Global equities at record highs on COVID-19 vaccine breakthrough

Euphoria gripped financial markets last week, after pharmaceutical company Pfizer and biotechnology company BioNTech announced the successful production of a COVID-19 vaccine. The news came as a surprise to market participants, which – although expecting a
vaccine eventually – came much earlier than had been priced-in to financial markets. Though the vaccine still has several hurdles to jump-over before becoming available, the news led the markets to upgrade the outlook for the global economy, as the end of the pandemic potentially comes into sight.

Pfizer and BioNTech's successful production of a COVID-19 vaccine prompts market euphoria.
Pfizer and BioNTech’s successful production of a COVID-19 vaccine prompts market euphoria.Credit:John Cairns

New records highs

Global equities closed the week’s trade at fresh record highs, off the back of the COVID-19 vaccine breakthrough. The MSCI World Index hit its highest since August, while a late week pop saw the benchmark S&P500 also finish the week’s trade at a record high. Notably, it’s been the factors that have driven global equities higher that’s garnered the most attention in the markets. Stock market strength has been underpinned by a rotation from growth stocks – such as the mega-cap tech names – to value stocks in the energy, financial and industrial sectors, as the
market positions for stronger global economic growth.

The other record highs


The vaccine news and rally in risk-assets came against the backdrop of a deteriorating situation in the US and Europe as it pertains to the virus. Case numbers continue to surge within both economies, with daily case numbers in the US hitting record highs in excess of 160,000, and new infections in the UK exceeding 50,000 during the week. Though market participants seem to be “looking through” the situation, tighter lockdowns in parts of Europe, hospitals reaching capacity in the US, and an increase in fatalities has many concerned that the markets have priced-in too much optimism.

Oil prices and OPEC+

Oil prices spiked last week, as the vaccine news lifted hopes for a stronger global economic recovery and an increase in energy demand. The oil market will remain in focus in the coming week, with OPEC+’s Joint Ministerial Monitoring Committee to meet, and is expected to announce an extension of production cuts, which were due to end in January, in an effort to provide continued support to oil prices. The decision will come off the back of analysis from OPEC last week that the hit to energy demand from the pandemic is greater than previously thought, with oil demand to contract by around 9.8 million barrels per day in 2020.

Local markets

The ASX200 is set-up for a 51 point jump for the index to begin the week, according to futures. The move will add to a solid week for Australian equities last week, which climbed by 3.4 per cent to close at an 8-month high. In the week ahead, market participants will shift focus to a couple of key pieces of economic data. The RBA Minutes will be released on Tuesday, with markets participants perusing the document for colour on the central banks new QE program. While the month’s jobless figures are published on Thursday, and is expected to show the economy lost 30,000 jobs last month, and that the unemployment rate edged higher to 7.1 per cent.

Listen to the Short Squeeze, our weekly markets podcast produced in conjunction with IG here. Episodes last about 10 minutes and are also available through Spotify and Google Podcasts.

This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.

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