‘Follow the Money’: Major Players Betting on Vaccinations to Keep Global Economy Afloat

The coronavirus is in the news again, not last year’s pandemic fueling COVID-19 version, but the fast-spreading Delta variant. While dominating the mainstream news in the United States (See CNN and FoxNews), and globally on business website such as CNBC, Reuters and Bloomberg, to name a few, we’re not really seeing a major impact on the financial markets.

This is interesting to note because the mainstream story is centered on rising infection numbers, the slow pace of vaccinations and what is likely to happen if countries don’t start clamping down on the spread of the virus. In other words, people’s health. Some experts are even calling it a “life or death” situation.

In the financial markets, obviously we’re not seeing the same reaction as we did in 2020 with stocks dropping 20% in a matter of weeks and crude oil testing prices below $20 a barrel. Instead we’re seeing a relative calm.

Is this telling us to “follow the money?” Is this telling us that since the situation is not as bad as last year, there is no need to panic? Are the financial markets indicating there is not enough information yet to understand the impact of this new outbreak? Do we wait for the bad economic numbers or do we anticipate them?

The answer is all of the above.

Of course, I don’t recommend putting your finances ahead of your health. I don’t think anyone is doing that. Traders are making their decisions on what they know at this time. Some are even basing their decisions on their belief in the vaccinations.

In this case, they feel that enough people are vaccinated so major economic shutdowns are warranted at this time. But we’ve seen different reactions all around the globe, which could be adding to the confusion over what to do. Lighten up on the long side? Buy more, start selling? Move to the sidelines?

I don’t think I am going to be able to answer any of these questions in this article, but if I had to center on one, I’d have to say “follow the money”. But I should add that I am vaccinated, so I may be biased.

Here’s What Others are Saying and Doing

Fed’s Powell Downplays Delta Variant’s Threat to the Economy

The spread of the COVID-19 delta variant is raising infections, leading some companies and governments to require vaccinations and raising concerns about the U.S. economic recovery, according to the AP.

But on Wednesday, Federal Reserve Chair Jerome Powell injected a note of reassurance, suggesting that the delta variant poses little threat to the economy, at least so far.

“What we’ve seen is with successive waves of COVID over the past year and some months now,” Powell said at a news conference, “there has tended to be less in the way of economic implications from each wave. We will see whether that is the case with the delta variety, but it’s certainly not an unreasonable expectation.”

“Dining out, traveling, some schools might not reopen,” he said. “We may see economic effects from some of that or it might weigh on the return to the labor market. We don’t have a strong sense of how that will work out, so we’ll be monitoring it carefully.”

More Corporations are Requiring Workers to Get Vaccinated ~ Axios

The federal government in May said that it is legal for companies to require employees to get vaccinated for coronavirus.

Google CEO Sundar Pichai sent an email to employees announcing that those going back to the office needed to be vaccinated. The company is also extending its work-from-home policy through October 18.

Facebook said that anyone going back to work in their U.S. campuses must be vaccinated.

Netflix is requiring that the casts for all of its U.S. productions be vaccinated, as well as everyone who comes in contact with them.

Drop in UK COVID-19 Cases Indicates Infections Surge May Be Past Peak ~ Reuters

Early last week, the UK added to the confusion when it reported its lowest daily total of new coronavirus cases since July 4, adding to signs that a recent surge in infections driven by the spread of the Delta variant may have passed its peak.

Sydney Readies for the Army as Lockdown Fails to Squash Australia Delta Outbreak ~ CNN

Sydney’s poorest neighborhoods on Friday braced for military enforcement of the city’s toughest and longest lockdown of the COVID-19 pandemic as the infection as the infection numbers held persistently high five weeks since restrictions began.

The situation appears to be so bleak in Australia that economists are already predicting a third quarter contraction.

Oil Climbs, Notches Fourth Monthly Gain on Growing Demand – Reuters

The crude oil market is interesting since it sold off sharply early in July when the Delta-variant story first broke. The biggest concern was demand destruction.

Since then, however, both WTI and Brent have recovered enough to post a fourth monthly gain, with demand growing faster than supply and vaccinations expected to alleviate the impact of a resurgence in COVID-19 infections across the world.

Conclusion

The best advice appears to be: bet on the vaccinations to work, keep monitoring the global economy especially output and labor and keep an eye on gasoline demand.

For a look at all of today’s economic events, check out our economic calendar.

All Eyes on NFP as Fed Won’t Make a Move on Policy without Substantial Labor Market Growth

The Federal Reserve monetary policy statement and remarks from Fed Chair Jerome Powell set the tone in several financial markets last week with the biggest influence on the U.S. Dollar. Disappointing U.S. economic reports also weighed on the greenback.

Ahead of next week, however, investors are asking whether the sell-off represents a change in the longer-term trend or just a shift in momentum.

With the Fed not scheduled to meet until September 21-22, the move likely represents a shift in momentum since policymakers left in place their change in the timeline for the next interest rate hike that it announced in its June 16 monetary policy statement.

In last Wednesday’s announcement, all it did was push the possible start of tapering nearly seven weeks into the future. It didn’t remove the possibility of tapering and it didn’t move the timeline for the next rate hike so we really can’t call its policy statement “dovish”. It should probably be best described as “less-hawkish”.

Furthermore, the Federal Open Market Committee (FOMC) will have two Non-Farm Payrolls and Consumer Inflation reports under their belt before making its late September policy decision. With the labor market and inflation the biggest concerns for the Fed and likely to exert the most influence on policymakers, these are the two reports that traders should pay attention to during August.

The U.S. will release its Non-Farm Payrolls report on August 6 along with data on Average Hourly Earnings and the Unemployment rate. Non-Farm Payrolls are expected to show the economy added 895K new jobs in July. The unemployment rate is expected to dip from 5.9% to 5.7% and Average Hourly Earnings are expected to remain steady at 0.3%.

Labor Market Growth is Powell’s Major Concern

During July, Federal Reserve Chairman Jerome Powell mentioned his concerns about labor market growth twice in his public speeches. The first mention was mid-month in his testimony before Congress. The second was in his post-monetary policy statement press conference last Wednesday.

On July 14, Federal Reserve Chairman Jerome Powell told Congress that while the economy has come a long way back from its pandemic-induced depths, the labor market “still has a long way to go.”

“Labor demand appears to be very strong; job openings are at a record high, hiring is robust, and many workers are leaving their jobs,” Powell said. “Indeed, employers added 1.7 million workers from April through June. However, the unemployment rate remained elevated in June at 5.9 percent.”

Powell added that the official unemployment rate understates the real condition of the job market as many potential workers remain on the sidelines for reasons ranging from continued fear of COVID-19, enhanced unemployment benefits and difficultly finding child case.

At last Wednesday’s press conference, Powell fielded many questions about inflation, but he also said that hiring needed to progress further before the Fed would be ready to dial down its support for the economy.

“I’d say we have some ground to cover on the labor market side,” Powell said. “I think we’re some way away from having had substantial further progress toward the maximum employment goal.”

Conclusion

While the initial reaction to the Fed and Powell was to sell the U.S. Dollar because the notion of tapering was put on hold at its last meeting, the real move in the U.S. Dollar over the short-term is likely to follow the July Non-Farm Payrolls report, due on August 6.

A weaker-than-expected report for July will be bearish for the U.S. Dollar because traders will start reducing the chances of the Fed announcing the start of tapering at its September meeting. Furthermore, if July employment data is weak then the August report due in September is also likely to be weak if the COVID crisis gets out of control.

For a look at all of today’s economic events, check out our economic calendar.

After Week of Mixed Signals, Stock Market Investors Betting Higher Inflation Will Be Temporary

The closes in stocks, bonds, gold and the U.S. Dollar put a cap on a week that centered on mixed signals. Not only did these markets show a mixed reaction to Friday’s PCE inflation report, but the trade was also influenced by confusing messages from Fed Chairman Jerome Powell and several Fed policymakers. The price action and the Fed comments likely left investors scratching their heads at times and feeling none-the-smarter about central bank policy since the last Federal Reserve report nearly two weeks ago.

Mixed Messages Over Inflation Fears from the Key Asset Classes

Last week, U.S. stocks closed higher, Treasury bonds finished lower (yields up), gold settled higher and the U.S. Dollar Index closed lower.

That’s quite a mixed because conventional wisdom usually steers us to believe that rising yields are good for the dollar, a bad for stocks and gold. We’re not sure it means anything yet, because it could just be signaling position-squaring ahead of Friday’s Non-Farm Payrolls report and a long U.S. holiday weekend.

Gold investors seem to be particularly confused, not necessarily by the price action, but because they seem to think the market should be rallying because Friday’s PCE inflation report showed the biggest jump in almost 30 years. What they don’t get is that one, the number was not a surprise, and two, it’s based on last month’s data, which may already be moving lower.

Treasury bonds moved lower for the week, which means yields moved up. CNBC said the 10-year U.S. Treasury yield rose on Friday “after a jump in a key data indicator of inflation.”

But CNBC also wrote that “U.S. stocks rose on Friday with the S&P 500 building its rally to records, as investors bet that higher inflation will be temporary as the economy continues to recover from the pandemic.”

CNBC also said that “Gold edged higher on Friday after stagnant U.S. consumer spending tempered bets for early monetary policy tightening by the Federal Reserve, setting bullion on track for its first weekly gain in four.”

Fed Officials May Not Be on the Same Page

Fed comments also contributed to the mixed trading results. It also started on Tuesday when U.S. Treasury yields dipped slightly as investors digested Federal Reserve Chair Jerome Powell’s bullish comments on economic recovery in a testimony to Congress. The Fed Chair also said factors pushing prices higher should retreat over time and that he expects inflation to fall back toward the central bank’s longer-run goal.

Powell’s comments seemed to go against remarks by St. Louis Fed President James Bullard who said on June 18 that he was one of the FOMC members who thinks a rate hike in 2022 would be appropriate. His comments were followed by Dallas Fed President Robert Kaplan who said Monday he is more focused on reducing the pace of bond purchases – tapering – for now, and sees the rates question as one to be answered another day.

On Wednesday, two Federal Reserve officials said that a period of high inflation in the United States could last longer than anticipated, a day after Fed Chair Powell played down rising price pressures.

Investors React Differently to PCE Index Data

We know from the PCE Index and the Consumer Price Index that there is inflation. The May reports are already stale data, which is probably why we saw a muted reaction in the financial markets on Friday.

Although the reaction was dampened, we may have seen emerging signs that stock market and gold traders are banking on diminished fears over inflation. In other words, they are siding with Federal Reserve Chair Jerome Powell’s assessment that high inflation is only “transitory”.

If there were fears of runaway inflation then the stock market would be discounting the event by moving lower.

As far as gold investors are concerned, they have to erase the old school thinking that inflation drives the market. The recent price action has shown us that gold investors are more concerned about rising interest rates than they are about inflation. What Friday’s PCE index showed us was that inflation may be under control and the Fed may not have to raise rates too quickly. In my opinion, that’s why gold strengthened.

With the latest inflation data out of the way, traders will now shift their focus to Friday’s U.S. Non-Farm Payrolls report. If inflationary fears continue to weaken then this report could set the tone of the major asset classes for the month.

The labor market has been struggling to gain traction and we may be rapidly approaching the point where the Fed actually acknowledges that millions of jobs lost during the pandemic will not be coming back.

A weak labor market coupled with peaking inflation could mean the Fed won’t have to raise rates sooner than 2023.

For a look at all of today’s economic events, check out our economic calendar.

Capturing a Pick-Up in Cable Volatility

Falling from around 1.4120 to touch a low of 1.3787, the pair has since recovered to trade around the 1.3900 handle, still some way off its pre-FOMC levels. The Fed’s message added to the headwinds cable had already been facing following the decision by the UK Government to delay the lifting of final lockdown restrictions by four weeks. However, despite these setbacks, the economic landscape remains supportive for cable to test again this month’s high of 1.4250, with 1.4500 still a target for year-end.

MPC meeting looming

The imminent big data event for cable is Thursday’s meeting of the Monetary Policy Committee (MPC), where the issue is whether the MPC will take its cue from the Fed and signal a more hawkish stance in the face of rising UK inflationary pressures. UK CPI reached 2.1% in May, exceeding the BoE’s 2% target. Clearly this is not in the same ballpark as the 5% rise seen in the US.

But the MPC has already signalled a willingness to shift to a less-dovish stance, comments suggesting a stronger than expected labour market recovery could see rates raised early H2-2022, alongside a message that inflationary pressures needed to be watched carefully. Similarly, action taken last month to reduce the monthly pace of bond purchases (albeit leaving the overall size of the programme unchanged) does not suggest an economy still requiring excess support.

What will Thursday’s meeting deliver?

The MPC is likely to repeat that current inflationary pressures remain transitory only. But the strong UK data seen over recent weeks will be acknowledged with an emphasis placed on risks being more heavily skewed to the upside. However, any insights regarding the potential timing of when a rate hike might be delivered will remain absent, the expectation being that the MPC will continue to hide behind its requirements of significant progress being made in the elimination of spare capacity and the 2% inflation target placed on a sustainable footing to avoid providing anything more concrete.

What are the risks?

The possibility of a more hawkish message cannot be discounted. Growth, employment and inflation data all continue to print on the topside, while any willingness of consumers to use increased savings to cover current higher prices could quickly see these increases become embedded rather than ‘transitory’. Furthermore, the MPC will not be comfortable seeing CPI overshoot its target level, in contrast to the Fed. Accordingly, there is the possibility that out-going Chief Economist Haldane could be joined in his expected calling for the current QE programme to be halted by one or more of his fellow Committee members.

How to capture any potential increase in volatility

Given the risks associated with Thursday’s meeting, and combined with the positive outlook for cable, volatility in the pair looks relatively cheap. However, the inability of the pair to previously break above the 1.4250 level remains a significant deterrent to expressing any topside view via a naked cash position. Accordingly, using the options market to cover both the risks of the MPC meeting and the potential for anticipated topside gains looks to make sense.

Opinion editorial by Stuart Cole, head macro economist at Equiti Capital


This material is provided for informational purposes only and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Equiti Capital. This material is not, and is not intended to be, a “research report”, “investment research” or “independent research” as may be defined in applicable laws and regulations worldwide.

Please see the full disclaimer here: https://www.equiticapital.co.uk/media/11057/disclaimer.pdf ’’

Has the BoE Positioned Cable to Make Further Gains with a Steeper Policy Outlook?

Looking ahead, cable looks on course to make further gains

Readers will recall that in early May the question was raised here of the UK’s path back to monetary policy normalisation being too slow and too shallow. In the space of under one week the Monetary Policy Committee (MPC) appears to have addressed that question, external member Gertjan Vlieghe suggesting the Committee is moving away from its ultra-dovish position towards a more neutral stance, and Deputy Governor Ramsden saying it will be vigilant in responding to inflationary threats.

Both messages have suggested a UK recovery proving stronger than anticipated, potentially necessitating a more robust monetary response. So what has changed since the May MPC meeting, when the dovish stance was repeated, to make it change tack now?

What is driving this shift in policy stance?

The shift in stance is almost certainly predicated on the strong rebound in UK activity ensuing this year – the BoE itself upgraded its 2021 growth forecast from 5% to 7.5% – and being reflected not only in stronger GDP but also in higher CPI and lower unemployment numbers.  Until now the MPC has largely focused on the latter as the key factor in determining how quickly monetary policy might return to a neutral stance, labour market slack seen as sufficient to ensure emerging inflationary pressures remain ‘transitory’.

But this ‘slack’ has so far been smaller than anticipated, the Government’s furlough scheme credited with saving jobs, and even though the BoE’s most recent forecast shows unemployment rising from 4.8% to 5.4% once the scheme finishes end-September, the labour market recovery to date suggests unemployment could instead continue falling. This will provide an unexpected extra boost to demand with the potential to pull inflation higher. This is the concern of Vlieghe.

Ramsden’s comments suggest nervousness over inflation. If households spend more of their excess savings than anticipated (the BoE forecasts 10% spent over the next three years; it is not unrealistic to think it will be higher) demand will be boosted further, and data so far suggests the UK propensity to spend is high. The savings stock was estimated at £163bn, or 7.7% GDP, at end-March. BoE/NMG data suggests the proportion of savers planning to spend some of this excess has risen from 10% in Q3 2020 to 28% in Q1 2021.

Factoring in that the services sector remains yet to fully re-open, then the potential for aggregate consumption to increase further appears significant. Ramsden may be flagging the MPC is starting to worry about this, beginning to see what they labelled as ‘transitory’ inflation becoming more ‘sustained’.

Finally, it is not inconceivable that the BoE has underestimated the damage done by the pandemic to potential supply. In May it forecast output would recover to within about 1.25% of its pre-pandemic level, an improvement on February’s forecast of 1.75%. But if this proves to be too optimistic then further fuel will be added to the inflation fire.

The message from the MPC remains that policy will not be tightened until clear evidence is seen of the output gap being eliminated and the 2% inflation target placed on a sustainable footing. There is no suggestion it is moving to abandon these yardsticks. But with Vlieghe warning a stronger labour market could deliver a faster monetary response, and Ramsden suggesting growing apprehension over rising CPI, possibly there are concerns that the “clear evidence” needed could be seen in Q1, with the potential to see a first interest rate rise delivered soon afterwards.

Is the MPC trying to position itself more closely with market thinking?

The MPC is in good company in acknowledging a stronger UK recovery. The FTSE 100-share index has gained some 7.3% over the past three months, while the steady re-opening of the UK from lockdown restrictions has seen the anticipated consumer-led recovery begin to materialise. April’s retail sales figures showed monthly volumes already exceeding their 2019 average while high-frequency data is showing consumers both spending and eating into their excess savings.

But consensus with the markets has not be as strong when recognising the potential inflationary consequences of this strong recovery. The MPC has been seen as behind the ‘policy curve’ with its fixation on ‘transitory’ inflation, seeing yields rise this year as the market has imposed its own financial tightening. Perhaps the MPC is now trying to reposition itself more closely with the market, especially given the departure of the BoE’s Chief Economist, Andy Haldane, the arch-hawk who was seen as most closely in tune with market thinking.

What are the implications for cable?

It is not a great leap of faith to conclude that the next move in interest rates will be upwards, the prospect of negative rates now fully removed. This should be cable supportive. But beyond this, and possibly of even more importance to cable going forward, is that the policy paths of the BoE and the Fed now appear to be diverging.

In less than one week the MPC has acknowledged the possibility of a stronger labour market recovery, sustainable inflationary pressures, and the potential for interest rates to be raised sooner. In contrast, the FOMC continues to emphasise an ultra-loose stance that will remain in place for the foreseeable future, despite the positive data emerging. Going forward, cable looks on course to make further gains.

Opinion editorial by Stuart Cole, Head Macro Economist at Equiti Capital

‘’This material is provided for informational purposes only and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Equiti Capital. This material is not, and is not intended to be, a “research report”, “investment research” or “independent research” as may be defined in applicable laws and regulations worldwide. Please see the full disclaimer here: https://www.equiticapital.co.uk/media/11057/disclaimer.pdf ’’

Treasury Traders are Asking, ‘What if the Fed is Wrong about Rising Prices Being Just ‘Transitory’?’

The sharp sell-off in the U.S. equity markets on Wednesday may have grabbed most of the headlines, but the most telling event and the one that drove the price action in several financial markets including stocks, gold and Forex was a jump to a one-month high by the U.S. Treasury yields.

This is because when it’s all said and done, Treasury yields set the tone in all markets. To some, Wednesday’s jump in yields may have come as a surprise, but the surprise was in the consumer price report. The move in yields may have been telegraphed as early as last Friday when yields clawed back from weakness driven by the huge U.S. jobs miss.

Treasury Yields Tick Higher, Reversing Post-Jobs Report Decline

When the jobs report came out at 12:30 GMT last Friday, professionals were already looking forward to the inflation report, which they saw with great confidence rising about 3.6%. The jobs data was stale data and most professionals saw the miss to the downside as an aberration.

Chicago Federal Reserve president Charles Evans even said on Monday that April’s unexpectedly small increase of 266,000 payroll jobs is likely a “one month thing” associated with the complexities of reopening the economy after the coronavirus pandemic.

On Friday, U.S. Treasury yields made back some ground after initially falling on April’s jobs report that fell short of expectations.

The yield on the 10-year Treasury note closed flat at 1.579%. Shortly after the release of the jobs report, yields hit 1.469%, its lowest level since March.

Here where it gets complicated. The yield drop was a “knee-jerk reaction” that faded as the session wore on and the market digested the data, according to analysts.

“Despite a huge miss, which it was, it’s still employment going in the right direction,” said Andrew Richman, senior fixed income strategist at Sterling Capital Management.

As of Friday’s close, U.S. interest rate futures indicated that traders pushed out expectations of a Fed rate hike by roughly three months after the payrolls report’s release.

Fast Forward to Wednesday’s Trade

U.S. Treasury yields moved higher on Wednesday after key inflation data showed a faster-than-expected rise in prices.

The yield on the benchmark 10-year Treasury note rose 5 basis points to 1.686%, hitting the highest level since April 13. The yield on the 30-year Treasury bond gained 3 basis points to 2.386%.

At the end of Wednesday’s session, futures market expectations for a Fed rate hike moved forward to December 2022 from mid-2023, said Ian Lyngen, head of rate strategy at BMO.

Higher Yields Coming

Although yields surged on Wednesday, the groundwork for the move had already been laid on Friday after the jobs miss.

Yields rose and financial markets tumbled on Wednesday because red-hot consumer inflation data for April spooked investors and raised concerns that the Fed is wrong about rising prices being just “transitory”.

When yields were rising earlier in the year, the move was fueled mostly by strong expectations of higher inflation and an early exit from policy by the Fed. This was speculation, however, that was squashed by the Fed in its monetary policy statement.

This time the jump in yields is different. This time, the professionals have evidence of inflation. This time, speculators and professionals are saying that if the Fed is incorrect about inflation being temporary. Then it could begin to unwind its easy policies quicker than expected and ultimately raise interest rates.

For a look at all of today’s economic events, check out our economic calendar.

Look Out: Inflation Impact on Earnings, Peloton Treadmills, Cryptocurrency Bubble Concerns to Drive Volatility

Corporate earnings will be the major focus in the week ahead, with investors especially zeroed-in on the impact of rising costs on margins. Investors will be looking for evidence that inflationary pressures are already having a negative influence on corporate profit margins.

CNBC is reporting that from Coca-Cola and IBM to Johnson & Johnson and Netflix, investors will hear from a broad swatch of corporate America. So far, with one week in, companies are beating earnings estimates by a wide margin of more than 84%, according to Refinitiv.

This three-month period is the first to be compared to year earlier profits that were affected by the pandemic. Profit growth for the S&P 500 is a stunning 30.2% for the quarter so far, based on actual reports and estimates. That makes it the best three-month period since the third quarter of 2010, according to FactSet.

In other news, the U.S. Consumer Product Safety Commission (CPSC) on Saturday warned consumers about the dangers of Peloton’s treadmill Tread+ after reports of multiple incidents of small children and a pet being injured beneath the machines.

The price of bitcoin tumbled over the weekend and was down as much as 19.5% from record highs posted by the popular cryptocurrency in the past week. The move comes after new concerns of a bubble in the cryptocurrency market.

US Regulators Warn Consumers on Dangers of Peloton’s Treadmill

Peloton shares could take a major hit on Monday after a warning from a key government safety agency.

“CPSC staff believes the Peloton Tread+ poses serious risks to children for abrasions, fractures, and death,” the safety regulator said in a statement, adding that consumers with children should stop using the product immediately.

Peloton in a response to the regulator’s statement said it was “troubled by the CPSC’s unilateral press release about the Peloton Tread+ because it is inaccurate and misleading.”

The company said there was no reason to stop using the Tread+, but children under 16 should not use the treadmill.

The regulator said it was aware of 39 incidents including one death and was investigating all known incidents related to the Peloton Tread+.

Bitcoin Tumbles from Recent High as Cryptocurrencies Take Weekend Hit

The price of Bitcoin dropped as low as $52,148.98 on Sunday morning, days after reaching an all-time high above $64,800. Ether and Dogecoin also saw their prices drop, following a week in which investors worried that the cryptocurrency market was in a bubble.

An unverified report on Twitter claimed that the U.S. Treasury Department could be looking to crack down on financial institutions for money laundering using cryptocurrency.

Coinbase shares could drop on the news since it could mean the cryptocurrency market could face tougher U.S. regulation. Last week, it became the largest cryptocurrency company to go public.

For a look at all of today’s economic events, check out our economic calendar.

Big Change Could Be Coming in How Stock Investors View Rising Treasury Yields

Investors were expecting a big number and Friday’s U.S. Non-Farm Payrolls report delivered it and then some. It was essentially a reversal of the March 2020 report and sent another powerful message that the U.S. economy is on a strong path to recovery.

Job Growth Booms

The U.S. Labor Department reported job growth boomed in March at the fastest pace since last summer, as increased vaccinations and more pandemic relief money from the government, paved the way for perhaps the greatest economic growth surge in 37 years.

Market Reaction

Stock futures showed a muted reaction to the numbers, though government bonds yields rose. Wall Street wasn’t open for trading on Friday. March E-mini S&P 500 Index futures were open for a brief time. They extended gains and were up 0.43%. But keep in mind that volume was extremely low.

The bond market was on a shortened day due to the Good Friday observance. However, yields on the benchmark 10-year notes rose to 1.7072%. Two-year Treasury yields rose to 0.1782%.

In the Forex market, the U.S. Dollar Index firmed and was up about 0.16%.

Pent up volatility is likely to strike the market early next week after investors take the weekend to digest the data.

Markets Are About to Go into a Transition

What I mean by, “markets are about to go into a transition”, is that what worked in the recent past may not work anymore. This especially refers to correlations. Specifically, the relationship between yields and stocks, yields and the U.S. Dollar and perhaps yields and gold.

There’s no hard and fast rule to follow, it’s just an observation of a sudden change in the price action that will tell us that conditions are transitioning.

Investors tend to be set in there ways when there is a strong trend. However, when conditions begin to shift, there is often a volatile reaction because trend traders have been caught off guard by the change in the fundamentals.

For example, there was a time when all three stock indexes were moving in the same direction. Then the pandemic hit and growth stocks rallied more than value plays. Then the vaccine rollout began and investors sold growth stocks and bought value stocks of companies that would benefit the most when the economy reopened.

Each time the market transitioned, some investors were caught on the wrong side of the trade. What I am trying to do is give you a reasonable chance to catch the transition before the majority of investors do.

For weeks, we have been trained to believe that rising interest rates are bad for stocks. But this outlook may already be changing. Friday’s jobs report showed the economy had definitely turned for the better. If that’s the case then the chances of a surge in inflation will increase, taking yields higher. But it also means the economy is rapidly improving and that’s good for business.

So when you come to work on Monday, don’t be surprised if you see stocks rise along with Treasury yields. Yes, they can both go up at the same time. This will mean that Wall Street has fully accepted the fact that interest rates will rise as the economy strengthens.

It will also mean that stock market investors don’t view higher yields as a detriment, but rather a sign that the economy is heating up.

My point is, don’t become a robot and start selling stocks just because yields are rising. That ship may have sailed. In other words, investors may have already “transitioned” into another set of fundamentals.

If the theme that professionals have been following changed and you’re still stuck with the old theme, you may be licking your wounds by the end of next week.

Finally, if I had to guess at what the next theme will be about, it’s going to be whether the Fed will be willing to admit it’s wrong and finally announce it will have to change policy sooner than expected. Start watching for articles about that. Remember to be a successful investor, you have to be willing to think ahead of the curve.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Stays Strong After Successful Test Of The 4000 Level

Stocks Look Ready To Test New Highs

S&P 500 has finally managed to settle above the 4000 level after U.S. President Joe Biden unveiled his infrastructure plan. Cyclical stocks were in demand, but tech shares have also gained ground as Treasury yields pulled back from recent highs.

At this point, the upside trend looks strong. The market has successfully ignored the recent increase in Treasury yields, and bond market fluctuations had limited impact on stock traders’ mood. The economic data points to a strong rebound of the U.S. economy which is boosted by the huge coronavirus relief package.

The situation on the coronavirus front remains challenging, but the market sees the light at the end of the tunnel thanks to the robust mass vaccination program. All in all, S&P 500 looks ready to test new highs after the successful test of the 4000 level.

WTI Oil Stays Above The $60 Level After OPEC+ Agrees To Gradually Increase Production

Yesterday, OPEC+ members decided to gradually increase production from May to July. OPEC+ will raise production by 350,000 barrels per day (bpd) in May and June, and proceed with an increase of 450,000 bpd in July. Meanwhile, Saudi Arabia will gradually decrease its voluntary production cut of 1 million bpd.

While oil traders remained worried about the negative impact of the third wave of the virus, they were satisfied with OPEC+ decision, and WTI oil managed to settle back above the psychologically important $60 level.

Today, the market is closed due to Good Friday holiday, but oil-related equities will have a chance to gain more upside momentum on Monday.

U.S. Dollar Remains Strong

U.S. dollar is one of the main beneficiaries of the relative strength of U.S. economic rebound. This strength is especially visible in comparison with the European economy.  Not surprisingly, the American currency gained plenty of ground against euro in March as European countries were forced to extend virus containment measures until late April.

Interestingly, stronger dollar did not put any notable pressure on stocks. At the same time, stronger dollar and higher Treasury yields served as material bearish catalysts for precious metals like gold and silver, which have recently tested yearly lows.  If the American currency continues its upside move, precious metals and miners’ stocks will find themselves under pressure.

For a look at all of today’s economic events, check out our economic calendar.

An Interview with FP Markets Chief Executive Officer (Europe) – Head of EMEA, Craig Allison

1. The Australian Securities and Investments Commission (ASIC) has announced a change to leverage ratio limits and client protections from April. As an ASIC regulated broker, is this a good move for the industry and clients, and are you prepared for these changes?

We are always supportive of well-intentioned regulatory change which is designed to protect the end user. The only concern when cross-referencing similar regulatory changes globally is that the knock-on effect of over-regulation is inevitably that traders seek to trade with off-shore providers so that they can maintain their current trading conditions. We do not see an issue with clients wishing to trade offshore, as FP Markets also has alternative trading venues, however we caution all traders to ensure that they continue to trade with a reputable brand as trading with an offshore provider may increase the risks that you end up with an unscrupulous offshore provider that does not hold regulation in any jurisdiction and does not practice high compliance standards across their group.

We are well-prepared for these changes. FP Markets is a group of companies and clients have the ability to open an account with our group entities which will maintain current trading conditions. Regardless of the group entity, clients will continue to receive the same products, services, high levels of customer service and powerful technology that they are accustomed to at FP Markets.

Some clients will also be able to continue to trade under the current trading conditions with our ASIC entity, including higher leverage, by opening an FP Markets Pro Account.

2. As well-known regulators are moving in alignment with each other in terms of client protection and leverage limits, there are many unregulated offshore brokers popping up. What advice can you give to clients when picking a broker to trade with this year?

Make sure you do your homework when choosing a broker. Read online reviews and check ratings on respected websites. First question to ask is are they regulated and if so, where? Further, be sure to check that the same standards will be maintained by the provider regardless of the entity you may be trading with, as is the case with FP Markets.

Execution and trading conditions are also important – look for tight ECN pricing and fast execution so that it is mandatory that your broker fills you at the best possible price for your orders. Good forex brokers will allow you to deposit funds and withdraw your earnings hassle-free with no hidden fees and charges.

24/5 Customer Support is also very important so that you are given the real-time trading support you need.

3. Recent market volatility has caused some stockbrokers in the US to suffer platform outages and even delist some stocks for new positions. As FP Markets offers multiple asset classes to trade on, including more than 10,000 global stocks, do you envisage more stock market volatility to continue this year? How can traders protect themselves in these situations?

COVID-19 vaccine prospects should make 2021 a year of global economic recovery. Markets have priced in some of this positive good news, but more gains seem possible as corporate profits rebound and central banks remain on hold. That said, there is sure to be stock market volatility for the remainder of the year as global economies emerge out of lockdown at different speeds and the uncertainty on the effects of government bailouts continues.

In terms of traders protecting themselves, traders will look to use more robust risk and capital management protocols in volatile markets. When markets are moving swiftly, good traders will look to jump on strong trends with staggered entry trades before then employing some relatively basic profit retention strategies like trailing stop losses to ensure they maximise these profitable trades. Conversely, experienced traders will acknowledge that with volatility wider margins are needed to give positions a chance and we’d therefore expect to see smaller positions run for larger moves. Stop losses are essential on all positions in these kinds of markets and experienced traders will expect to experience the odd tough day amongst the profitable ones..

4. You recently launched the new FP Markets Trading App. Can you tell us a little more about this and what clients can expect from it?

Launching the FP Markets Mobile Trading App was a key deliverable given modern traders need to be able to trade on-the-go and our app is both intuitive and feature-packed.

The FP Markets Trading App is available on all Android and iOS devices, and off trading on Forex and CFDs across shares, indices, commodities and cryptocurrencies. Not only can traders access 60+ Currency Pairs, they can also trade in more than 50 of the world’s biggest Stocks including Facebook, Google, Apple and Amazon. FP Markets also offers leveraged trading on Commodities and more than a dozen Indices from the largest global exchanges. For traders who are interested in trading the emerging asset class that is Cryptocurrency with Bitcoin, Ethereum, Litecoin and Ripple are all part of the product range.

5. It’s well-known that you have achieved some significant growth in the past few years with many awards going your way. Are there any new developments clients can expect from you over the coming year?

We will shortly be launching an exciting new product which will cater for the growing interest in social trading, which we are very excited about. We are also continuing to invest heavily in technology by further improving our platforms and client portal and, as always, the team is working tirelessly to strengthen our product-offering and pushing to improve our already market-leading trading conditions by putting clients’ needs at the heart of our offering. Another important factor as we expand operations globally is that we are continuing to invest heavily in people by building a global team to add to our elite team of industry professionals.

S&P 500 Looks Ready To Test The 4000 Level

Stimulus Hopes And Vaccine Optimism Push Stocks Higher

U.S. markets are closed today in observance of Presidents’ Day but traders will rush back to their screens on Tuesday as S&P 500 looks ready to test new highs.

The stock market is currently supported by stimulus hopes and vaccine optimism. Traders believe that the final version of the new U.S. stimulus package will be close to Biden’s original $1.9 trillion proposal which is bullish for stocks. It should be noted that some of the money from $1,400 stimulus checks may be used by workers to buy stocks, which will provide additional support.

Meanwhile, the U.S. managed to achieve significant progress on the vaccination front, and the number of daily new cases is declining. The recent stabilization on the virus front should provide an addition boost for the economy and markets.

Oil In Focus As Yemen’s Houthis Attack Saudi Arabia’s Infrastructure

WTI oil managed to get above the psychologically important $60 level and continued to move higher after Yemen’s Houthi group stated that it struck Saudi Arabia’s airports with drones.

Saudi Arabia did not confirm this statement at the time of writing. Previously, Saudi Arabia claimed that it destroyed a drone fired by the Houthis.

The oil market is in a bullish mode as crude inventories continue to decline due to Saudi Arabia’s decision to cut oil production by 1 million barrels per day (bpd) in February and March. In this environment, any tensions in the Middle East serve as a positive catalyst for oil and oil-related equities which may enjoy strong support when the market opens on Tuesday.

U.S. Dollar Remains Under Pressure As Traders Stay Focused On Riskier Currencies

Global market optimism has recently put material pressure on the American currency which failed to continue its rebound that began in early January.

Interestingly, the recent increase in U.S. Treasury yields did not provide much support to the U.S. dollar. The yield of 30-year Treasuries have managed to settle above 2.00% as investors prepared for higher inflation as prices could be boosted by the new round of stimulus.

If the American currency moves closer to yearly lows, stocks may get additional support despite rising bond yields.

For a look at all of today’s economic events, check out our economic calendar.

Economic Recovery Will Call the Shots With Central Banks in No Hurry to Curtail Stimulus

With the global economy showing signs of improvement as countries roll-out vaccines to fight the coronavirus pandemic, it’s important to monitor where the major central banks stand on interest rates, quantitative easing and the improvements they would need to see to begin relaxing monetary stimulus measures.

At this time, the major central bank policymakers seem to all agree that the pace of the economic recovery will be tied to the speed at which the vaccinations can be administered. Given that assessment, they all seem to be on the same page when they say that the coronavirus pandemic should ease over the first half of the year and give way to strong economic growth during 2021.

This assessment is also driving the rallies in crude oil and stock markets, but it’s not necessarily good enough for the central bank policymakers to begin the tapering process with some still calling for additional stimulus measures to solidify the recovery, some pledging to keep rates historically low for three more years, and some increasing QE.

Fed Has No Clear Exit Strategy Yet, Basically Staying You’ll Know When Its Time

Since these are unprecedented times, there is not blue print for the timing of a clean exit strategy. A Fed member Loretta Mester said last week, the moment at which policymakers might start to withdraw that support would be apparent to investors because the economy will be in a stronger place.

“We want to avoid a taper tantrum,” Mester said. “It’s going to be based on what’s the outcome in the economy. That’s transparent to everyone.

This suggests the Fed is probably going to wait for the economy to overshoot all of its inflationary targets, not just meet them.

The good news is, the economic recovery will be allowed to continue to call the shots for the central banks. In other words, the economy will set the direction and pace for the stock market over time.

Edward Jones Analysts See Economic Recovery Gaining Momentum

As analysts at Edward Jones stated in their weekly analysis, “This is good news for investors because we believe the economic recovery is poised to gain momentum later this year. Key players like the housing market and manufacturing are performing quite well, while monetary stimulus from the Fed and fiscal stimulus from Washington present powerful tailwinds for GDP this year. The distribution of the vaccine should unlock a lift in household spending in the second half of the year, setting the stage for a multiyear economic expansion.”

RBA Committed to Longer-Term Dovish Policy

Fed policymakers aren’t being too specific about the timing of tapering, but last week, the Reserve Bank of Australia said it will need to maintain “very significant monetary support” for several years, with the cash rate set to say near zero for “as long as is necessary” in the wake of the COVID-19 pandemic.

It also surprised the market by extending its bond buying program by another A$100 billion ($76 billion). RBA Governor Lowe also reiterated interest rates will stay low for quite a while yet even though Australia’s A$2 trillion economy has performed far better than expected after largely controlling its coronavirus outbreak.

“Before increasing the cash rate, the Board wants to see inflation sustainably within the 2% to 3% target range,” said RBA Governor Philip Lowe.

Meeting its goal would require a tighter labor market and stronger wages growth than the RBA has forecast, Lowe said.

“It is difficult to determine exactly when this condition might be met but…we do not expect it to be before 2024, and it is possible that it will be later than this,” Lowe added.

Conclusion

Are economic conditions worse than being revealed in the numbers? Are central bankers afraid of lifting stimulus until the pandemic is completely contained? Are the central bank policymakers having a hard time coming up with exit strategies?

The answer could be all of the above, which is why global equity investors continue to buy even at overvalued levels. But who really knows what overvalued is when we have historically low interest rates and massive amounts of quantitative easing and the possibility of additional fiscal stimulus.

Being long is actually a bet against another resurgence in coronavirus cases and against a quick exit from monetary policy by central banks. As long as the vaccines continue to rollout and be effective, a resurgence is not likely to occur. Meanwhile, as long as the central banks are willing to give sufficient time for their economies to recovery, it may take years before the exit strategies are applied. In the meantime, enjoy the bullish ride.

For a look at all of today’s economic events, check out our economic calendar.

COVID-19 Vaccine Update – New Strains and Supply Issues Remain a Concern

Vaccine News

Over the weekend, the news wires reported that the Johnson & Johnson vaccine could receive approval in just 2-weeks.

Dr. Anthony Fauci’s comments came amidst announcements of supply issues.

With just 2 vaccines currently approved for emergency use in the U.S, an approval of a 3rd vaccine would ease the strain.

Things may not improve near-term for the likes of the EU, however, which is likely to continue to face supply constraints.

In other parts of the world the AstraZeneca vaccine has already received approval for emergency use. This is not the case in the EU and the U.S, however.

While the EMA is scheduled to review AstraZeneca vaccine later this week, the U.S timeline is far lengthier.

The U.S FDA is currently due to review the AstraZeneca vaccine in April.

It goes without saying, however, that the U.S is not alone in needing access to multiple vaccines.

A Johnson & Johnson and AstraZeneca approval in the U.S and the EU will be key, though supply will remain a concern.

We have heard plenty of bullish production numbers floated by the leading three in the race to end the pandemic.

It remains to be seen, however, if the three can play catch up and meet their 1st quarter targets.

If the most recent updates are anything to go by, the need for a single dose vaccine has become all the more urgent.

Vaccinations Rates

According to the Bloomberg Vaccination Tracker, the U.S has administered 22,396,673 doses as at 24th January.

U.S states have only administered 54% of shots delivered, however, leaving the vaccination rate at just 6.8 doses per 100.

Transportation and storage requirements of both Pfizer Inc. and Moderna Inc.’s vaccines have contributed to the low vaccination rate.

By contrast, the UK has seen its vaccination rate jump to 10.21 doses per 100 people. The UK’s approval of the AstraZeneca vaccine enabled the sharp rise in the vaccination rate.

As at 24th January, Israel continued to have the highest vaccination rate at 39.94.

The UAE ranked 2nd, with a vaccination rate of 23.14, with the Seychelles coming in ahead of the UK, with a rate of 19.12.

In terms of actual doses administered, however, the U.S and China were well ahead of other nations.

As at 20th January, China had administered 15 million doses of the vaccine, sitting behind 22.4 million in the U.S.

In spite of supply issues, the EU ranked 3rd, administering 8.6 million doses.

The UK ranked 4th, with 6.8m doses, followed by Israel (3.6m) and the U.A.E (2.5m)

Looking across the EU, the Netherlands had amongst the lowest vaccination rates. As at 22nd January, the vaccination rate stood at just 0.78 doses per 100 people.

For France, one of the worst affected EU member states, the vaccination rate stood at 1.58. While this was up from 1.49 doses per 100 as at 22nd January, the rise was a marginal one at best.

Germany also trailed the EU front runners, with a rate of 1.96 doses per 100 people as at 23rd January.

Spain and Italy had performed somewhat better, with vaccination rates of 2.51 (22nd January) and 2.28 (24th January) respectively.

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 99,774,351 confirmed COVID-19 cases and 2,139,03` related deaths.

By geography, the U.S had reported 25,702,125 cases and 429,490 COVID-19 related deaths.

India reporting 10,668,674 cases, with Brazil reporting 8,844,600 cases.

Sitting behind Russia (3,719,400) remained the UK (3,647,463).

France (3,053,617), Italy (2,466,813), Spain (2,603,472), and Germany (2,147,740) reported a combined 10,271,642 cases.

Looking Ahead

Johnson & Johnson’s vaccine approval by the FDA and AstraZeneca approval by the EMA remain key near-term.

Pfizer Inc. and AstraZeneca, in particular, will also need to address supply issues, however, to support a marked increase in vaccination rates.

Over the weekend, news hit the wires of further lockdown measures to hit France next month.

Of greater concern, however, was reports that vaccinated people can still spread the coronavirus.

For countries with low vaccination rates, this would mean that containment measures may remain in place for longer.

Coupled with the rising number of new and reportedly more virulent strains, border controls could also be seen across a wider number of countries.

For countries with higher vaccination rates, governments will also need to maintain momentum to deliver the 2nd doses.

This will also mean that countries would need to avoid supply constrains to meet the vaccination timelines.

The UK’s British Medical Association Board chair stated last week that there was increased concern that the vaccine would become less effective with doses 12-weeks apart.

It will therefore be all the more important to complete the vaccine dose regimens within optimal timelines.

When considering the supply shortage that the EU currently faces, a quick resolution is going to be needed to avoid making the 8.57 million administered doses redundant.

COVID-19 Vaccine Update – The EU’s Vaccine Woes Worsen and Is Unlikely to Improve Anytime Soon

EU Vaccine News

As the EMA readies to review the AstraZeneca vaccine on 29th January, there was some bad news for EU member states.

AstraZeneca has issued a warning to EU member states to expect limited supply of the vaccine near-term.

The EU has ordered up to 400 million doses of the AstraZeneca vaccine, with up to 100 million due within the 1st quarter.

Last week, the FT reported that AstraZeneca may only deliver less than half of the 100 million doses. That means that less than 25 million would receive full protection by the early part of the 2nd quarter.

It was also reported that there was deep satisfaction within the EU Commission even though the vaccine had yet to be approved.

With the EU having made significantly smaller Pfizer Inc. and Moderna Inc. vaccine orders, the shortfall will raise further concerns over the Eurozone economy and its recovery.

Less than 50 million doses would barely make a dent in inoculating the more than 440 million population.

The bad news followed Pfizer Inc’s cut back in supply to the EU earlier in the month.

Vaccination rates across the EU remain woefully short. The latest news will continue to leave vaccination rates on the lower side that will add further pressure on governments to contain the virus by other means.

Vaccinations Rates

According to the Bloomberg Vaccination Tracker, the EU’s vaccination rate stood at 1.79 doses per 100 people as at 22nd January.

This continued to fall well short of the UK, the U.S and leading nations in the Middle East.

As at 22nd January, Israel had the highest vaccination rate of 37.14 doses per 100 people.

The U.A.E came in a distant second, with a vaccination rate of 21.76 doses per 100.

Bahrain ranked 3rd, with a rate of 9.71 (19th January), with the UK coming in 4th with a rate of 8.76 doses per 100.

With Joe Biden’s drive to vaccinate 100 million in 100 days, the U.S vaccination rate climbed to 6.04 as at 22nd January.

Looking across the EU, France was amongst the worst performers, with a vaccination rate of just 1.49.

Germany also trailed the front runners in the EU, with a rate of 1.81 doses per 100 people.

Spain and Italy had performed somewhat better, with rates of 2.51 and 2.17 respectively.

When considering the fact that these 4 member states are the worst affected, the numbers should have been better.

A lack of supply and currently low rates are a bad combination for the EU. This raises the prospects of even more restrictions to hurt the region’s economy.

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 98,750,103 confirmed COVID-19 cases and 2,116,438 related deaths.

By geography, the U.S had reported 25,390,042 cases and 424,177 COVID-19 related deaths.

India reported 10,640,544 cases, with Brazil reporting 8,755,133 cases.

Sitting behind Russia (3,677,3520) remained the UK (3,583,907).

France (3,011,257), Italy (2,411,854), Spain (2,603,472), and Germany (2,125,261) reported a combined 10,151,844 cases.

Looking Ahead

The reported AstraZeneca supply constraints make Johnson & Johnson’s vaccine availability all the more important.

A single dose vaccine would certainly ease the strain on the EU that will now have to maintain containment measures for longer.

The EU will be able to order up to 400 million doses of the Johnson & Johnson vaccine. This would cover close to the entire EU population should a single dose vaccine receive approval.

For the EU, however, a lack of supply by AstraZeneca and Sanofi troubles mean that the entire population would not receive a vaccine for some time.

The EU had preordered 300 million doses from Sanofi, which won’t be ready until later this year at the earliest.

As the markets respond to supply issues, we can expect focus on vaccination rates, infection rates, supply to become greater near-term.

Johnson & Johnson Vaccine News

News hit the wires this week that late clinical trial results will be available within the coming weeks.

With the U.S FDA ready to review the vaccine, single dose vaccines could be available within the U.S this quarter.

The easier to transport vaccine means that governments would be able to ramp up vaccination rates. For governments lagging behind, the biggest advantage will be the fact that it is a single dose vaccine.

Approvals would need to be given, however, for distribution of the vaccine. A slow moving EMA could see the EU fall further behind its peers.

It’s worth noting that the EU had secured enough vaccine doses to cover 183.5% of the population.

While Johnson & Johnson may be able to ease the pain, it will be some time before vaccination rates hit appropriate levels.

An Economic Recovery in the Waiting. COVID-19 Vaccination Rates Suggest a Longer Wait for Some

Economic Recovery

Following the 2nd quarter economic meltdown of 2020, major economies rebounded in the 3rd quarter.

A reopening of borders and businesses spurred the recovery. Many hoped that the worst of the COVID-19 pandemic had passed.

Going through the 4th quarter, however, conditions deteriorated rapidly once more.

The number of COVID-19 cases soared across the U.S, Europe, and beyond.

Amidst the doom and gloom, the Chinese economy provided a glimmer of hope.

Last week, 4th quarter GDP numbers impressed. While a spike in new COVID-19 cases in China muted the impact of the stats on riskier assets but the recovery was plane to see.

Other economies, have been less fortunate.

Those most at risk of an extended period of contraction are economies most dependent upon consumption and tourism.

For now, the global financial markets appear to be signaling a more uniform global economic recovery through 2021.

The latest COVID-19 numbers, vaccination rates, and containment measures paint a different picture, however.

The Economic Calendar

Next week, 4th quarter GDP figures are due out of the U.S, Germany, and France to name but a few.

Looking at the forecasts, the U.S economy is projected to grow by 4.4% in the 4th quarter.

It’s a different story for France and Germany, however.

Extended lockdown periods through late 2020 will likely lead to another sizeable quarterly contraction.

Economists have forecasted the French economy to contract by 3.2% and Germany’s by 4.6%.

Relative to the 2nd quarter of 2020, the contractions are relatively mild. By historical standards, however, these are quite dire forecasts.

Vaccinations Rates

According to the Bloomberg Vaccination Tracker, the U.S vaccination rate was 5.23 doses per 100 people as at 20th January.

With President Biden’s aim of 100 million vaccinations in 100 days, this is expected to accelerate in the coming weeks. The numbers have already picked up from quite dire levels just last week. As at 10th January, the U.S had had a vaccination rate of just 2.44 doses per 100 people.

While other countries face supply issues, this has not been the case for the U.S. To put it into perspective, 48% of shots distributed to states in the U.S have been administered. In numeric terms, 17.18 million doses have been administered.

Much will now depend on whether the U.S President meets his 100 million target or needs to reintroduce lockdown measures.

At the time of writing, the total number of COVID-19 cases in the U.S sits at 24,998,975, with the total number of deaths hitting 415,894.

Any acceleration in new cases and the U.S government may have little choice but to contain the spread. With labor market conditions still in dire straits, this would have painful consequences for the U.S economy.

The only goods news is that the Democrats now control both houses. Delivering fiscal support should be easier. Bringing unemployment back to pre-pandemic levels, however, is likely to be a far more difficult task.

Elsewhere, a number of governments have made strong progress in driving vaccinations. This bodes well for more rapid economic recoveries. These nations are few and far between, however.

Israel continues to lead the charge, with a vaccination rate of 32.56 doses per 100 as at 20th January. The U.A.E remains ranked 2 in terms of vaccination rates. (20.11 doses per 100 as at 19th Jan).

As at the 20th January, the UK is also at the top end of the table, with a vaccination rate of 7.59 doses per 100.

The EU

For the EU, however, the slow authorization of COVID-19 vaccines and apparent bad planning has been reflected in the figures.

EU wide, the vaccination rate stood at just 1.51 doses per 100 people as at 20th January. When considering the fact that the total number of COVID-19 cases is more than 10 million, this remains a concern.

Not only are we likely to see economic divergence globally but also within the EU.

Germany’s vaccination rate stood at 1.56 doses per 100 as at 20th January. By contrast, France’s vaccination rate was just 1.07.

Italy and Spain were amongst leading EU member states with rates of 2.07 and 2.21 doses per 100. These rates are also on the lower end for developed nations, however.

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

Supply and Demand

Since the approval of vaccines in the U.S, Europe, and beyond, supply has become a focal point.

Back in December, we had highlighted supply as a key consideration as governments procure vaccines.

Some governments have been able to secure enough vaccines to inoculate 100% of their populations.

Others will barely touch the surface and will have to wait.

When considering the vaccination rates today and the need for 2 doses, it could be a long wait.

Some governments will undoubtedly be wanting to avoid going into another winter once this winter season passes.

Until there are more vaccine options and greater supply, however, this remains a credible risk for some.

As things stand, therefore, we continue to see Johnson & Johnson and AstraZeneca as two key players in the fight against the global pandemic.

Johnson & Johnson is key due to its goal to deliver a single dose vaccine. AstraZeneca remains key due to is affordable and easy to transport vaccine, not to mention manufacturing capabilities.

Government agencies including the EMA will need to authorize the use of these vaccines more hastily to support a speedier economic recovery.

The markets can then begin to look to developing economies that have continued to struggle since the beginning of the pandemic. Failure of the likes of Europe to catch up with the U.S and even the UK, could lead to an economic decoupling.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 97,384,877 confirmed COVID-19 cases and 2,085,507 related deaths.

By geography, the U.S had reported 24,998,975 cases and 415,894 COVID-19 related deaths.

India reporting 10,611,719 cases, with Brazil reporting 8,639,868 cases.

Sitting behind Russia (3,655,839) remained the UK (3,505,754).

France (2,965,117), Italy (2,414,166), Spain (2,412,318), and Germany (2,090,161) reported a combined 9,881,762 cases.

Looking Ahead

Existing vaccine providers are going to need to materially increase supply in order to support the bullish outlook towards the economic recovery.

Market sensitivity to reports of any supply constraints will likely build in the current quarter. Failure to ramp up vaccination rates coupled with supply constraints would have an even more material impact on risk sentiment. All of this is before considering a continued rise in new cases and further extensions to lockdown measures.

For now, the pressure will be on the likes of AstraZeneca and Johnson & Johnson to deliver.

A marked increase in supply from Pfizer Inc. and Moderna Inc. would also be welcome.

At some point, however, the focus may well shift to how well or how badly governments have performed.

COVID-19 Vaccine Update – Some EU Member States Break Ranks

EU Vaccine News

Following the EMA’s decision to bring forward the review of the AstraZeneca vaccine, EU member states are looking to get ahead in placing orders.

Over the weekend, news hit the wires that the Irish government was in talks to secure delivery of the yet to be authorized vaccine.

Pfizer Inc. supply issues experienced across member states has resulted in bid to secure supply from elsewhere.

Ireland expects to receive more than 3 million doses of the AstraZeneca vaccine. By receiving the vaccine ahead of the EMA recommendation and EU Commission authorization, it would mean that the vaccine could be administered immediately upon authorization.

Last week, the EMA had indicated that upon recommendation, the vaccine would be widely available by mid-February.

Ireland would therefore be around 2-weeks ahead of other EU member states. More importantly, Ireland may also avoid jostling with other EU member states for supply.

Having seen Britain go it alone on the vaccine front and approve the AstraZeneca vaccine late last year, Britain’s vaccination rates are well ahead of any of those seen across the EU.

Vaccinations

According to the Bloomberg Vaccination Tracker, Ireland’s vaccination rate stood at 1.90 doses per 100 people as at 13th January.

While well short of the likes of the Israel, the U.A.E and even the UK and the U.S, its well ahead of many other EU member states.

To put it into perspective, the EU has a vaccination rat of 1.41 doses per 100 people as at 19th January.

Italy and Spain had rates of 2.01 and 2.08 doses per 100 as at 19th January.

By contrast, however, France had a vaccination rate of just 0.90 doses per 100. The numbers from the Netherlands were even more alarming. As at 19th January, the Netherlands had a vaccination rate of just 0.45 doses per 100 people.

With the broad spread of rates, it is not wholly surprising that some EU member states are looking to jump the gun in securing vaccine supply.

Ireland is certainly not amongst the worst affected by the COVID-19 pandemic.

At the time of writing, Ireland had a total of 176,839 total COVID-19 cases and 2,708 related deaths.

While well below the numbers reported from the likes of France, Germany, Italy, and Spain, there is some urgency globally to secure more vaccines.

New strains of the coronavirus have proved significantly more virulent and as a result could have a significant impact on economic conditions.

Germany has already announced an extension to its lockdown. Merkel also talked of a possible need to shut down borders in order to protect the country from new strains.

Without an adequate vaccine supply and vaccination drive, the impact of the new strains could be devastating.

COVID-19 numbers from the UK had certainly sent a warning to neighboring countries over the holidays.

Global Numbers

Leading the charge geographically, by vaccination rate, continues to be Israel.

As at 19th January, Israel had a reported vaccination rate of 29.78 doses per 100, up from 25.91 as at 17th January.

The U.A.E continued to trail Israel in 2nd place, with a rate of 19.21 doses per 100.

Sitting behind Bahrain in 3rd was the UK, with a vaccination rate of 7.07 doses per 100. This was up from 6.45 doses per 100 as at 17th January.

Looking at the numbers, A marked increase in vaccination rates is going to be needed to support a speedier economic recovery.

Further extensions to existing lockdown periods could begin to hit the prospects of a 2nd quarter recovery.

While we see economic divergence globally, stemming from marked differences in vaccination rates, the same is likely within the EU.

For the Eurozone economic outlook, France, Germany, Italy, Spain, and the Netherlands will need to materially ramp up vaccinations.

It will be interesting to see whether the issue is raised during the ECB press conference tomorrow. How does the ECB see growth when considering the divergence in vaccination rates across member states?

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 96,625,755 confirmed COVID-19 cases and 2,065,698 related deaths.

By geography, the U.S had reported 24,806,964 cases and 411,486 COVID-19 related deaths.

India reporting 10,596,442 cases, with Brazil reporting 8,575,742 cases.

Sitting behind Russia (3,612,800) remained the UK (3,466,849).

France (2,938,333), Italy (2,400,598), Spain (2,370,742), and Germany (2,071,473) reported a combined 9,781,146 cases.

Looking Ahead

The AstraZeneca vaccine remains the key to bringing the pandemic under control near-term. This is largely due to an expected abundance of supply.

When considering the current vaccination rates, however, there is one other factor to consider.

Pfizer Inc., Moderna Inc., and AstraZeneca’s vaccines are 2-dose vaccines. This means that another round of vaccines is going to be needed for effective protection against the virus.

When considering current vaccination rates, some of the more adversely affected nations may not be anywhere 50% vaccinated before the 2nd quarter.

This is yet another factor for the markets to consider in terms of any economic recovery.

The availability of a single dose vaccine may not be far off, with Johnson & Johnson set to release data imminently. In all reality, however, supply constraints could limit the availability of a single dose vaccine beyond U.S borders.

Johnson & Johnson Numbers

Johnson & Johnson had previously projected to deliver 12 million doses by the end of February and 100 million doses by the end of June.

According to recent reports, however, Johnson & Johnson may a number of months behind.

That suggests that 1 billion doses by the end of 2021 may also be an ambitious target.

Pfizer Inc., Moderna Inc., AstraZeneca, Sputnik V, and China’s two vaccines will be key near-term. Ultimately, however, it will likely be a single dose vaccine that brings an end to the COVID-19 pandemic.

Availability across the globe is going to be needed, however, for the pandemic to truly come to an end.

As we have seen in the early days of the COVID-19 vaccines, richer nations have cornered much of the vaccine supply.

This will also need to change for the number of new cases across the globe to begin falling.

Stock Traders Wait For Clarity On Stimulus

The New Stimulus Package Will Remain In Spotlight In The First Days Of Biden’s Presidency

U.S. President-elect Joe Biden has recently unveiled his stimulus plan which is worth as much as $1.9 trillion. Theoretically, the huge stimulus announcement should have served as a significant upside catalyst for stocks. In practice, traders have doubts about whether the stimulus plan will remain intact during negotiations between lawmakers.

As a result, S&P 500 has corrected from recent highs but remains close to all-time high levels. The recent Retail Sales report showed that Retail Sales decreased by 0.7% month-over-month in December as the second wave of the virus put pressure on consumer activity. On a year-over-year basis, Retail Sales were up by 2.9%.

The U.S. economy clearly needs another round of stimulus, and markets may give more weight to this topic compared to the earnings season as companies’ reports reflect past performance while the new stimulus package will have a major impact on the future performance of the economy.

The U.S. Dollar Continues To Rebound

The U.S. dollar finished the previous year on a weak note and looked ready to continue its downside move. However, the American currency has found support in the early days of this year and continues to rebound against a broad basket of currencies.

The main driver of this rebound was the sell-off in the U.S. Treasury market which pushed Treasury yields to multi-month highs. However, Treasury yields have pulled back from recent highs while the U.S. dollar continued to move higher.

The continuation of the current rebound may have a significant impact on commodities and stocks so traders should watch this situation closely. If traders and investors continue to increase their purchases of the safe-haven dollar, riskier assets may find themselves under pressure.

Oil Will Try To Move Higher Despite The Extension Of Lockdowns In Europe

Oil has slipped from recent highs as traders took some profits after a major upside move which was supported by declining inventories and Saudi Arabia’s decision to cut production by 1 million barrels per day in February and March. Oil-related stocks also corrected from multi-month highs.

The recent data from China which indicated that the country’s Industrial Production increased by 7.3% year-over-year in December may provide additional support to oil as it showed that the main driver of the current oil demand rebound was in decent shape.

The main risk for oil and oil-related stocks in the near term is the situation in Europe which will likely have to leave significant virus containment measures until the end of the first quarter. However, traders have previously managed to ignore the negative developments in Europe so oil has decent chances to continue its upside move.

For a look at all of today’s economic events, check out our economic calendar.

COVID-19 Vaccine Update – Brazil and India Look to Ramp up Vaccinations

Vaccinations

According to the Bloomberg Vaccination Tracker, more than 42,2m vaccines have been administered as at 17th January.

This figure is likely to be higher, with numbers from China, a number of EU member states, and other parts of the world yet to be updated.

By doses administered, the U.S leads the way, having administered 14.31m doses, as at 17th January.

As at 13th January, China had administered 10 million doses as the government looks to prevent another wave of the pandemic.

While the EU sits behind China, with 5.27m doses administered, the UK ranks 4th, with 4.31m doses administered.

Vaccination Rates

When looking at vaccination rates, however, it is a different story.

China had a vaccination rate of just 0.71 per 100 people, with the EU having a vaccination rate of 1.19 per 100.

It was slightly better for the U.S after the weekend, with the vaccination rate rising to 4.36 per 100.

This number remains particularly low, however, when considering the continued rise in new cases and related deaths. For incoming president Joe Biden, the bigger concern, however, will be the fact that only 46% of doses distributed have been administered.

Biden has pledged the vaccination of 100 million in 100 days. A greater vaccination drive is going to be need to, not only meet the pledge, but to bring the pandemic under control.

New strains of the virus have contributed to the pickup in infection rates.

The good news is, however, that the vaccination rate is well above 2.44 doses per 100 as at 12th January.

Global Numbers

Leading the charge geographically, by vaccination rate, continues to be Israel.

As at 17th January, Israel had reported a vaccination rate of 25.91 per 100 people.

The U.A.E was narrowing the gap, with the vaccination rate climbing from 15.50 to 17.52 per 100 as at 17th January.

From the UK, the government’s vaccination drive was reflected in the latest figures. As at 17th January, the vaccination rate stood at 6.45 doses per 100 people. This was up from 5.51 doses per 100 as at 15th January.

By contrast, the EU continued to fall well behind the U.S and the UK.

As at 17th January, the EU had a vaccination rate of 1.19 per 100.

Amongst the 4 worst affected member states, Italy continued to lead the way with a vaccination rate of 1.90 doses per 100 as at 17th January. This was up from 1.66 as at 15th January.

17th January figures for Spain, Germany, and France were not yet available.

France continued to disappoint, however, with a vaccination rate of just 0.65 per 100 as at 16th January.

The latest figures from Germany and Spain were somewhat better.

As at 16th January, Germany had a vaccination rate of 1.26 per 100, with Spain a vaccination rate of 1.65 as at 15th January.

When considering the ongoing lockdown measures and continued rise in new cases, however, more is going to be needed.

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 95,480,678 confirmed COVID-19 cases and 2,039,607 related deaths.

By geography, the U.S had reported 24,482,050 cases and 407,202 COVID-19 related deaths.

India reporting 10,572,672 cases, with Brazil reporting 8,488,099 cases.

Sitting behind Russia (3,568,209) remained the UK (3,395,959).

France (2,910,989), Italy (2,381,277), Spain (2,252,164), and Germany (2,050,099) reported a combined 9,594,529 cases.

Looking Ahead

This morning, we saw 4th quarter GDP numbers from China fail to support demand for riskier assets. In spite of upbeat numbers, a recent pickup in new COVID-19 cases in China muted the effect of the numbers.

This was in spite of the ongoing vaccination drive across the country.

With vaccination rates at the lower end for China and other major economies, the continued rise in new COVID-19 cases is likely to slow any economic recovery.

Fiscal and monetary policy support may be in place but without an easing of lockdown measures, consumption will likely continue to wane.

Last week, December retail sales figures from the U.S fell further. This was in spite of the government holding off reintroducing a nationwide lockdown.

As governments look to ramp up vaccination rates, vaccine supply will soon become a focal point.

For the EU, in particular, approval of the AstraZeneca vaccine is likely to be key. At the time of writing, however, the EMA is not due to review the vaccine until 29th January.

This means that the EU would likely continue to see a reduced supply of COVID-19 vaccines until mid to late February.

Extended lockdown measures across France, Germany, and Italy in particular would also question the ECB’s growth forecast for 2021…

India and Brazil

For Brazil, which has seen a spike in new COVID-19 cases as a result of new strains, Anvisa approved both the AstraZeneca and Sinovac vaccines.

Two medical centers in the country are reportedly set to manufacture the vaccines to meet national demand.

India, which ranks ahead of Brazil in terms of total COVID-19 cases, is also on a vaccination drive. The government reportedly delivered millions of doses of approved vaccines across the country in just a matter of days.

Alongside Brazil, India is using the AstraZeneca vaccine. In addition, India is also administering its very own Covaxin vaccine.

As at 17th January, India had a vaccination rate of just 0.02 per 100. At the time of writing, there were no figures available from Brazil.

COVID-19 Vaccine Update – Vaccination Rates and COVID-19 numbers

Vaccination Rates

As at 15th January 2021, the U.S had administered the largest number of doses worldwide, totaling 12,962,550.

While leading by doses administered, vaccinations per 100 remained particularly low at 3.95 doses. This was up from just 2.44 doses per 100 people as at 12th January, however.

Leading the charge by vaccination rate continued to be Israel with a rate of 24.24 per 100 people as at 15th January.

The U.A.E remained in 2nd place, with a vaccination rate of 15.50 doses per 100 people.

While Bahrain ranked 3rd, with a rate of 8.28 doses per 100, the figures from the UK were also impressive.

As at 15th January, the UK had recorded a vaccination rate of 5.51 doses per 100 people.

Totaling 3,678,180 vaccines, the rate was up from 2.99 doses per 100 as at 12th January. The figures reflected the British Government’s vaccination drive in a bid to bring the pandemic under control.

For the EU, the numbers were marginally better but certainly not at levels needed to ease lockdown measures.

Amongst the 4 worst affected member states, Italy continued to lead the way with a vaccination rate of 1.66 doses per 100.

Spain and Germany were aligned with rates of 1.66 and 1.65 per 100. France, however, continued to trail, with a vaccination rate of just 0.60 doses per 100 people.

For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 94,324,566 confirmed COVID-19 cases and 2,108,103 related deaths.

By geography, the U.S had reported 24,102,429 cases and 401,856 COVID-19 related deaths.

India reported 10,543,659 cases, with Brazil reporting 8,394,253 cases.

Sitting behind Russia (3,520,531) remained the UK (3,316,019).

France (2,872,941), Italy (2,352,423), Spain (2,252,164), and Germany (2,023,802) reported a combined 9,501,330 cases.

Looking Ahead

With new COVID-19 cases continuing to rise, COVID-19 vaccine supply and vaccination rates will remain key areas of focus near-term.

New variants of the coronavirus are being identified across the globe, with each more virulent than the original strain.

The new strains have added further pressure on governments to take more aggressive steps to combat the pandemic.

Supply remains a constraint for many countries, however, which could lead to extended lockdown measures.

For the EU that trails the UK and the U.S, approval of the AstraZeneca vaccine would ease the strain.

Last week, news hit the wires that AstraZeneca had submitted a request to the EMA for conditional marketing authorization.

According to the EMA website, an opinion could be issued by 29th January during the meeting of the EMA’s scientific committee for human medicines (“CHMP”).

The EMA has caveated, however, that data submitted on the quality, safety, and efficacy of the vaccine must be sufficiently robust and complete.

Upon a CHMP recommendation, the European Commission would then fast track its decision-making process. The time lines suggest that the AstraZeneca vaccine would be available for use across the EU by mid-February.

With Pfizer Inc. supply to the EU reportedly coming up short of expectations, AstraZeneca will need to make up the shortfall.

The EU has a contract with AstraZeneca to purchase up to 400 million doses of its vaccine.

COVID-19 Vaccine Update – China’s Sinovac Comes under Scrutiny

Sinovac

This week, clinical trials of China’s Sinovac vaccine delivered particularly disappointing results.

In Brazil, late-stage clinical trial results showed that Sinovac had an efficacy rate of 50.4%. Sinovac had announced previously announced an efficacy rate of 78%.

The sizeable difference between the two sets of results has raised questions over China’s data.

While the efficacy rate sits just above the WHO’s 50.0% threshold, there will likely be the need for a more detailed review for the vaccine to be accepted.

A large number of countries are reliant upon the Sinovac vaccine, having failed to make timely orders of the more effective vaccines available at present.

Brazil, is among countries that have placed orders with Sinovac.

With a larger percentage of healthcare workers in the U.S refusing to take the Pfizer Inc. vaccine, governments may face a harder task convincing its populations to take the Sinovac vaccine.

Such differences in results could raise concerns over vaccine safety, in particular.

The Latest COVID-19 Numbers

At the time of writing, there were a total of 92,767,845 confirmed COVID-19 cases and 1,986,696 related deaths.

By geography, the U.S had reported 23,616,345 cases, with India reporting 10,512,831 cases.

Brazil reported the 3rd highest, with 8,257,459 cases, followed by Russia (3,471,053) and the UK (3,211,576).

France (2,830,442), Italy (2,319,036), Spain (2,176,089), and Germany (1,980,861) reported a combined 9,306,428 cases.

Looking Ahead

As a result of Brazil’s clinical trial results, we can expect Pfizer Inc., Moderna Inc., and AstraZeneca to come under pressure to deliver more doses worldwide.

On Wednesday, Johnson & Johnson provided some positive news to ease the strain, however.

As clinical trials continue, the firm’s chief scientist provided a positive view of the single dose vaccine.

The company’s chief science officer also announced that the single shot vaccine remains on target for rollout in the 1st quarter. Clinical trial data is due out later this month or in early February.

Johnson & Johnson has set a goal of 1 billion doses of the vaccine to be manufactured this year. There were reports, however, that Johnson & Johnson has experience manufacturing delays that would impact the 2021 target.

With China’s numbers now in question, Russia’s Sputnik V vaccine may also begin to draw greater interest.