Weekly Market Wrap 16-November to 20-November/2020

Marius Paun | London, UK | Senior dealer | Friday 20th November 2020

 

Covid Vaccine – The Gift That Keeps On Giving

Following Pfizer announcement last week, we now have Moderna, another contender in the coronavirus race, reporting that their vaccine shows a 94.5% efficacy rate. The big difference compared to Pfizer is that it can be stored at fridge temperature for 30 days, making the transportation much easier. In reaction to the news on Monday, the Dow and S&P 500 closed at record high levels. By comparison, the NASDAQ is yet to reach that milestone as investors moved out of tech stocks into the more recently beaten-down ‘value’ stocks.

Meanwhile the US coronavirus economic relief package remains elusive after the Senate signalled it will not pass ‘gigantic’ stimulus measures for now. They are also doubtful that a large relief will be approved even at a later date, but instead more potentially targeted measures will be applied.

The US Federal Reserve Chair Jerome Powell said there are significant downside risks for the economy in the short-term, despite a stronger than estimated recovery since May. He admitted that housing improved across the country but the next few months may be challenging. He added the world will go back to a different economy, especially regarding the service sector. On Friday, we learned that Treasury Secretary Steven Mnuchin asked for any of the Fed’s CARES funds that has not been spent so far, to be returned!!!……He said the returned funds will be better used for grants to people who really need them, not debt.

Chinese President Xi has been speaking at the Asia-Pacific Economic Cooperation forum this week. The main points from his speech: it’s a priority for China to increase domestic demand; to deepen reform; to cut tariffs and attempt to sign free trade agreements with more countries. In the meantime, China is set to announce an economic growth target of around 5% for the next four years. The optimism was also visible when People’s Bank of China Governor hinted at winding back the monetary stimulus.

The European Central Bank President Lagarde reiterated the central bank is ‘prepared to recalibrate measures’ to make sure financial conditions are stable. Vaccine is not a game changer for ECB forecasts?!!! Really? She warned the euro area economic activity lost momentum into the Q4 with the service sector being particularly hit by the rising infections rate. The ECB also expects inflation to stay negative until early 2021.

Early in the week, the UK Chief Brexit Negotiator, David Frost, reported the trade deal with EU is expected next week. His comments sent the pound sterling higher. However, the BBC said later that both sides are in fact doubting a deal can be reached. The Times weighed in revealing the EU is now making back up plans for a no deal Brexit. That sent GBP back down. And as if things were not tense enough, EU Negotiator Barnier suspended the talks after a member of his team tested positive.

The US crude prices continued their good run for the third week, soaring to a high of $42.66. OPEC+ suggested that an output hike should be delayed for 3-6 months. Gold on the other hand, is on course to drop for the second week running, moving to a low of $1852 yesterday.

The real winner this week seems to be Bitcoin, which gained over 60% in the past few weeks now trading around 18,600, just shy of the record high of 19,600 reached at the end of 2017. The move was initially sparked late October by news that PayPal will allow Bitcoin spending. Citi also made a bold prediction; Bitcoin ‘ to skyrocket above $300,000 because it is an asset with limited supply and is digital, so moves across borders easily and ownership is opaque’.