Modern(a) love, walks beside me

Markets shrug on Moderna vaccine results

It may not be Bowie, but Moderna Inc. is walking beside equity markets, ushering them gently higher this morning. Moderna announced positive results from its experimental Covid-19 from another small-scale human trial. More significantly this time, the results have been published in a peer-reviewed journal, meaning independent eyes have been cast over the results, and like what they see. Sadly, like Springsteen, my two Millennials have never peer-reviewed Bowie’s work.

Having said that, the overall response from markets has been modest compared to times past. Then, such news would usually invoke a frenzy of buy-everything, peak-virus trading in equity markets. Aftermarket US index futures have gained, with the S&P 500 e-mini and Nasdaq futures up by 0.60% and 0.40% respectively. Pleasing, but not earth-shattering. Perhaps financial markets are building up a peak-virus immune response, hinted at by Monday evening’s outside reversal day on the Nasdaq.

Market immunity to geopolitics is also increasing; it would appear. US President Trump signed Congress’ Hong Kong Act into law, withdrawing its special trading status, and limiting technology exports to the SAR. Except for mainland China stock markets, the rest of the region has wholly ignored this event. US big-tech firms and foreign banks continue to be in the crossfire of potential US sanction breaches, and Hong Kong security law breaches. That has had zero impact on share prices, though. The international community seems to be rapidly moving towards US-China animosity being the new normal. Like a soap-opera that has gone on too long, markets are voting with their feet and switching channels. I suspect, however, that there is still room for an extended season finale to bring back viewers.

The Bank of Japan left rates unchanged this morning at -0.10% as expected. Furthermore, their forward guidance was unchanged with no new stimulus measures plan. The Bank of Japan did state that if needed, they will open up the monetary spigots once again. I certainly wouldn’t bet against it.

Attention will now turn to Europe, with the European Central Bank expected to follow Japan, with rates and guidance unchanged and a “do whatever it takes’ monetary policy meeting. More attention will be on the European leaders’ recovery fund meeting on Friday. EUR/USD jumped overnight in anticipation of a positive outcome. The total recovery fund is expected to be EUR 750 billion but must overcome objections from the “Frugal Four” countries to enact it. The devil will be in the detail, but in a very European way, I expect a recovery package to be cobbled together. That should set up the euro for more gains versus the US dollar and British pound into the week’s end.

Today will be an important one for energy markets as well. Although OPEC, unsurprisingly, saw demand strongly rebounding in 2021 (a big if), it would remain below 2019 levels of consumption for some time. OPEC’s monitoring committee meets today to make recommendations on maintaining the headline 9.6 million barrel per day cuts into August. With oil prices stalled in a four-dollar range over the past month and uncertainty about US growth as Covid-19 rampages across the US sunbelt, the balance of probabilities leans towards a one-month extension. A tapering, as per the agreement, may see stale longs choose to head for the exit door until the world’s economic picture becomes a little brighter.

The data calendar is thin today for Asia, now that the BOJ has passed. Tomorrow morning gets rather juicier, though, with the Australia unemployment rate and China Q2 GDP as well as China’s June retail sales and the unemployment rate.

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