Risk-on pile-on to end week as Pfizer delivers the good news

There is a big risk-on push to end the week as Pfizer delivered what could be the knockout blow to Covid. Reopening stocks are bid – IAG +4%, TUI +7%, EasyJet +5%, Wetherspoons +4% … you get the picture. In the US, Carnival, Royal Caribbean, MGM Resorts, Wynn Resorts, Las Vegas Sands, Delta, Southwest led the charge higher. It’s a pile-on for reopening stocks. Mega cap momentum (FANG+ index) lags XLE and XLF. Disney +3% to Netflix -2% tells the story of going out vs stay-at-home neatly. Drug manufacturers off strongly except Pfizer. Semis are having a good day.

All three of the major Wall Street indices posted fresh record highs, with gains of around 0.5%-0.9%, whilst the Russell 2000 showed up with a +1.8% rally. Vix being crushed to take a 15 handle as bears seem to be throwing in the towel. However, this is the kind of extended level at which I’d expect volatility to creep back in and stocks to pull back….but timing is everything and for now the bears are in hiding. In Europe the FTSE 100 made a new post-pandemic high at 7,332.45, trading up 0.5%. Euro Stoxx 50 also at a record high and trades +0.75% this afternoon.

The Pfizer anti-viral cuts risk of death and hospitalisation by 89%. It’s a game changer, for sure. The stock itself is +7% whilst Moderna is –19% on expectations that we won’t be needing booster jabs every few months. Coming after the Merck announcement it’s a very positive sign that we are through the worst of the pandemic now and won’t need to rely on vaccines + restrictions.

A strong US jobs report added to the sense of optimism. The headline 531k was a beat to expectations and revisions to Aug and Sep added a further 235k. Stronger jobs numbers indicate the US economy is reopening and healthier than at any point since before the pandemic, whilst it’s also been a positive for the dollar as it could draw the Fed into being more comfortable raising rates in line with market positioning, i.e. a tad sooner. At the other end, subtler wage growth – down to +0.4% from +0.6% in September – was a positive that wage spirals won’t lead to more permanent inflation.

The dollar found bid and hit its highest in a year before paring some of the gains. GBPUSD is weaker but off its lows. Several BoE members have been on the wires today trying to clear up some of the communications mess left by yesterday’s non-hike, but it’s not any clearer. They’re saying they will act, that the labour market will get tighter, and inflation will rise above 5%…so why not hike already? Yields are generally falling post FOMC and BoE, with the 10-year Treasury falling a one-month low at 1.467%. Bit of a yield flattener today with markets assuming perhaps a slightly quicker Fed taper but that could crimp long-run growth.

Dollar index: Fresh one-year highs but 94.80 is the big test, the 38.2% retracement of the longer-term peak to trough move. Chart maybe looks a bit toppy, but the bullish MACD crossover is in play.

Despite stronger USD, gold is bid and back above $1,800 as rates fell. US 10s down to 1.47% and real rates getting crushed. Struggling to gain much momentum above $1,800 but eyeing retest of the Oct high at $1,813. Support at 20-day SMA at $1,783.

Oil is up 2% for the session but still set for a $3 fall this week. WTI holding the lower Bollinger but still looking bearish and heading for more bearish fundamental outlook.