Global Rally Fizzles, Nasdaq Tumbles As Pfizer Vaccine Skepticism Emerges

The 6-day rally which pushed US indexes briefly to all time highs on Monday, fizzled as worries about the extent of the COVID-19 pandemic’s economic impact resurfaced coupled with second thoughts about just how effective the Pfizer vaccine truly is.

Meanwhile, investors dumped expensive growth and tech shares and snapped up small-caps and cyclicals that would benefit the most from an economic recovery from the pandemic. Futures on the Nasdaq 100 slumped 1.5%, at one point tumbling over 800 points from Monday highs, while contracts on the Russell 2000 rose almost 2%. Netflix, Facebook, Apple fell between 1.8% and 2.3% as investors rotated into sectors that are expected to benefit from a full reopening of the economy.

Amazon.com slipped in the pre-market after news it faces an antitrust complaint from European Union regulators. Beijing on Tuesday unveiled regulations to root out monopolistic practices in the internet industry, helping drive down shares of gaming-to-payment giant Tencent Holdings Ltd. and e-commerce titan Alibaba Group Holding Ltd.

Surging coronavirus cases and legal challenges to the U.S. election outcome also weighed on sentiment. The U.S. surpassed 10 million Covid-19 cases on Monday and appeared poised to hit record hospitalizations later this week.

Boeing Co. jumped 3.5% in U.S. pre-market trading while Pfizer’s shares climbed another 4% in early trading on top of their 8% jump in the prior session. Shares of big U.S. banks were up about 1% and 2%, on the back of the sharply steeper yield curve. Cruise line operators and carriers battered by travel restrictions including Carnival Corp, Royal Caribbean, Delta Air Lines and United Airlines built on Monday’s rally, advancing between 1.5% and 4%.

“Investors need to diversify toward more cyclical parts of the market that have lagged behind in 2020, and away from big tech and the primary stay-at-home beneficiaries,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. The next leg up in stocks will be driven by more freedom of movement and “an end to U.S. political uncertainty” after the election. His comment follows a record reversal in the growth/value relationship, as value stocks posted their biggest intraday gains on record vs growth stocks.

 

 

As stocks exploded to record highs, caution crept in on Monday and dented the euphoria after Biden hailed Pfizer’s progress on the vaccine, but urged caution saying it would be “many more months” before widespread vaccination is available. Meanwhile, experts sounded a note of caution on the Pfizer shot, with questions remaining over how long it would maintain effectiveness. In more bad news, the final stage trial of a Chinese vaccine in Brazil was halted due to a serious adverse event.

Some some analysts sounded caution over the speed in which the vaccine could be implemented: “Given more tests are needed, then the approval process. Manufacturing and distribution would mean the vaccine, if truly effective, is still months away from mass deployment,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management.

“Markets will remain on the lookout for more promising vaccine data in addition to news of a fiscal reboot,” PineBridge Investments portfolio manager Mary Nicola told Reuters.

In Europe, bank stocks were lifted by rising bond yields, with the rate on the 10-year Treasury approaching 0.95%. Tech was Europe’s worst-performing sector on Tuesday, with the Stoxx Tech Index dropping as much as 2.1%, as shares in lockdown beneficiaries and chip stocks come under pressure following coronavirus vaccine breakthrough. Stay-home beneficiaries fall: Prosus, which invests in internet businesses, drops 3.7%; IT hardware maker Logitech -3.7%; Elsewhere, food-delivery firms Delivery Hero -6.7%, Just Eat Takeaway -3%, meal-kit maker HelloFresh -6.5%. Video-game stocks also dropped: Ubisoft -3.6%, Frontier Developments -5.3%, as did e-commerce firms Zalando -4.5%, Asos -1.1%.

Earlier in the session, Asian stock markets were mostly higher driven by regional airline, tourism and travel stocks. Most markets in the region were up, with Thailand’s SET advancing 4.2% and Singapore’s Straits Times Index rising 3.4%, while China’s Shanghai Composite slid 0.4%. Trading volume for MSCI Asia Pacific Index members was 62% above the monthly average for this time of the day. The Topix added 1.1%, with Recruit and JR Central contributing the most to the move. The Shanghai Composite Index retreated 0.4%, driven by CTG DUTY-FREE and SAIC Motor.

Airline, travel and tourism stocks across Asia were beneficiaries of the optimism prompted by the vaccine announcement. Qantas Airways gained 8.6% to hit its highest level since March, Japan Airlines shot 17.6% higher and ANA Holdings rose 16.4%. In Hong Kong, Cathay Pacific Airways shares jumped 14.9%, the best since July.

“Markets will get ahead of themselves in the short term with the vaccine news but longer term it feels like it is going higher,” Ord Minnett advisor John Milroy said from Sydney.

Early Tuesday, Japan’s Prime Minister Yoshihide Suga instructed his cabinet to design a fresh stimulus package to help revive the nation’s flagging economy to offset the ongoing effects of coronavirus.

In FX, the dollar and yen steadied while the Swiss franc stayed under pressure as risk sentiment fluctuated. The greenback was mixed versus its Group-of-10 peers, with the pound leading, though most pairs traded in relatively confined ranges after yesterday’s large moves; the greenback recovered as the euro lost early gains to drop to a low of $1.1780. The pound rose to its highest level since September, as its services-led economy will get a boost from a vaccine; the Norwegian krone advanced as oil prices rose a second day. The yen rebounded in Asia trade as traders covered short positions and Japanese exporters bought the currency for hedging purposes; it then steadied at around 105.40, The Bank of Japan said it will introduce a new deposit facility to help regional financial institutions committed to helping local economies by paying an interest rate of 0.1% to eligible banks, the central bank says. The Australian 10-year yield rose the most since March in a catch-up move to Monday’s virus news.

In rates, Treasuries were slightly cheaper continuing yesterday’s massive rout, with futures near bottom of Monday’s range and the curve marginally steeper. Yields higher by 1bp to 2bp across the curve with 2s10s steeper by ~1bp; 10-year around 0.945%, underperforming bunds and gilts by ~1bp each. Futures volume elevated and cash nearly 3x average in overseas trading hours. Auctions resume with 10-year new issue at 1pm ET; bond sale is Thursday. Price action during Asia session was broadly muted following Monday’s steep declines. U.S. refunding continues with $41b 10-year auction at 1pm ET, concludes with $27b 30-year Thursday.

In commodities, WTI and Brent remained elevated as risk sentiment in Europe somewhat improved from APAC hours, with WTI Dec just off session highs after testing USD 41/bbl (vs. low USD 39.41/bbl) and Brent Jan sees itself around USD 43/bbl (vs. low 41.71/bbl). News flow for the complex has remained light during early hours, but impetus is derived from the prospect that an effective vaccine could paint a rosier (or less pessimistic) outlook for the market, with jet fuel demand a top beneficiary. Elsewhere, spot gold and silver have drifted off intraday highs of USD 1890/oz and USD 24.40/oz respectively, whilst LME copper also lost ground on account of a firmer Dollar.

Looking at the day ahead, the data highlights include UK unemployment data for September, French and Italian industrial production for September, and the German ZEW Survey for November. In the US, there’ll also be October’s NFIB small business optimism index, and the September JOLTS job openings. Meanwhile from central banks, there’s remarks from the Fed’s Kaplan, Rosengren, Bostic, Quarles and Brainard, as well as the ECB’s Knot.

Market Snapshot

• S&P 500 futures little changed at 3,545.00
• STOXX Europe 600 up 0.4% to 382.41
• MXAP up 0.5% to 184.30
• MXAPJ up 0.1% to 612.44
• Nikkei up 0.3% to 24,905.59
• Topix up 1.1% to 1,700.80
• Hang Seng Index up 1.1% to 26,301.48
• Shanghai Composite down 0.4% to 3,360.15
• Sensex up 1.6% to 43,263.83
• Australia S&P/ASX 200 up 0.7% to 6,340.53
• Kospi up 0.2% to 2,452.83
• German 10Y yield rose 1.3 bps to -0.496%
• Euro up 0.06% to $1.1820
• Brent Futures up 1.5% to $43.04/bbl
• Italian 10Y yield rose 11.6 bps to 0.645%
• Spanish 10Y yield rose 0.6 bps to 0.192%
• Brent futures up 1.5% to $43.04/bbl
• Gold spot up 0.9% to $1,880.23
• U.S. Dollar Index up 0.02% to 92.74

Top Overnight News from Bloomberg

• Monday’s selloff in Treasuries conceals a two-way tussle on where to next for the world’s most important bond market. Treasuries flows were mixed after an initial plunge — which was partly driven by algorithmic selling — with some investors ultimately returning, according to a trader based in New York. Buyers also emerged in Asia on Tuesday, particularly in longer maturities, as they were lured by suddenly higher yields, another trader said
• The double shot of progress to end the pandemic — from the “extraordinary” results of Pfizer Inc.’s vaccine and Eli Lilly & Co.’s emergency-use authorization in the U.S. — was somewhat offset by the final-stage trial of a frontrunner Chinese vaccine candidate being halted in Brazil due to a serious adverse event. And the Pfizer vaccine still has many hurdles to clear
• Attorney General William Barr has authorized Justice Department officials to open inquiries into potential irregularities in the presidential election, while acknowledging there’s no conclusive evidence
• The European Union’s second social bond sale is proving another hit with investors, attracting an orderbook in excess of 140 billion euros ($166 billion)
• U.K. unemployment rose the most since the financial crisis over the summer, raising questions about how many job cuts could have been avoided had Chancellor of the Exchequer Rishi Sunak announced an extension to his furlough program sooner
• The U.K.’s House of Lords rejected government plans to break international law over Brexit, putting the onus back on Prime Minister Boris Johnson, who immediately vowed to push ahead with the legislation
• France is prepared to further ramp up spending to support any firm, from mom-and-pop shops to its national flag carrier, as rising unemployment and a resurgence of the Covid-19 pandemic cast a longer shadow over the economy

A quick look across global markets courtesy of NewsSquawk:

Asian equity markets were mostly higher as the region took its cue from the predominantly strong performance stateside where the S&P 500 and DJIA rallied to fresh record highs, although the Nasdaq bucked the trend as tech and stay-at-home stocks were heavily pressured following an encouraging update regarding the Pfizer and BioNTech vaccine which was reported to be more than 90% effective in combatting COVID-19. This triggered a rotation out of growth and into value stocks although the broader market retraced some of the gains heading into the close on several bearish factors including a large sell-side imbalance, expectations of further restrictions in California and comments from Senate Majority Leader McConnell that he does not acknowledge Biden or Harris as President-elect or VP-elect. Additionally, despite the positivity surrounding the update from Pfizer and BioNTech yesterday, some desks have highlighted that questions on the drug’s durability and efficacy for various subsets of the population and the severity of cases it will be effective for, still remain. ASX 200 (+0.7%) was boosted at the open with gains led by energy after a rally in oil prices and with the largest-weighted financials also cheering the vaccine news, while Nikkei 225 (+0.5%) briefly surged above the 25k level with notable strength seen in the travel sector including rail and airline stocks but with the index finishing well off its best levels amid weakness in tech which saw Tokyo Stock Exchange’s Mothers Index Futures, which consists of start-ups, trigger a circuit breaker after hitting limit down. Hang Seng (+0.8%) and Shanghai Comp. (-0.2%) were varied as the mainland lagged after a neutral PBoC liquidity operation and ongoing tensions with the US which are to sanction four more people in response to China’s crackdown on dissent in Hong Kong, while there were also recent reports that China’s COVID-19 vaccine trial was halted in Brazil following a serious adverse event. Finally, 10yr JGBs were pressured and slipped below the 152.00 level amid spillover selling from T-notes and gains across stocks, with demand also subdued by mixed results at the 30yr JGB auction.

Top Asian News

• U.S. Imposes More Sanctions Over China’s Hong Kong Crackdown
• Biden Win to Spur Flows to Asia Already Buoyed by Virus Success
• BOJ Offers Carrot for Regional Banks to Overhaul Operations
• H.K. to Give Details on Singapore Travel Bubble Within Days

Ahead of the cash product open, European index futures picked up from overnight lows with the DAX Dec’20 moving back into modest positive territory. A scaling back of these losses has led to a relatively mixed picture across the region thus far with the Eurostoxx 50 (+0.5%) eking mild gains, whilst the DAX cash (-0.2%) is softer once again with the index hampered by corporate updates from Deutsche Post (-6.0%) and Adidas (-5.6%). Additionally for the index, the fallout from yesterday’s Pfizer/BioNTech continues to reverberate across the market with Infineon (-3.7%) lower on the session as tech names remain out of favour (Stoxx Europe 600 Tech Index -1.5%; the laggard in the region), whilst Delivery Hero (-8.7%) are also underperforming with the Co. viewed as a loser from any potential reopening efforts. As the dust begins to settle on the US election, the current market narrative has shifted somewhat over the past 24 hours to the impact of a prospective vaccine on the economic outlook. Yesterday’s market reaction was particularly pronounced with the S&P 500 and DJIA printing all-time highs, whilst desks also continue to weigh the prospects of a more prolonged shift away from growth/momentum names towards value/cyclicals. One of the key determinants of this will hinge upon how quickly the vaccine can be distributed and nations can reopen their economies. Yesterday’s news was clearly a positive for this narrative, however, the timeline for a “return to normal” remains unclear. Additionally, markets will likely need further details from the study on its efficacy on specific subsets on the population and whether or not the vaccine will protect the most vulnerable in society; failure to do so could temper the hopes from a more extensive reopening of the economy. Nonetheless, for now, markets are continuing to add to some of the bets placed yesterday with financials and oil & gas names outperforming peers. For the former, strength can predominantly be observed in the periphery with Italian and Spanish banks some of those hit hardest in the wake of the pandemic, accordingly, the IBEX 35 and FTSE MIB trade higher by 2.6% and 0.1% respectively. On a more granular level, substantial gains have been observed in some of the more specific beneficiaries of an easing in lockdown restrictions with Unibail-Rodamco (+24%), Cineworld (+60%) and Rolls Royce (+20%) the best performers in the Stoxx 600. To the downside, besides tech names, the recent rally continues to hamper performance of the defensively positioned health care sector. For the FTSE 100, AstraZeneca (largest weighted stock in the index) remains a key focus as it continues work on its COVID-19 vaccine, results of which are expected towards the end of the year or early 2021 (according to ITV’s Peston)

Top European News

• Thyssenkrupp in Talks for Over 5 Billion Euros in Steel Aid
• U.K. Unemployment Climbs to Highest Since 2016 as Job Cuts Soar
• Uniper Falls as Profit is Hit by Rising Natural Gas Prices
• Unibail Shareholders Reject $4.1 Billion Share Sale Plan

In FX, the dollar index has picked up steam in recent trade after a relatively contained start to the session, with the index eyeing yesterday’s 92.976 high ahead of 93.000, with upside levels including the 21 DMA (93.231) followed by the 50 DMA (93.366). The mild pullback overnight coincided with reports that US AG Barr has authorised a DoJ probe of “substantial allegations” regarding vote counting irregularities, whilst a Biden transition official threatened legal action and called for the General Services Administration to recognize Biden’s election victory so the transition can begin. Meanwhile, today’s data slate remains on the lighter side but Fed speak includes the likes of Fed’s Rosengren, Quarles, Kaplan and Brainard, with fresh/pertinent comments on monetary policy unlikely as the topics seem to be more from a regulatory standpoint.

• GBP, EUR, JPY, NZD, AUD – All narrowly mixed against the Buck to various degrees. Sterling stands as the best performer this far after it gleaned some support from technical play as Cable managed to top 1.3200 (vs. low 1.3158) after testing the level to the upside on multiple occasions during APAC hours – with little follow through seen from the clouded September jobs data. The pair topped yesterday’s 1.3207 high to a current intraday peak at 1.3259. This bout of Sterling strength subsequently pressured EUR/GBP below 0.8950 and its 200 DMA at 0.8922 – with the only notable Brexit development since the European close being the UK House of Lords voting against UK government on Internal Market Bill which would have given ministers power to override EU exit treaty, whilst EU/UK talks are set to continue throughout the week. EUR/GBP flows eventually pressured the Single currency after largely moving in tandem with the Dollar in APAC trade, with eyes also set on the EU budget/recovery fund negotiations as discussions poised to resume at 1300GMT, whilst the EU Parliament spokesman yesterday expressed pessimism over the state of talks in a contrast to the rhetoric out of EU leaders. EUR/USD breached 1.1800 to the downside alongside yesterday’s 1.1795 low ahead of the 50 and 21 DMAs at 1.1772 and 1.1766 respectively. Meanwhile, Yen recently gave up its earlier mild gains on account of the firming Buck, whilst the constructive risk tone also aided USD/JPY to trim a bulk of earlier losses after the pair tested its 21 DMA (104.78) to the downside in overnight trade. Antipodeans are now mixed after initially edging higher on the constructive risk tone, but the Dollar’s recent strength has weighed on the Aussie whilst the Kiwi remains somewhat cushioned by downside in the AUD/NZD cross.
• EM – The Turkish Lira has given up some of yesterday’s gains against the backdrop central bank independence in question and geopolitical developments in the Nagorno-Karabakh region, with the recently announced ceasefire in the region reportedly observed but scepticism remains given the fragile nature of said ceasefires. On the domestic front, Turkish President Erdogan spoke again and noted that the country is battling against those trying to trap the country with regards to inflation, interest rates and FX as the leader reiterated his stance, but with no follow-through to the Lira as USD/TRY stabilises around 8.2143 vs. its 8.3738 intraday high.

In commodities, WTI and Brent front-month futures remain elevated as risk sentiment in Europe somewhat improved from APAC hours, with WTI Dec just off session highs after testing USD 41/bbl (vs. low USD 39.41/bbl) and Brent Jan sees itself around USD 43/bbl (vs. low 41.71/bbl). News flow for the complex has remained light during early hours, but impetus is derived from the prospect that an effective vaccine could paint a rosier (or less pessimistic) outlook for the market, with jet fuel demand a top beneficiary. That being said, it remains to be seen what yesterday’s vaccine news flow could mean for OPEC+ as the producers were expected to hold current cuts through Q1 2021 vs. the pact to ease output cuts. Looking ahead, the weekly Private Inventory data is to be released today, but ahead of that the EIA will release its monthly STEO where the much-watched global demand growth forecasts are likely to be stale given yesterday’s vaccine news. Elsewhere, spot gold and silver have drifted off intraday highs of USD 1890/oz and USD 24.40/oz respectively, whilst LME copper also lost ground on account of a firmer Dollar.

US Event Calendar

• 6am: NFIB Small Business Optimism 104, est. 104.1, prior 104
• 10am: JOLTS Job Openings, est. 6,500, prior 6,493

Central Banks

• 8:30am: Fed’s Kaplan Takes Part in Bloomberg Event
• 10am: Fed’s Rosengren Speaks on Financial Stability
• 10am: Fed’s Kaplan Speaks at a UT at Dallas Economic Summit
• 12pm: Dallas Fed’s Kaplan speaks at the Council on Foreign Relations
• 12:30pm: Fed’s Bostic Gives Opening Remarks at an Opportunity Event
• 2pm: Fed’s Quarles Appears Before Senate Banking Panel
• 4pm: Fed’s Rosengren to Speak on Financial Stability (Repeat text)
• 5pm: Fed’s Brainard to Discuss Community Reinvestment Act

DB’s Jim Reid concludes the overnight wrap

Given that vaccines typically take over a decade to develop and roll out, yesterday’s news from Pfizer/BioNTech indicates that science has created something that our generation can be incredibly proud of. Maybe we weren’t all huddled round black and white TVs looking at Neil Armstrong take a step on the moon but scientists deserve a lot of praise today. The 90% efficacy number is astonishing when you think flu vaccines tend to be around 50%. The results weren’t split by age but let me take you on a thought experiment to show how game changing this could be. I say “could” as there’s still uncertainty and unknowns about the vaccine and how high take up can be logistically and whether populations will volunteer to take it initially. However for now come on a journey with me.

In the UK for example around 43k of the 49k official covid deaths have come from the over 70 year old cohort. This group have taken up c.50% of covid hospitalisations recently. In the UK there are around 10 million in this population (out of 68m). The UK has secured 10 million jabs from Pfizer before YE. Clearly each person needs two jabs 21 days apart and other groups like key workers will also get high priority. Nevertheless if the efficacy numbers for the elderly are anything close to the overall 90% level then surely society would learn to live with the virus well before a full vaccine was rolled out (and herd immunity acquired) as you were very quickly protecting the main demographic that was causing health services to be overrun. Maybe I’m missing something (long Covid?) but if efficacy is proved to be nearly as high for the elderly the world can get back closer to normal much quicker than I was previously anticipating. A lot of unknowns still for now but that’s my immediate thoughts.

Although the release didn’t give much away on the age of trialists, the CEO of BioNTech said efficacy in the elderly should be above 80% which again is promising if confirmed. The talk is that Moderna’s vaccine (soon to provide results) shares the same technology so optimism rose here as well.

Looking at the details of the Pfizer trial, 43,538 participants were enrolled, and the analysts found 94 confirmed Covid-19 cases, with the split between the cases in the vaccinated individuals and those who got the placebo indicating that the vaccine was more than 90% effective at 7 days after the second dose. This is just the first interim analysis of the phase 3 study however, and the trial is expected to continue through to the final analysis when 164 confirmed Covid-19 cases have accrued. Looking forward now, it’s expected that they’ll request an Emergency Use Authorisation from the FDA in the US in the third week of November, and their current projections show them being able to produce up to 50m doses this year and up to 1.3bn doses next year.

Yesterday, Marion on my team put out a report (see here ) providing a summary of Covid-19 vaccine developments. One of the biggest takeaways in yesterday’s news was the positive news for vaccine candidates that share the same technology. In particular, Moderna (under phase 3), CureVac and India’s Zydus Cadila (the latter two are expected to begin phase 3 trials in December). Currently one drawback to the Pfizer vaccine is that it has to be stored at -70C until the day it is used. On the other hand, Moderna’s travels at a relatively balmy -20C. Even better, Johnson and Johnson’s vaccine candidate as well as the AstraZeneca vaccine are said to not require deep freezing and can be shipped unfrozen. This may harm the logistics of Pfizer roll out to some degree but the overriding message should be one of joy as there is a chance that the scientists have found a path out of the pandemic.

Following the news, yesterday proved to be a very good one for risk assets even if the US came well off it’s highs after Europe went home, a trend that has continued in Asia. The S&P 500 climbed nearly 4% in early hours of trading in New York and reached a fresh intraday all-time high. However a late statement from Senate Majority Leader McConnell sent stocks spinning lower with the S&P finishing ‘only’ +1.17%. Senator McConnell said that Mr Trump is “100% within his rights” to investigate any possible voting irregularities and request recounts. Elsewhere 10 year US yields climbed +10.5bps to their highest level since March 20. The energy sector was the biggest winner in the US, rising by +14.22% thanks to the surge in oil prices that also took place as both WTI (+8.48%) and Brent (+7.48%) experienced their best days since May. Banks (+13.20%) weren’t far behind however as they were buoyed by the rise in bond yields and the lower likelihood of ultra-low interest rates stretching far into the future. Tech in particular lagged yesterday with the NASDAQ down -1.53%. Zoom didn’t have a good day falling -17.37% along with other companies that would stand to suffer from a return to pre-Covid normality. Netflix (-8.59%) and Clorox (-10.62%) were two other notable stay-at-home/pandemic stocks that were subject to rotation yesterday. On the other hand Royal Caribbean (+28.79%) and US Airlines (+14.72%) at large also saw optimism return to the travel industry.

It was a similar story in Europe, where the STOXX 600 advanced +3.98% in its strongest daily performance since March, a move which sent the index up to its highest level since the pandemic first hit. As with the S&P 500, the energy sector was among the bigger winner in the index with an +10.44% rise, while financials (+12.33%) and industrials (+4.22%) rose strongly as well. And on the individual moves, Rolls-Royce (+43.76%) was the top performer in the STOXX 600, followed by the cruise operator Carnival (+37.93%), and British Airways owner IAG (+25.48%). In fact, the STOXX 600 Travel & Leisure Index closed up +7.00% at its highest level since early March. At the other end of the index however, were the diagnostic testing company DiaSorin (-16.50%) and online supermarket Ocado (-11.51%), with other major losers including HelloFresh (-15.25%), and Just Eat Takeaway.com (-8.29%)

This sharp reaction to the vaccine news was seen across multiple asset classes, not least in sovereign bond markets as investors pared back their expectations of further stimulus down the line. As noted above, by the close, yields on 10yr US Treasuries had surged +10.5bps to 0.924%, in their biggest daily move higher since March, while those on 10yr bunds (+11.2bps), gilts (+9.8bps) and BTPs (+11.7bps) also surged. There was also a notable steepening in yield curves too, with the US 2s10s climbing +8.5bps to 74.9bps, its steepest in nearly 3 years.

The risk rally has stalled further in Asia though with regional markets trading more mixed and US/European futures down. The Hang Seng (+0.94%) and Asx (+0.66%) are modestly up while the Nikkei (+0.09%), Kospi (+0.10%) and the Shanghai Comp (+0.03%) are broadly flat. Meanwhile, futures on the S&P 500 are down -0.63%. It seems that besides the McConnell news, the prospect of a smaller US stimulus and quickly surging coronavirus cases are weighing on sentiment. In addition questions are starting to arise around safety and longevity of any vaccine. In Fx, the Turkish lira is down -0.84% reversing part of yesterday’s advance while the onshore Chinese yuan is up 0.33% to 6.6075. In terms of overnight data releases, China’s October CPI came in at +0.5% yoy (vs. +0.8% yoy expected) while PPI stood at -2.1% yoy (vs. -1.9% yoy expected).

In other overnight news, the Fed has warned in its financial stability report that asset prices in key markets could still take a hit if the pandemic’s economic impact worsens in the coming months. The report said that signs of weakness are showing in commercial real estate and added that hedge fund leverage has remained elevated while life insurers are reaching debt levels not seen since the 2008 financial crisis. The report also said that “If the pandemic persists for longer than anticipated – especially if there are extended delays in the production or distribution of a successful vaccine – downward pressure on the US economy could derail the nascent recovery and strain financial markets.”

Even before the vaccine developments yesterday, risk assets had been set for a strong performance, as the news of a Biden victory over the weekend offered greater certainty for markets and removed fears that the election might be contested. That said, there’s still no sign of a concession speech from President Trump, in spite of the fact that the networks called the race for Biden back on Saturday. One thing we did note in our chart of the day yesterday was that although there are still a few votes left to count, it would only have taken around 25k votes to shift from Biden to Trump across three states for the Electoral College result to be a 269-269 tie, in which case Trump would likely have been re-elected. See here for more on this.

Though the positive news on the vaccine dominated attention yesterday, the Covid numbers continued to move in the wrong direction throughout the world. In the US, NYC Mayor Bill de Blasio warned that the city was “dangerously close” to a second wave, with the positive test rate above 2% and rising. The US reported a record number of daily infections at 144,668 over the past 24 hours. Bloomberg has reported that hospitalisations in the US could hit a record later this week. Elsewhere, California Governor Newsom said that some areas will have to scale back their reopenings under the state’s tiered system after a resurgence of cases. New Jersey also announced new restriction asking restaurants to stop serving indoors at 10 p.m. daily and banned seating at bars. In Europe, extra restrictions were announced in Hungary, which will be closing restaurants with the exception of takeaways, while secondary schools will move to distance learning. And there were also a number of high-profile positive test results, including from Ukrainian President Zelensky, as well as the US Housing and Urban Development Secretary Ben Carson. Along with the positive vaccine news, there was also positive headlines as US regulators gave approvals for Eli Lilly’s antibody therapy, which treats mild to moderate Covid-19 cases in adults and children. In not so positive news, Brazil stopped Phase 3 trials of Sinovac’s vaccine candidate citing a serious adverse event.

To the day ahead now, and the data highlights include UK unemployment data for September, French and Italian industrial production for September, and the German ZEW Survey for November. In the US, there’ll also be October’s NFIB small business optimism index, and the September JOLTS job openings. Meanwhile from central banks, there’s remarks from the Fed’s Kaplan, Rosengren, Bostic, Quarles and Brainard, as well as the ECB’s Knot.