It was a crazy Monday in the financial markets that received information about a possible effective vaccine against COVID-19. Although the manufacturer himself indicates that the work is still going on, the media headlines did their job and we could observe a huge return of optimism in the market, which later in the American session began to melt.
On Monday, Dow Jones rose by 3.0 percent to 29,158, S&P 500 gained 1.8 percent and Nasdaq fell by 1.5 percent. However, the topic of the effective vaccine, with its distribution and vaccination of the majority of the population, is a topic that could be realized at least in the second half of 2021. Additionally, the logistics of the vaccine itself, which must be stored at a temperature of -70 degrees Celsius, may make this task difficult. Nevertheless, the markets needed, as you can see, an injection of optimism, which gradually began to decline. Although yesterday's information will not cause the lockdown spectrum in the northern hemisphere to disappear in a moment, including the possibility of introducing partial restrictions in the United States, this may have a significant impact on the actions of central banks.
The U.S. dollar has increased yesterday in the expectation that central banks will not have to flood the markets with more liquidity, which means that the availability of the dollar in low-cost credit lines may decrease if a coronavirus vaccine is available soon. At the same time, the prospects of a divided Congress and more modest economic stimulus also favored the upward trend observed in the US dollar. In addition, bond yields began to rise rapidly, which could clearly show that the market stopped playing for further monetary policy loosening. This, in turn, may cause central banks to have to increase the scale of bond purchases so that their interest rate does not grow too fast, especially in the face of such a significant increase in debt.
The stronger dollar also seemed to affect the market of precious metals such as gold and silver. Today, in the morning gold tries to make up for yesterday's over 5% loss. On Tuesday the price of an ounce of gold rises by almost 2 percent to 1885 USD. For gold prices it seems that in the long run inflation expectations will be crucial. Would these also begin to grow with the possibility of returning to consumption without fear of epidemics. At the moment, the growth of US bond yields together with the lack of inflation expectations may not be beneficial for gold. However, this seems to be a temporary situation.
A strong demand response was also observed on the oil market. The price of a WTI barrel rose above USD 40 and is close to its highest level in two weeks. The additional support for prices seems to be provided by the comments of Saudi Arabia's Minister of Energy, who said that OPEC+ can change its supply reduction pact if demand falls before the vaccine is available.
Pfizer and BioNTech announced on Monday that their experimental vaccine COVID-19 is over 90% effective.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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