More positive vaccine news has supported risk assets, with modest gains in global equity markets and a nudge higher in global rates. The USD shows broadly based falls, with the NZD leading the charge, printing a fresh 20-month high and pushing higher on the crosses.
The key news overnight is that Pfizer gave an update of its phase-3 vaccine trial, with final results showing an improvement in its effectiveness from 90% to 95%, protecting people of all ages and ethnicities and with no significant safety concerns. The company will apply for US regulatory approval within days, which means distribution of the vaccine could take place before the end of the year if approval is authorised.
That news has helped support risk assets, although movements have been modest, with the market already pricing in positive vaccine news over the last week of so. The positive medium-term outlook also needs to be weighed against the likelihood of the economic recovery in the US and Europe taking a setback over the short-term as the spread of the virus takes its toll. The surge in new COVID19 cases in the US continues, with the daily run-rate now above 160k and a record 77k people being admitted to hospital. Ohio is the latest state to impose a nightly curfew, following a number of other states which have introduced fresh restrictions this week.
The S&P500 is only just in positive territory, up 0.2% but the small caps Russell 2000 index – more leveraged to the economic improvement once the vaccine is rolled out – continues to do better, up 0.6%. US housing market data remained buoyant, with housing starts stronger than expected and the less-volatile single-family component rising to its highest level since 2007.
In other economic news, UK core CPI inflation data were stronger than expected, but the annual increase of 1.5% remained well shy of the BoE’s target and will have little consideration in monetary policy deliberations. Canadian inflation also picked up, with the average of the core measures ticking up to 1.8%.
The better risk backdrop sees global rates pushed higher. The US 10-year rate is trading near its high for the day of 0.87%, up a couple of basis points from the NZ close. Key European rates rose by about 1bp.
The USD remains under pressure, falling across the board, although the 0.2% fall on the BBDXY index is muted to the extent that EUR also remains on the soft side, barely rising to 1.1870. That might reflect concern that the euro area’s recovery will be held back by new virus-related restrictions, or the delay in ratification of the €750bn EU recovery fund, currently being held up by Hungary and Poland, two countries which oppose the “rule of law” condition.
The NZD has outperformed, currently trading near the fresh 20-month high of 0.6940 it has printed, a reflection of positive risk sentiment and the afterglow of last week’s Monetary Policy Statement, following which there was a sharp rise in domestic interest rates – although we did see some retracement yesterday, with yields down 3-5bps across the bond and swap curves, with movements at the longer end supported by global forces. The 2-year swap rate fell 3bps to 0.20% while the 10-year swap rate fell by 5bps to 0.83%. NZ’s 10-year government bond yield fell from a 4-month high, ending the day down 6bps to 0.85%.
The AUD has pushed higher as well, but it saw some overnight resistance just under the 0.7330 mark. NZD/AUD trades higher around 0.9470 and the NZD is also slightly higher on the other key crosses.
Bitcoin continues to defy gravity, touching over $18,000 overnight. The December 2017 high of just over $19,500 is now clearly in sight. The cryptocurrency has seen support from a number of higher profile investors, with the currency seen as a good hedge as the US Fed debases the value of the USD, although that is highly debateable.
Today sees the release of Australian employment data, where the unemployment rate is expected to tick over the 7% mark. A number of US releases tonight shouldn’t be market moving, with initial jobless claims data expected to show a further nudge lower.
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