Hot on the heels of Pfizer’s encouraging news last week, Moderna announced overnight that its vaccine had been found to be 94.5% effective. The news has generated a reasonably modest bounce in global rates and equities, with markets having already moved significantly on the Pfizer news last week. The USD is broadly weaker, and the NZD stronger, against a risk-on backdrop.
US pharmaceutical firm Moderna announced preliminary Phase 3 results from its Covid-19 vaccine overnight, showing it to be 94.5% effective in its large-scale trials. The effectiveness ratio exceeds the 90% reported by Pfizer/BioNtech, leading US health expert Fauci to call the results “really quite impressive.” No participants taking the vaccine became seriously ill. Importantly, the Moderna vaccine can be stored and shipped at normal freezer temperatures, unlike the Pfizer vaccine which needs to be kept at -75 degrees until five days before it is used. Additionally, the Moderna vaccine can be kept at regular refrigerator temperatures for up to 30 days, making the logistics around its distribution and storage more straightforward.
US equity index futures had opened the week higher in Asian trading yesterday, following comments from two of President-elect Biden’s advisors that they didn’t favour a full nationwide lockdown in the US. Futures then spiked higher after the Moderna announcement before paring most of these gains. Moderna was widely expected to release positive findings, given it has developed its vaccine using the same technology as Pfizer, so the news wasn’t a great surprise for the market. The S&P500 is now up 0.8% overnight, adding to last week’s 2.2% gain and leaving it at a record high.
Rotation towards small cap and value stocks and away from the big tech names continues in the equity market. The Russell 2000 small cap index is up another 2%, taking it to a fresh record high, while the NASDAQ has underperformed again, rising just 0.4%. Amazon and Zoom, the video conference firm that became synonymous with working from home, are among those whose stock prices have fallen overnight.
It was a similar story in the bond market, with global rates spiking higher immediately after Moderna’s vaccine announcement before reversing most of those moves. The 10-year Treasury yield is barely changed from the US market close on Friday night, at 0.9%, having traded as high as 0.93% at one point.
A risk-on dynamic is at play in currencies, with the US broadly weaker, commodity and risk-sensitive currencies outperforming and the safe-haven JPY and CHF underperforming. The BBDXY USD index is down 0.2%, taking it close to its recent 2½ year low. The USD typically weakens during periods of rising risk appetite and synchronised global growth.
The Norwegian krone tops the currency leaderboard overnight, appreciating more than 1% on the back of a 3% increase in Brent crude oil prices. The NZD and AUD are both around 0.7% higher to start the week, with the NZD having risen close to 0.69 – near last week’s post-MPS highs. USD/JPY spiked above 105 after the vaccine news, but it has since reversed course and is back to unchanged on the day.
The GBP has shown little movement this week as UK-EU trade talks head into the final straight. Irish foreign minister Coveney said a deal was possible but highlighted that there was “a very, very wide gap” between the two sides on the issue of fishing rights. Both the UK and EU have previously highlighted the 19th November as a deadline to get a deal done, to allow enough time for this to be legislated across national parliaments in the EU, although UK media reports suggest this could extend another couple of days if a deal is in sight.
The market continues to look through the troubling increase in Covid-19 cases in the US which is leading more states and cities to implement social distancing restrictions. The market has taken comfort from the weekend comments from Biden’s advisors that they didn’t favour a full national lockdown, preferring targeted measures instead.
Monthly Chinese activity data was released yesterday, with industrial production and fixed asset investment beating market expectations. Retail sales disappointed market expectations but were still above last month’s 3.3% year-on-year reading. China’s National Bureau of Statistics said it expected growth to pick-up further in Q4. China continues to lead the global recovery, in part due to its effectiveness in containing Covid-19. In NZ economic data, the PSI (the services equivalent of the PMI) increased slightly, to 51.4, below its historical average of 54. The employment component of the PSI remained in contractionary territory, at 49.5.
NZ rates consolidated again yesterday, with swap rates moving by less than 1bp across the curve. The government bond curve saw steepening pressure, reflected in a heavily-offered RBNZ buyback operation, with the 10-year yield rising 2bps, to 0.84%. We should see NZ rates open higher this morning given the implied yield on the 10-year Australian government bond futures contract has increased around 4bps overnight.
US retail sales are released tonight, with economists looking for a 0.5% growth in October, following on from the very strong 1.9% jump the previous month.
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