Another start to the week dominated by vaccine news, with the results of the AstraZeneca/Oxford vaccine Phase 3 trial results.
At first glance they looked a little disappointing, with efficacy of 70% – lower than the very high bar set by the Moderna and Pfizer vaccines. But a sub-set of the results showed 90% efficacy. That really is good news because this vaccine can be stored in a fridge, compared with -20 degrees Celsius for the Moderna vaccine, and a bracing -70 degrees C for the Pfizer vaccine.
We also had some intriguing further good news from Oxford Professor Andrew Pollard. First, the vaccine was 100% effective in preventing the need for hospitalisation; and second, evidence suggested that it reduced asymptomatic infection and would reduce infection rates. That’s very good news.
Better economic levels by late next year, but challenges to navigate before then
With a staggering 3 billion doses planned for production in 2021, we can feel confident that we have a way out of the nightmare induced by the terrible disease. By the end of next year – and possibly earlier – we should get back to pre-Covid levels of economic activity and corporate profits. That’s great news for society and for financial markets; but we have to navigate some tricky waters before we get there.
The virus has returned with a vengeance in Europe and we are headed for a double dip recession – before we’ve managed more than a partial recovery from the first one. The PMIs confirm fears that France will suffer a fall in GDP in the current quarter, of 4 or 5%. That would have broken records back to the riotous year of 1968 had it not been for the collapse earlier this year. Germany, which has suffered far less than any major country from the virus, seems to have fared much better and could escape a double dip recession. The UK looks much more like France in this respect. The situation in the US is more complicated – their economy has suffered far less than Europe as a whole, even as the virus is worse on a per capita basis. Hopes of a fourth fiscal package are also receding.
Markets move from cautious to complacent
We will have to suffer some very bad economic data until we can ease restrictions following a programme of mass vaccination. That programme is set to begin in the US – and probably the UK – as early as next month, but it will probably be May before we get the sort of coverage that would justify removal of most restrictions.
Markets look forward, so surely this great news should boost equites and fuel a further rally? Maybe not. I’ve been arguing consistently in recent months that the odds favour vaccine success and a continuation of the bull market. And the news has been much better than even optimists like me were expecting in terms of efficacy rates, limited side effects and even suggestions of reduced transmission. But that news is now in the market. And whereas investors were cautious, nervous and worried that a vaccine was a long way off, they are now optimistic, even complacent.
There is good news, but indicators suggest now is not the time to buy the market
I have always followed a survey produced by the American Association of Individual Investors – the so called ‘bull bear’ index. It’s a negative indicator, suggesting the market will rally when it is negative and vice versa. It has recently spiked higher – that is worrying. In addition, as the investment banks publish their outlooks for 2021, they are almost all bullish.
I am always happier buying equities when investors are nervous and there’s good news on the way. That isn’t the situation we are in today, so I wouldn’t chase the market at this point.
Meanwhile, it looks like we’re heading for a deal on Brexit, and sterling has strengthened in response to this and the good news on the vaccine. This is, of course, good news but it does reduce the sterling value of overseas assets – unhedged ones at any rate – including the dollar earners in the FTSE.