Stock markets are having a slightly softer session so far on Thursday, as the buzz from the vaccine announcement fades and a little profit-taking kicks in.
It’s been a quite incredible run but, unfortunately, all good things must come to an end. Indices in Europe have enjoyed gains of 15-20% in a little under two weeks, while those in the US have had to settle for a more modest 10-15%, held back by the tech sector.
There’s still plenty of ground to make up for most European stocks, which remain some way from their pre-pandemic highs. We didn’t quite enjoy the bounceback that the US did in the aftermath of the Covid shock earlier this year so there’s still quite a significant lag there.
All being well, Pfizer and BioNTech will be the first of a number of good news stories on the vaccine front that will foster in a strong end to the year, not to mention a feeling of general optimism that has been absent since the turn of the year.
Central banks were key in supporting these markets earlier this year and have undoubtedly contributed to their impressive performance since they bottomed out mid-March. They still have a role to play for some time yet and we may get a better idea of that later on today.
The heads of the Fed, ECB and BoE will take part in a panel discussion at the ECB Forum on Central Banking and could offer some insight into their role during the next phase of the pandemic. The BoE last week played its hand, increasing its bond buying program by £150 billion which is intended to see them through to the end of next year.
The Fed and ECB have provided an extraordinary amount of stimulus this year but they’re expected to follow the BoE, RBA and RBNZ and ease further next month. Today may provide some insight into the tools available to them during the next stage and how much more we can expect from them, particularly the Fed in the absence of a fiscal response.
Unlike in the aftermath of the global financial crisis, central banks have not been the only game in town in responding to the pandemic, it’s very much been a joint effort. And while the vaccine news may ease the pressure on them to continue topping it up, it’s not going to be widely available for months so there’s still a job to do. And then there’s the recovery. It should be an interesting discussion.