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Biden good, vaccine better

Optimism overdose

If investors were elated on Monday morning by the US election result, they were ecstatic by lunchtime after news that Pfizer had come up with a Covid-19 vaccine that is 90% effective. Equity markets shifted up another gear and safe-haven currencies fell out of bed. The Norwegian krone won the day once again.

Pfizer’s accomplishment encourages scientists to believe that more vaccine projects will be successful. Oxford’s Professor John Bell foresees “a handful of good vaccines” becoming available, and life returning to normal by next spring. Investors embraced that prospect, piling into whatever they perceived to be the beneficiaries of the breakthrough. The price of oil rose 7%, the share price of one of its biggest users, Easyjet, jumped 30% and the currency of one of its main independent producers, Norway, strengthened by an average of 1.1%.

On the other side of that coin, investors who had become optimistic on two fronts within as many days felt no need to remain behind the cover of safe-havens such as the Japanese yen and Swiss franc. The CHF dropped an average of 1.2% and the JPY was down by 1.1%. Another casualty was teleconference provider and lockdown investors’ darling Zoom, whose shares fell 17%.

 

No data? No problem

With the new US president lined up and a Covid-19 vaccine ready to roll, investors had no hunger for tedious details like economic statistics. That was just as well, because there were not many to be seen. Even the central bankers had little to say.

Bank of England Governor Andrew Bailey took part in a climate change conference. He defended the bank’s refusal to discriminate against carbon-positive companies when operating quantitative easing. His Chief Economist Andy Haldane was typically optimistic that a Covid-19 vaccine means “things are going to get better at some point in the foreseeable future”. Neither of them did much for the pound but the GBP did reasonably well anyway, rising by an average of 0.3% and adding half a euro cent.

After the House of Lords voted “overwhelmingly” to strike out the parts of the Internal Market bill prejudicial to the Good Friday agreement, the Prime Minister doubled down. He intends to pursue the legislation even at the cost of trade agreements with Europe and the United States. At least, that is what his team said yesterday. Given the lack of reaction from sterling, investors appear not entirely to have swallowed that line.

 

Data? No problem

Below-forecast UK retail sales and higher unemployment data this morning did not prevent sterling moving higher ahead of London’s opening. The only other significant statistics today are ZEW’s measures of German and EU investor confidence. No change in policy is expected from the Reserve Bank of New Zealand tonight.

The BRC’s Retail Sales Monitor reported “another month of strong sales growth” but the 5.2% year on year increase was smaller than expected. Data from the ONS showed unemployment rising from 4.5% to 4.8%, a three-and-a-half-year high and in line with expectations. Earnings growth picked up in September but remains slow in comparison with the last five years. Consumer price figures from China and Norway put inflation at 0.5% and 1.7% respectively.

Analysts expect economic sentiment to have improved in the Eurozone and faded in Germany. The only other ecostat today is NFIB’s index of small business sentiment in the States. NZ house prices and Australian consumer confidence appear tonight. No change is forecast to the RBNZ’s 0.25% Official Cash Rate tonight but investors are half expecting a mention of negative rates.

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