Wave of optimism on the marketsNov 18, 2020
- EUR/USD 1.1880
- DOW JONES 29’783.35
- USD/CHF 0.9105
- SMI 10’565.12
- EUR/CHF 1.0815
- CRUDE OIL 41.36
- USD/RUB 76.03
- XAU/USD 1’881.00
Right behind Pzifer, the laboratory Moderna has announced the arrival of a new vaccine against COVID-19. Moderna Therapeutics has said it achieved 94.5% efficacy after completion of its advanced clinical study. This news sparked a new wave of optimism in the markets. It benefited risky currencies, to the detriment of safe havens, and boosted stock market indices. The euro is now approaching 1.1900 against the dollar and settling above 1.0800 against the Swiss franc, al while the Dow Jones broke a new all-time intraday high at 29,964.29 points on Monday. But the situation regarding the pandemic front remains very tense on both sides of the Atlantic. It is deteriorating even in the United States where more than 11 million Americans have caught the disease. The states of Michigan and Washington took further action over the weekend as new case numbers doubled. In Europe, it was one piece of bad news after the next in recent days. In France, the number of hospitalisations is now higher than it was in the spring, and the country reached the milestone of 2 million cases yesterday. In the UK, more than 32,000 new cases were announced in 24 hours last weekend – a record. Germany’s finance minister said the November lockdown would negatively impact growth in the fourth quarter. Central bankers have tried to temper this optimism somewhat. Christine Lagarde of the European Central Bank, Andrew Bailey of the Bank of England, and Jerome Powell of the Fed all said that the advancements were certainly encouraging but that we should not get carried away too much because the vaccine was “not here yet”.
In the eurozone, the economic recovery is weaker than in China and the United States. GDP growth for the third quarter was revised down slightly to 12.6% against 12.7% expected, for a decline of 4.4% year over year. Industrial production fell 0.4% in September, down 6.8% on an annual basis. In the face of a recovery that promises to be chaotic, all eyes are on the ECB, which is raising many expectations. This is all the more so since Hungary and Poland blocked the European Union budget and the massive stimulus plan approved during the worst of the crisis in July. During a meeting of the EU countries, the representatives from Budapest and Warsaw vetoed the adoption of this economic stimulus package to oppose the establishment of a mechanism to deprive of funds European countries accused of violating the rule of law.
This renewed optimism, as we have seen, eased the upward pressure on our currency and the SNB was able to loosen its grip on the market somewhat. This is reflected in the foreign exchange reserves with the Swiss National Bank, which remained unchanged for the second consecutive week.
The pound sterling is benefiting from news published in the British tabloid The Sun that the British chief negotiator, David Frost, has reported to Prime Minister Boris Johnson that a trade deal between the European Union and the UK could to be concluded early next week. But such a deal can fall through at any time, with both sides of the table urging the other to be reasonable, and the differences remain. This Friday, Michel Barnier, the European negotiator will inform the EU-27 of the progress of the negotiations. It will certainly be interesting to be able to compare the two points of view. In the meantime, the British currency is reflecting some optimism and remains above 1.3000 against the dollar, 1.2000 against the franc and below 0.9000 against the single currency.
The Central Bank of Mexico surprised the markets by holding its main interest rate steady at 4.25%. It justified its decision by the need to take a break in order to reassess the situation. After 11 consecutive cuts, this decision was taken by 4 votes in favour against one for a further cut of 0.25%.
The price of crude has stabilised at $40. In addition to the prospect of a vaccine available in the relatively near future which would relieve the economy, there is also the hope that the OPEC will maintain its current level of production after the words of Secretary General Mohammad Barkindo. The latter said the cartel must stand ready to respond to economic turmoil and suggested that ministers consider pushing back six months the increase in production expected in January.