, Treasury yields moved higher with gilt yields also rising after a debt sale. US Treasury yields were higher by 2bp-3bp at long end, remaining inside weekly ranges, 10-year by ~2bp at 0.643; U.K. 10-year yield higher by 2.6bp, gilts leading declines for sovereign bond markets. UST 5s30s steeper for first day in five, approaching 104bp.
In commodities, oil gained after a report pointed to a drop in U.S. crude stockpiles; gold remained well above $1800.
Looking at the day ahead, the focus will be on corporate earnings with highlights including UnitedHealth Group, Goldman Sachs, US Bancorp, BNY Mellon and Infosys. Otherwise, there’ll be a rate decision from the Bank of Canada, the release of the Fed’s Beige book, as well as remarks from the BoE’s Tenreyro and the Fed’s Harker. Finally, data highlights include June industrial production and capacity utilisation numbers, along with July’s Empire State manufacturing survey.