Vaccine optimism wins sentiment race

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi,

With the US house bill on direct USD2,000 checks having no realistic path to pass the Senate quickly, it’s vaccine optimism that wins the sentiment race versus the negative pandemic developments.

The rapid roll-out of the Oxford/AstraZeneca vaccine in the UK, which brings forward a potential end to further restrictions given the easier logistical and storage requirements, offers a huge level of knock-on optimism worldwide. 

Surely, I am not the only one who had massive doubts, but miraculously, we have about made it over the year-end finishing line in one piece. Even though US stocks are notching year-end record highs, I suspect everyone is more than happy to slam the door shut on a devastating 2020 and hide it in our deepest memory recesses. 

Sill for investment return concerns, besides lavishing policymakers with praise for the extraordinary monetary policy and fiscal stimulus which provided the fundamental tailwinds to float us out of the Covid-19 economic abyss in 2020. Do try to keep those folks who worked tirelessly in the healthcare and medical research front line in your debts as without them we would not be here getting ready to pop the champagne corks. 

Oil markets

Oil markets teeter tottered today into the Department of Energy inventories data. But with the DOE reporting a massive draw in oil stocks of -6.065 million barrels, and bullishly surpassing even the API estimate of 4.785 million barrel decline oil prices have remained favourably anchored above the Brent USD51 per barrel.

But the real impressive number was a jump in exports to 3.6 million barrels, the highest since March, reinforcing hopes for increased global demand.

However, a large inventory build was notched up in distillates that pulled attention away from positive export and headline numbers. With year-end risk reduction activities setting in, the scintillating oil rally has cooled it jets as oil prices have found a happy swivel around Brent USD51.50.

With the current level of global lockdowns appearing to be little more than a speedbump for oil markets, traders look set to ride the vaccine wave of economic optimism into 2021.

Forex markets

Since Asia walked in yesterday, the currency markets have been trading bid nudged along by the anticipated vaccine economic boom that is likely to drive inflation higher in 2021.

Simultaneously, the Federal Reserve Board will continue to keep financial conditions as loose as loose can be as the US economy is still a massive train wreck.

Sterling has been leading the vaccine narrative charge and holding a solid bid tone since UK Health Secretary Matt Hancock confirmed the AstraZeneca/Oxford vaccine had been approved. The first doses are due to be given on Monday. The UK has ordered 100 million quantities – enough to vaccinate 50 million people – and combined with the full order of the Pfizer-BioNTech jab, should be enough to cover the UK population.

Given that the UK is a heavily services-sectional economy, the rapid vaccine deployment is supercharging the Pound. The vaccine cannot get here quickly enough for the depleted travel and restaurant industry for all concerned.

Vaccines are on their way, brightening the prospects for the global economy. But the next phase of the recovery will see the international growth mix evolve, impacting trade flows and allowing no respite for central banks.

After the massive collapse in the worldwide economy in 2020 the rebound is coming, led by emerging markets and their respective currencies.

US dollar weakness has been more widespread than most had anticipated where the street now expects this to persist into 2021. EUR/USD is trading around 1.23 +50 from yesterday’s open as traders’ price out the DEC/JAN turn but with global equities appearing poised for strong returns in 2021 as a Covid-19 vaccine should provide a major boost. That alone suggests you stay short dollars, especially against all the growth currencies.

GOLD

Gold is trading higher, supported by a weaker US dollar. The anticipated inflationary bounce for a vaccine recovers as the FED is expected to sit back and let the economy run hot.

Still, gold will be very much tethered to the US dollar fortunes. And with the US dollar floundering out of the spot January gates I would not be surprised to see gold print USD1,900 into the close.