Asian stocks began the week with gains alongside European and U.S. equity futures as traders took solace from progress toward a vaccine and signs of a recovering global economy. South Korean equities outperformed Monday after encouraging trade data, pushing the Kospi index to a record. NK225 -0.6%, HSI unc, CSI300 +1.2%.
And value pockets of the market (Banks, Travel, Energy) are all outperforming.
Global markets are reacting favorably to the prospect of a high percentage of herd immunity in the US by mid-year
According to the federal government's head, the US is planning to start covid vaccinations around Dec. 11-12 to accelerate a vaccine. More importantly, it expects a 70% immunization rate across the US around May, which would mean herd immunity and a return to a more normal economic life before the middle of the year. (2021)
Fading US fiscal support is opening a window for a period of more pronounced USD weakness. A nascent rotation from tech to value in equity markets (9.9% RTY-NDX outperformance since Nov. 6) and an ongoing rally in industrial metals and oil suggest these asset classes are focused on the reflationary possibilities of a vaccine rollout. Policy support is the bridge between weaker activity data in the near term and optimism around a post-vaccine future. An emerging risk for investors is an untimely withdrawal of support for the US's real economy, just as social-mobility restrictions undermine activity for the second time this year. With Asia’s economic recovery continuing, flows to the region look set to remain strong. US economic underperformance in this context justifies broad-based USD downside, but do Asia central banks want that to happen.
With just over a month to go until Christmas, attention will remain fixed on the Covid-19 pandemic as governments worldwide continue to impose tough restrictions on their citizens to contain the spread of the virus.
Economic data will likely get worse before it gets better. The impact of continued lockdowns will be felt for some time before vaccines become widely available. The market has a tug of war right now, trying to establish whether it can look through nearer-term negative data and news.
The enthusiasm to buy risk-on positive vaccine headlines resonates in some sectors, but there is nary a sign of the great rotation. It is a counterintuitive fact of financial market life that highs get made on good news. 3640/3670 is now a massive resistance band in S&P 500 as those are the Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) Day peaks.