Markets eagerly await news around the front runner vaccine candidates

  • 25th August 2020

What has happened

Global equity markets were buoyant yesterday and this mood has continued into today as a short-term de-escalation in US/China tensions combined with positive news flow around the University of Oxford vaccine.

Fast track regulation

The Trump administration may seek to bypass the normal regulatory approval standards for the Oxford/AstraZeneca vaccine when results are released during September. Vaccine development has already been concertinaed from several years to an intense six to nine-month window so in some ways this is not a surprise. President Trump will want to generate as much positivity around the virus, and his leadership during the COVID-19 crisis, as the November election approaches. With a European second wave beginning, it is clear that the only tangible end game for this virus is a vaccine and without it the disruption and uncertainty will have a strong negative impact on consumer demand and the broader economy.

US/China trade talks occur

After an initial delay the Phase One temperature check talks occurred last night without too much noise. The US and China’s top trade negotiators spoke and concluded that both sides have stayed true to the agreement and both remain committed to its future success. The US also raised the prospect of increasing the amount of US products that China purchases whilst praising efforts over thorny issues such as intellectual property rights. We expect the Chinese purchases of US goods to be a key part of Donald Trump’s election campaign and therefore confirmation that the Phase One trade deal is working, in part, allows the White House to use the deal as a show of success. Whilst markets priced in a reduction in US/China risk after the initial call was delayed, the fact the call has now occurred removes a short-term tail risk to markets.

What does Brooks Macdonald think

The markets are eagerly awaiting news around the success, or otherwise, of the front runner vaccine candidates. The reports that the White House would fast track the Oxford/AZN vaccine suggests a confidence about the Western front runner which helped support risk appetite further. The rally this week has included some of the more cyclical, and unloved, sectors which would be most positively impacted by a vaccine. We would expect this trend to continue if markets believe that there is more clarity over the timeline for a vaccine, and with it a return to a more normal world.

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