Stock markets are having a slightly softer session so far on Thursday, as the buzz from the vaccine announcement fades and a little profit taking kicks in.
It's been a quite incredible run but, unfortunately, all good things must come to an end. Indices in Europe have enjoyed gains of 15-20% in a little under two weeks, while those in the US have had to settle for a more modest 10-15%, held back by the tech sector.
There's still plenty of ground to make up for most European stocks, which remain some way from their pre-pandemic highs. We didn't quite enjoy the bounceback that the US did in the aftermath of the Covid shock earlier this year so there's still quite a significant lag there.
All being well, Pfizer and BioNTech will be the first of a number of good news stories on the vaccine front that will foster in a strong end to the year, not to mention a feeling of general optimism that has been absent since the turn of the year.
Central banks were key in supporting these markets earlier this year and have undoubtedly contributed to their impressive performance since they bottomed out mid-March. They still have a role to play for some time yet and we may get a better idea of that later on today.
The heads of the Fed, ECB and BoE will take part in a panel discussion at the ECB Forum on Central Banking and could offer some insight into their role during the next phase of the pandemic. The BoE last week played its hand, increasing its bond buying program by £150 billion which is intended to see them through to the end of next year.
The Fed and ECB have provided an extraordinary amount of stimulus this year but they're expected to follow the BoE, RBA and RBNZ and ease further next month. Today may provide some insight into the tools available to them during the next stage and how much more we can expect from them, particularly the Fed in the absence of a fiscal response.
Unlike in the aftermath of the global financial crisis, central banks have not been the only game in town in responding to the pandemic, it's very much been a joint effort. And while the vaccine news may ease the pressure on them to continue topping it up, it's not going to be widely available for months so there's still a job to do. And then there's the recovery. It should be an interesting discussion.
Sterling eases on GDP, dollar well supported
UK GDP fell a little short of expectations this morning, rebounding 15.5% following the 19.8% contraction in Q2, leaving the economy 8.6% smaller than it was in January. On the face of it, this may still look encouraging, 8.6% is a lot but that's a really impressive bounceback.
But then, the signs are already there that the economy started to struggle again in October and November and now we're back in national lockdown. It's going to continue to be a stuttered recovery until a vaccine is widely available and the next couple of month is going to be extremely challenging in managing the virus. And at a critical time of year for so many businesses.
The pound is holding up quite well despite coming under a little pressure in the run up to, and after, the data. The numbers while a little disappointing, aren't entirely shocking and with Brexit talks seemingly ticking along nicely, there's still cause for optimism. The currency has made strong gains this last couple of months and has its sights set on 1.34 against the dollar. It's seeing some support around 1.3150-1.32 at the moment, with 1.31 being the next area of support below.
The greenback is generally doing quite well since the vaccine announcement. It's usually role as a safe haven this year cast aside as US yields rose in the aftermath of the announcement, delivering decent gains for the dollar. It will be interesting to see if the dollar starts to perform strongly once again as we move into the vaccine phase of the pandemic. The general view has been bearish for the dollar the next year or two but the reaction this week may have a traders asking a few questions.
Oil steady but outlook much more bullish
Oil prices are relatively steady today after surging over the course of the last week, taking gains from 2 November lows to 28%. It's a remarkable, but understandable, surge in crude, with promising news on both the demand and supply side giving it a massive boost. The vaccine is responsible for the bulk of the surge but comments from the Saudi Energy Minister on the prospect of tweaks to planned production increases gave WTI and Brent an extra kick higher.
Not wanting to be buzz kills, the IEA did offer a sense of reality to markets this morning, warning that fuels won't see a signficant boost in demand until the second half of next year. All the more reason for OPEC+ to tweak the timetable for paring back production cuts next year, as numerous countries go back into lockdown. That forced the IEA to reduce demand forecasts for crude by 1.2 million barrels per day in Q4.
With prices now back above $40 and in far more comfortable territory, there's no rush for emergency announcements prior to the next OPEC+ meeting in a few weeks, when you'd expect changes will be made. IEA expects oil demand to have fallen 8.8 million barrels per day this year before rebounding by 5.8 million next year.
Gold struggling to recover from vaccine news
Gold is struggling to recover from its plunge earlier this week. The vaccine news pulled the rug from underneath the yellow metal only two days after it finally broke through the upside of its post-summer range. Gold fell more than 5% from its peak on the day before finding some support around $1,850 - its three month lows - where it has lingered around since.
The near-term risks for gold are once again tilted to the downside. More positive vaccine news is expected this year and, given how Treasuries and the dollar responded since Monday, it's clear this isn't particularly good news for gold. A break below $1,850 could generate quite an aggressive initial response, with a test of $1,800 potentially following very soon after.