Equity markets dip as vaccine excitement recedes

The danger when financial markets price in two years of return to normal in the space of two hours, is that there are no stragglers in the herd left to continue the momentum. That appears to be the case after the Pfizer BioNTech announcement earlier this week. It only took a day or so for some to move back to the comfort of big tech, and the lack of macroeconomic drivers since, has sapped momentum.

A plethora of central bankers since has stated that the road ahead remains cloudy and that a vaccine won’t be an instant panacea for the world’s economic ills. Even positive noises from the US’ Dr Anthony Fauci about the Moderna vaccine, initial results of which are due soon, failed to reinvigorate the rally.

That probably tells us that the street went all in, and then went what now, as they found themselves marooned in the portable frozen Antarctic wastes required to distribute the Pfizer vaccine. Covid-19 continues to spin out of control across the US, Europe and other parts of the globe, with the ensuing movement restrictions sure to crimp Q4 growth. Any lingering hopes of a US fiscal boost receded further overnight, as US Initial Jobless Claims fell more than expected, although they remain above 700,000.

A lack of positive drivers, but the ongoing excess of negative ones, saw equities beat a gentle retreat overnight. A direction Asia is likely to follow as the weekend approaches. The dollar has recovered more of its losses, leaving most of the currency market mid-range sideways in Seattle. Energy prices also retreated after a monster climb in US crude inventories. Gold remains in the casualty ward though, after the traumatic adverse vaccine reaction earlier this week.

The migratory herds of FOMO gnomes of the world’s capital markets, whose behaviour has so defined 2020, will need to look for fresh grazing. That may come from Moderna’s vaccine trial results in the coming weeks, or one of the other major players. Let us not discount the power of the Trump tweet either. He is still the President until late January, and in fact, just a few US states have certified election results thus far. It is clear that President Trump will not go quietly, and Trump-tweet volatility is sure to be with us for a while yet. Thankfully, it should only cause short-term volatility and not long-term volatility.

The data cupboard is bare in Asia today, with only Indonesia’s Q3 Current Account and Malaysia Q3 GDP of note. Anything with Q3 in the label is old news as far as 2020 is concerned. Malaysia’s GDP will bounce back to a still negative -3.5% YoY but will be lost in the noise as it battles its second wave of Covid-19.

Next week, Asia sees interest rate decisions from China, Thailand, the Philippines and Indonesia. We expect no changes from China and Thailand, with the Philippines almost sure to hold, as the spike in inflation sends real interest rates negative. Only Indonesia is live, and I believe that despite the strong appreciation of the rupiah this week on the back of the vaccine rally, the Bank Indonesia will err to the side of caution and remain unchanged. BI has had to intervene aggressively in currency markets ahead of its 15,000 lines in the land for USD/IDR. I do not believe they will risk undermining their success by cutting rates next week, although the economy could use the help.