The tone for the coming week could have been set as early as the weekend as Joe Biden claimed the hotly contested state of Pennsylvania, propelling him over the line to become the 46th President of the United States. With a potentially Republican-controlled Senate, many commentators believe that a combination of a more predictable president who cannot get potential corporate tax hikes through government is somewhat of a best outcome for both companies and investors.
However, in what should have been front page news on Monday, President-Elect Biden’s limelight was stolen somewhat by the announcement from Pfizer and its German partner BioNTech that its trial vaccine was shown to be over 90% effective, and would be put forward for emergency use authorisation. The news came as a sharp relief to those sectors that had suffered during the prolonged COVID-19 lockdown offering a figurative shot in the arm for beaten up sectors such as commodities and leisure.
The moves were profound, to say the least, with the energy sector, which had fallen by more than 50% this year as reduced travel and factory closures sapped demand for oil and gas, rocketed 14.8%, its biggest daily percentage gain since 24 March. The same was true for the banks, climbing 12.6% and also enjoying their largest gain since March as bond yields soared and the US yield curve steepened.
In a theme which lasted the majority of the week, it was the winners from the summer that came under the most pressure as something of a mini rotation took place. Companies such as home fitness firm Peloton which had thrived during the summer lockdown period saw a 15% fall in its share price as investors re-evaluated their ability to pedal their wares in a post COVID world. Video conferencing favourite Zoom also saw similar losses.
Indeed it was US stocks that bore the brunt of investor selling during the week, characterised by the S&P 500’s modest losses and the tech-heavy Nasdaq’s much sharper falls, as promises of a vaccine led investors away from market leaders and toward cyclical stocks associated with economic recovery.
European bourses, often considered more cyclically orientated, rose for a third straight day on Wednesday, buoyed further by encouraging comments from European Central Bank chief Christine Lagarde, offsetting worries of economic damage from surging infections. Mrs Lagarde said the central bank will focus on more emergency bond purchases and cheap loans for banks when it puts together its new stimulus package next month, dispelling worries that a potential vaccine could stymie any further stimulus.
Towards the end of the week, markets settled down from the vaccine-induced rally of Monday and Tuesday to focus more on the fundamentals, with domestic preliminary GDP firmly on investors’ minds. Snapping their winning streak, investors chose to consolidate the steep gains seen and sell on news that between July and September, UK GDP grew by a quarterly record of 15.5%, although sounding strong, the figure failed to make up a nearly 20% lockdown slump between April and June. With Brexit negotiations seemingly stuck at an impasse, a vaccine may not be the panacea for domestic markets just yet.
With the euphoria of a potential vaccine starting to wane by the end of the previous week, the coming five days give us the chance to gauge just how much of a game-changer for financial markets Pfizer’s discovery could be as investors begin to focus on rising cases throughout the western world once again.
Although developments surrounding the Coronavirus should dictate market movements once again, on domestic shores, the Bank of England should have some influence on Tuesday, as Governor Andrew Bailey addresses the media. Due to speak at a virtual conference hosted by CityUK, Mr Bailey has more influence over the nation's currency value than any other person, which means traders will scrutinise his every word for subtle clues as to future rate policy. With the central bank reaching something of a crossroads between rising infection rates and a possible vaccine on the horizon, it will be interesting to hear just what their outlook will be.
The week could indeed be a story of two central bankers as Friday sees Andrew Bailey’s EU counterpart, Christine Lagarde, the head of the European Central Bank, also address the media. Having calmed markets this week stating that the ECB would continue with its stimulus package despite any medical advancements, further action could elongate the rally in European shares seen over the past few days.
On the economic data front, Friday also sees UK Retail Sales numbers being released. The statistics, often used as a barometer for how consumers are spending their disposable income, will measure the total value of inflation-adjusted sales at the retail level. The data also feeds into consumer confidence numbers nicely and should take on added importance with the US imported “Black Friday” retail extravaganza on its way.