Diminishing returns

Market enthusiasm over Covid vaccines fades

European stock markets are around 1% lower on Thursday, with Wall Street positioning for losses of roughly 0.5% on the open as the vaccine inspired rally grinds to a halt.

We’ve seen diminishing returns over the course of this week, with Moderna only generating a modest response on Monday and the Oxford update this morning getting no love at all. These are all hugely important developments but the reality is that the reaction to the Pfizer announcement was probably also an acknowledgement that these wouldn’t be far behind. In other words, they’ve been largely priced in ahead of time.

The results have so far been hugely impressive and there’s a lot of optimism that the stage three trial analysis from AstraZeneca/Oxford in a few weeks will be very encouraging. But that doesn’t mean it will lift the mood in the broader markets because we’ve been talking about these announcements coming before the end of the year for months and the relief came last week.

What’s more, we’re currently seeing record daily cases and deaths as we navigate through a brutal second wave that has forced more nationwide lockdowns and restrictions. And while governments will be hoping the restrictions quickly pay dividends, it is unlikely to be that straightforward, which means a lot more pain lies ahead. That could take the edge off this improved sentiment in the near-term.

There’s no real sign that we’re going to see recent gains unwound even as Covid wreaks havoc once again. It seems to have become accepted that this is going to be the case and all of these successful vaccine candidates now means there’s an end in sight. Naturally, it helps that central banks are doing their bit to shore up confidence while governments are putting the support measures in place to keep unemployment down in the interim.

And central banks are going to remain active in the months ahead, with the Fed and ECB both expected to add more stimulus in December which could contribute to a strong end to the year for equity markets. The obvious downside risk being the winter being far more devastating than anticipated, on the Covid side.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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