What has happened
Global equity markets gained yesterday but not without incident as markets faltered around the European close.
Vaccine hopes boost cyclicals
Yesterday it was the turn of pandemic impacted cyclicals to rally, with the travel and hospitality sectors picking up on both sides of the Atlantic. This in part reflects some mean reversion given the large falls in these sectors year to date, but also the possible impact of a vaccine on their near-term prospects. ITV’s Robert Peston tweeted that he had heard that the Oxford vaccine was proceeding well and that we would hear positive news on this front in the coming days. This, combined with the Moderna story from earlier in the week, has allowed risk assets to look through the negative news flow around US case growth.
ECB meeting today
The major event today will be the ECB policy meeting followed by the press conference by President Lagarde. Whilst the market believes that little will be released in terms of new policy the rhetoric used will be of prime importance. Over the last few weeks we have seen central bankers start to recognise the strength of the recovery in some areas of the economy. Counterintuitively this is a negative for markets as it suggests that central banks may be less eager to provide overwhelming support in the event of a softer patch of data. ECB officials have not been immune to this tendency towards optimism so ECB watchers will be looking for any suggestion that this has changed the forward guidance for the central bank. Given the rise in US new case growth the global economic outlook has arguably deteriorated over the last month so it will be interesting to see if this is reflected in the ECB’s tone
What does Brooks Macdonald think
If the Oxford vaccine is approved for widespread use after their current phase of trials this is unambiguously positive for risk assets. Not only is this the vaccine furthest in its development cycle but AstraZeneca have already started production to provide the vaccine to key markets in the hope of a successful result. The ITV report suggested that early stage results could be issued in the Lancet journal next week, and if they reflect the positivity of Peston’s tweet this could bode very well for the nascent cyclical rally.