ING analyserer effekten af den nye Covid-19 vaccine. Den vil styrke væksten i 2021, men vinteren bliver stadig meget vanskelig. En lang række aktier og sektorer, der har været undervurderede under coronakrisen, vil få et løft fra energisektorer til banker. Der kan især komme et løft i europæiske aktier.
The vaccine moment: What the latest breakthrough means for markets
Equity markets have jumped on the news that a Pfizer/BioNTech Covid-19 vaccine had reached 90% efficacy rates in late-stage clinical trials. We take a look at the impact the news has had across asset classes today. One small area of concern could emerge if US Treasury yields rise too quickly and damage views that we are entering an investment ‘sweet spot’
Welcome news, but challenges remain
As the second wave of Covid-19 continues to disrupt economies across the world, the latest vaccine news comes as a welcome boost for hopes that 2021 may be a much better year than 2020 for the global economy.
Developers Pfizer and BioNTech have unveiled interim analysis from their phase III trial that suggests their vaccine is ’90% effective in preventing Covid-19’, while the trial has highlighted no major safety issues so far.
None of this unfortunately changes the near-term fact that the global economy faces a challenging winter. Renewed lockdowns across the eurozone are likely to shave roughly 2% off GDP in the fourth quarter, according to our latest forecasts, while the risk of further restrictions in the US will put a considerable brake on activity.
Equities: Global rally
It is a sea of green in global equity markets today. Europe benchmark indices are up 5-8%, led by sectors such as Energy, Financials, Industrials and Consumer Discretionary – basically, the market is closing its shorts and buying the underperformers and obvious beneficiaries from an economic recovery i.e. cyclicals and consumer discretionary.
A similar sector profile is seen in today’s move in the US S&P500, even if the overall US market is ‘just’ up 3% today. Recall that Year To date, US equities have hugely out-performed Europe (S&P 500 +12%, Euro Stoxx 50 -9%), questioning whether now is the time to rotate back into Europe?
Asian equities had enjoyed 1-2% gains overnight before the Pfizer news. But Japanese Nikkei futures, which trade in the US, have rallied 730 points or 3% since the news broke near midday in Europe.
Developed Market Rates: Injecting a dose of reality
This was the “vaccine” moment the rates market had waited for. We had asserted that it was worth a 15-20bp reaction in the US 10yr. We’ve had something close to this so far.
The big difference here from previous moves is that we won’t need to take this back. We have moved from a digital state of no vaccine to one where there is one. This latter state is one where the medium-term prognosis is considerably better, or at least a reasonably positive inference for the future can be mapped out, with clear implications for market rates.
The immediate target to aim for is 1% on the US 10yr
The immediate target to aim for is 1% on the US 10yr. Provided no other ancillary influences come into play, it is quite conceivable that a 1-handle is hit. However, once we get there it is less clear that there will be staying power.
Mapping that level out will likely be enough for now, as contemporaneous macro angst will begin to dominate again as we progress over the coming weeks into winter. The real ambition to hit that 1% level and stay there remains a 2021 one, when the vaccine gets applied and the macro prognosis is more secure.
The curve remains directional and led by longer-dated yields. So it is steeping for now, but to revert to some flattening into year-end. Note also that the structure of the curve still does not look bearish for bonds; specifically, the 5yr area remains rich and the fed funds futures strip remains very flat. This confirms the view that any uplifts in market rates will be curtailed by contemporaneous macro realities and the associated need for central banks to keep the pressure on the various easing switches.
For now, it is a steeper curve, a wider Treasury-Bund spread, all centred on hitting that 1 handle for the US 10yr. And while we will likely fade from that level, it will set a mark as to where we can transition towards in a more structural basis in 2021.
Note also that these sharp adjustments in higher in rates can spell trouble for other rates-sensitive asset classes.
Credit: Spreads rally, curves flatter in both EUR and USD
There was already a very positive sentiment in the credit markets on the back of the Biden victory. Now with the vaccine news, there is further tightening. USD spreads were outperforming Euro over the past few days, but euro spreads are performing substantially well now.
Defensive names are looking roughly 3-8bp tighter today and higher beta up to 10-15bp. The long end of the curve is the major outperformer as curves are flattening significantly. Euro curves (particularly in BBB rated debt) were already looking relatively flat. Furthermore, the short end of the curve is deep in negative yield territory. We are reserved on how tight spreads can go overall, seeing as in many names spreads are trading at levels of pre-covid-19.
Euro spreads are performing substantially well
At the opening in USD, there was a 5bp tightening across the curve in all sectors, it is likely USD spreads will follow the same trend as Euro.
FX: A clean day for risk-sensitive currencies
Given the huge moves seen in equities today, FX markets have behaved slightly differently to the broad-based gains made against the dollar last week.
Familiar friends like NOK and AUD lead G10 FX gains (+1.7% and 0.9%) against the dollar. These are high beta trades on the global recovery story and have also been leading the charge on the Biden rally. However, today we’ve seen the JPY and CHF fall 1.75% and 0.85% against the dollar. In effect, these currencies are reverting to their typical safe-haven status and are today being sold off. USD/JPY as well typically has the highest correlation to US yields (where 10-year Treasuries are already up 15bp on the day).
Commodities: Oil gets a boost on demand prospects
Suggestions of a successful Covid-19 vaccine saw prices rally across the commodity complex. ICE Brent futures jumped by almost 10% extending above US$43/bbl during London trading sessions as the potential vaccine breakthrough provided significant relief to oil demand and it could potentially be a gamechanger to the market ahead.
