US equity indexes were up for this holiday-shortened week: DJIA +2.2%. The Dow broke above 30,000 for the first time. S&P 500 +2.3 %, NASDAQ +3.0%. 

 

On Monday, AstraZeneca and University of Oxford released the results of their vaccine trial reporting, “One dosing regimen (n=2,741) showed vaccine efficacy of 90% when AZD1222 was given as a half dose, followed by a full dose at least one month apart, and another dosing regimen (n=8,895) showed 62% efficacy when given as two full doses at least one month apart. The combined analysis from both dosing regimens (n=11,636) resulted in an average efficacy of 70%.”

 

The press release, however, raised more questions than it perhaps addressed. The WSJ reported that “AstraZeneca said in interviews with news media that the half-dose regimen was the result of a manufacturing error…” On Thursday, AztraZeneca announced that it may try again – conduct an additional vaccine trial. In a Bloomberg interview, CEO Pascal Soriot said “the company wants the new test to confirm the 90% efficacy rate that the shot showed in a portion of an existing trial…”

 

The additional trial is not expected to hold up regulatory approvals in the U.K. and European Union. In fact, on Friday, the UK made a formal request to its medicines regulator to review the AstraZeneca vaccine for temporary emergency use.  Speaking to Bloomberg, Soriot noted that US FDA approval “may take longer because the regulator is unlikely to approve the vaccine on the basis of studies conducted elsewhere, especially given the questions over the results.” The trial results reported were from the U.K. and Brazil. The US trial is currently underway and may be expanded, WSJ reports. 

 

Turning to the UK, Chancellor Sunak presented the Spending Review for FY2021/22 while the Office for Budget Responsibility (OBR) provided updated forecasts for UK public finances and the macroeconomy. Sunak delayed all major consolidation announcements, leaving open the fiscal strategy until after the coronavirus is under control. There was no mention of Brexit in his speech.

 

Senior Advisor Chris Marsh notes, “The OBR forecasts broke numerous records for the contraction of GDP (the largest since the Great Frost of 1709) and the fiscal deficit (the largest in peacetime). GDP for 2020 is now projected at -11.3% with much slower recovery than previously expected at +5.5% in 2021 and +6.6% in 2022. Meanwhile, the deficit for 2020/21 is penciled in at GBP394BN (19% of GDP) and 2021/22 GBP164BN. Since BOE net purchases over 2020 and 2021 will reach about GBP450BN, roughly 80% of net issuance will be ‘monetized’ or reflected in base money expansion.”

 

Ahead Next Week:  Select economic releases: Sunday, Nov 29: China Manufacturing PMI/Non-Mfg PMI/Composite (Nov).  Monday, Nov 30: Turkey Q3 GDP, US PCE Prices, German CPI & HICP (Nov), US Pending Home Sales (Oct), Australia Current Account (Q3), China Caixin Mfg PMI (Nov), RBA Interest Rate Decision. Tuesday, Dec 1:  German Mfg PMI (Nov), EZ Mfg PMI (Nov), EZ CPI, Canada GDP Q3, US ISM Mfg PMI (Nov), Testimony Fed’s Powell on Coronavirus Aid, Relief, and Economic Security Act, Atlantic Council – Conversation w/ ECB Pres Lagarde on Leadership Through Crisis,  NZ Terms of Trade Q3, NZ Building Consents. Wednesday, Dec 2: .German Retail Sales (Oct), Norway Current Account (Q3), US ADP Employment (Nov), Australia Trade Balance (Oct).  Thursday, Dec 3: German Services/Composite PMIs (Nov), EZ Markit Services/Composite PMIs (Nov), UK Services/Composite PMIs (Nov), EZ Retail Sales (Oct), US Initial Jobless Claims, US ISM Non-Mfg PMI (Nov), Australia Retail Sales (Oct).  Friday, Dec 4: US Payrolls (Nov), Canada Employment (Nov), Canada Trade Balance (Oct).

 

USD Comment

USD weakened since last Friday. The DXY Index broke support at 92.00 trading to a low of 91.77. Higher beta NOK, SEK, AUD, and NZD benefitted from the rise in US equities and the continued tailwind from positive vaccine news.  NZD got additional support from the NZ Finance Minister asking the RBNZ to include house prices in its remit. The market interpreted this action as putting pressure on the RBNZ not to ease further.  NZDUSD started the week at a low of 0.6900 on Monday, moving to a high of 0.7037 by the week’s end. AUDNZD moved to a low of 1.0473 and ended the week at 1.0508. 1.0500 remains support. The market still awaits Brexit news, with hopes of a compromise keeping GBPUSD above 1.3300. EURUSD ranged 1.1805-1.1950, with the rise above 1.1900 helping to push the DXY Index sub-92.00. 

 

Polls, Polls, Polls…

Founder Jens Nordvig conducted a recent Twitter poll on expectations for the December FOMC meeting (see below). There is no consensus on what the Fed has up its sleeve for the December FOMC. 31% of respondents expect operation twist (more duration with same amount of QE). But 42% expect the Fed will “keep policy constant”. Jens says, “Perhaps the biggest surprise to me is that almost 20% expect an actual QE expansion, which would be quite something (given few hints in that direction at this point).”

Jens also conducted another poll on “Lame Duck Fiscal Stimulus”, defined as >$400bn before year-end. Poll results show that very few (<20%) have any conviction in “Lame Duck Stimulus.” You can see that poll result here.

Coronavirus Update

US: We continue to observe improving momentum in the hard-hit states in the Mid-West US. Michigan and Illinois remain on a good path, posting negative growth in daily cases. The improving momentum is visible in the Midwest line on the chart on the left below, showing new cases falling in the region over the last week. The peak shows up in the fatalities forecast with a lag, with the latest estimate indicating that daily deaths will reach 902 by mid-December before falling thereafter. Other states, however, are seeing problematic trends including economically-important California, Pennsylvania and Ohio.

 

International:  We are seeing a big improvement in Spain even as the hit ratio fell last week. France is also on a good trend and the UK’s momentum looks sharply better recently. Lockdown restrictions are set to ease in the UK and France on Saturday and Sunday respectively. While many trends in Europe continue to improve, we are yet to see a meaningful fall in daily cases in Germany (chart below). This is something to watch closely as Germany serves as a litmus test for lockdown-lite measures in the rest of the world.

Chart: Germany Daily New Cases COVID-19. Cumulative cases in parenthesis. Red bar indicates peak. 

 

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