Intraday Market Thoughts

Peak Virus World, Post-Virus Market

by Adam Button
Nov 16, 2020 23:34

The Moderna vaccine news on Monday is wonderful news and it solidifies the tilt in the market to the post-virus world. Yields rose, dragging down gold and silver off their Asia Monday session highs, but later stabilized. More on the VIX and Cryptos below. Then after the NY close, S&P announced the addition of Tesla to its prominent index the S&P500, lifting the shares by as much as 10%. The chart belows highights the importance of 22.0 on the VIX. More below.

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Peak Virus World, Post-Virus Market - Vix Nov 17 2020 (Chart 1)

Moderna revealed preliminary vaccine data Monday and it showed similarly positive results to Pfizer a week earlier. Two candidates will further speed progress to delivery and even better news is that the Moderna vaccine is easier to transport because it can be stored at warmer temperatures.

This comes at the same time as virus cases are hitting new daily peaks globally and hospitals are maxing out at capacity. It's a horrible human tragedy and we urge all our readers to stay safe because it's now increasingly clear that effective vaccines will end the pandemic in months.

For the markets, it's clear now that the pandemic hardly matters. Governments have taken all the fiscal weight and central banks have made borrowing ultra-cheap.

From an equity market perspective, traders are watching the crucial 22 level on the VIX, which marks the 100-week MA, coinciding with the February gap.

Why should this year and 2021 matter? So long as companies can be debt and cash-flow neutral, the market will value them based on 2022 earnings. And why not? There is no safe yield so even zero earnings or a small dividend is better than fixed income.

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Peak Virus World, Post-Virus Market - Whatsapp Ripple (Chart 2)

This same thinking is helping to boost emerging market currencies. RUB, ZAR and MXN all started the week strong and event the beaten-down Brazilian real is showing signs of life.

The important question going forward will be how long the fiscal and monetary impulse lasts. Central bankers have tied their own hands and governments have no reason to pull back any time soon.

Looking towards Tuesday, the week's top data point is due out at 1330 GMT with US retail sales. The consumer has shown no signs of slowing down and the Fed's Clarida highlighted the high savings rate on Monday. The consensus is for a 0.5% rise following September's 1.9% climb.


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