Moderna Chief Predicts Existing Vaccines Will Struggle With Omicron

Okay, very good morning to you. It is Tuesday, 30th of November, and in terms of what I'm going to cover is we'll look at the close on Wall Street, and then we'll look at a dip that happened in overnight trade at around 5 AM London time on the back of an FT article from the Moderna chief who predicted existing vaccines will struggle with Omicron. And we'll have a look at how that has impacted different asset classes going into the European Open. We've then got updates. It's very much an Omicron update overall from the US and Biden, from UK rollout strategy point of view. We've also got important comments out of Jerome Powell, who speaks to the Senate later on today, whose pre-prepared text came out last night and again paid note to the, the risks to downside for the economy on the back of the new coronavirus variant. So that's what's on the agenda. A quick look at the charts though for this morning. So actually on the close on Wall Street Quite the U-turn from the worst day we've had in, in stocks and oil on Friday after the initial news hit on the new variant. And actually, we had a pretty broad-based rally on Wall Street yesterday as US came back from the extended Thanksgiving holiday. The S&P 500 posted its biggest advance in fact in more than a month, wiping out its November losses. The NASDAQ 100 actually outperformed, that was up just shy of 2%. S&P was up 1.3%. From a timings point of view, um, Pfizer said last night we'll know within 2 to 3 weeks how well its COVID-19 vaccine holds up against Omicron, according to one of the firm's top executives. And again, as I've said in yesterday's briefing, this is some of the key metrics that we'll be looking out for going forward, is the case rate, the speed. I think it's a pretty much accepted fact that Omicron will become globally spread variant as it is already at the moment in time. Case rates are still pretty low but likely to head north. It's about the direction of— not so much the direction of travel, but the speed of acceleration that's going to be quite key, because real empirical scientific data then about the efficiency or efficacy of a vaccine is probably not going to emerge beyond anecdotal evidence anytime soon. So Just having a look at the different charts, then what you can see here is quite an aggressive dip at around 5 AM this morning. And this is a pretty much uniform move across the equity index futures space. You can see we have settled a little bit, but we are lower at the moment. The DAX is down about 150 points in a similar fashion to the, the S&P we were just looking at, dipping through the lowest levels that we printed back on Friday. Just going into the close, although we have bounced on that initial move. Again, a lot of that exacerbated by generally at that time in the morning still a bit early for most of mainland Europe to be in the market. And so a couple of heavy orders coming in on the sell side and the market just dipping quite aggressively. Consequently, gold is up $10, T-notes are up 22 ticks, trading at R2 this morning as well, and WTI crude futures in that uniform kind of worsening of the COVID situation move on the dampening of demand impact, um, did dip as well. Oil was trading around the pivot level, which is around $70.50 in the futures market, and when that FT Moderna article hit, we did actually dip to around $67. So a decent $3.50 move or so, and we have bounced back up. We're at a near-term point of inflection for price, which is around this $68.75 marker. So we'll see how it trades at this point in time. So Yeah, that's the general flavor, but let's get straight into the headlines and talk about some of this news then. And we're going to start things off with Moderna's chief, who predicted existing vaccines will struggle with Omicron. He said that foresees a material drop in effectiveness of current jab— jabs, and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale. There's been a lot of kind of cynical commentary on the likes of social media this morning about this and about how you know, these pharmaceutical companies just in attempt to, to make more money. As I said, I'd see that as incredibly cynical. I think at this point in time, just given as to the information we already know about the new mutations that the, the latest coronavirus has gone through, it wouldn't be unusual to see the fact that these vaccines would need to be tweaked to a certain degree. At the moment, the booster strategy, as we'll comment on, is, is kind of the default go-to strategy. But overall, just like you would have with the regular seasonal flu vaccine, uh, that formula in itself would need to change over time. And don't forget that the coronavirus has been around now since the beginning of 2020, and we're about to head into 2022. Um, so a few other things then that are probably worth commenting on this point. Um, obviously yesterday we had a pretty decent bounce in markets, and a lot of people were talking about the commentary coming out of the kind of scientific community based in, particularly linked to the government in South Africa, about the mild nature of the symptoms that have been seen so far. A couple of stats that are worth just recapping: although only 36% of adults in South Africa are fully vaccinated, so much as a similar case to many undeveloped countries, comparative to say what we see in the UK or the US, you know, vaccination rates are woefully lower, and this does go some way to the longer-term eradication or control at least of these further mutations in the future, given the fact that Western developed and more rich countries are kind of utilizing booster strategies when a large proportion of, um, undeveloped countries haven't even had the first round of doses as yet. But that aside, although only 36% of adults in South Africa are vaccinated the country has experienced 3 COVID epidemics and at least 3 million people have been affected already. And as such, the previous case of COVID may well provide some level of protection against Omicron, resulting in what then might lead to milder illnesses according to some experts. Researchers out of Qatar have reported this month that reinfections were 90% less likely to result in hospitalizations or death than primary infections. The point being here is that not many people in South Africa have had a vaccine. That means that a hell— whole load of people have had the virus already because they've had 3 waves, and therefore the actual science would suggest that the chance of hospitalization or death on reinfection rather than primary is very low, and thus then the, the mild um, kind of symptoms that have been reported in South Africa at the moment. And I mention all of this because I just think it's worth, you know, adding a layer of context, and so that the mild nature of what's seen so far might not actually be applicable to other places around the world. And so this is what we're awaiting more information on at this point in time going forward. Um, the other things then are, what are other areas saying? Well, Biden, the US president, said travel restrictions should provide time to take more actions, that sooner or later Omicron will be in the US, and but it's not a cause for concern. So again, again, just being transparent, trying to not then create this kind of shock and awe from a public perception. So very much managing the optics. It is and will be the case that Omicron will be present in the US. I have no doubt of that. At the moment they haven't actually reported any cases, but a large degree of that is because of the fact that, um, it's been said in the FT that Thanksgiving impeded detection of the new variant. That was according to the genomics giant Illumina, which is the world's largest gene sequencing company. Some labs were actually closed over holiday in the US, which, which has yet to identify, obviously, any new cases of the variant. So it's— what to derive out of that, I would say, is the fact that cases will come. It just might be a little bit delayed because of that Thanksgiving period, not the fact that it's not then emerging in the US, I would say. As far as the administration is concerned, they do not yet believe new formula— formulas of coronavirus vaccine will be necessary. They are said to be already working quite closely with Pfizer, Moderna, and J&J on contingency plans, but that's largely always been the case. Biden said he'll issue a new strategy to combat winter surges of coronavirus on Thursday, but that the US will not have to undertake further lockdowns or shutdowns. But obviously this will be a situation in flux, and we'll continue to look out for more details when Biden speaks on that strategy for winter on Thursday. As far as the UK is concerned, the UK is, is obviously looking to just accelerate the vaccine booster program to all adults and also halving the gap between second and third doses to 3 months. Those aged also 12 to 15 in England are going to be offered a second dose of COVID vaccine 12 weeks after the first. Scotland, Wales, Northern Ireland, they're all expected to follow suit with what the UK is planning. One senior government insider in the UK said ministers might not wait for 2 to 3 weeks of data if other indicators showed the Omicron variant required a tougher response. And so, yeah, nothing really too new there from the UK, but just the latest kind of status quo. So that's your kind of Omicron update on the virus in itself. So markets have kind of just given back a little bit of the rebound that we saw on Monday session. I would say, you know, that because of reasons of the lack of liquidity exacerbating price movement The move was overdone on the negative side on Friday. I think the move to a lesser extent was probably overdone in a more positive fashion on Monday. I think now the market might start to just take a bit of a breather and just await now more information on this to come out. We've had these kind of quite behavioral moves materialize with a diminishing scale from Friday to Monday, and I think that pattern will probably continue. As people acclimatize now to the fact that Omicron is here. But we still have to be patient and wait for more empirical evidence to really draw any firm conclusions at this point in time. One thing that was super interesting last night, though, was that the pre-prepared speech from upcoming Senate delivery from the Fed Chair Jerome Powell came out last night. And what he said was the recent rise in COVID-19 cases and the emergence of Omicron variant pose downside risks to employment and economic activity and increase uncertainty for inflation. And these comments come as he plans to deliver this to the Senate lawmakers later on today. He said greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply chain disruptions. So all these comments very dovish in, in nature and obviously come in the context of a pivoting, more hawkish Fed that we've had of late. And so So, you know, if you look at the dollar index this morning, it is weakening. And, you know, Omicron aside, the Powell comments definitely influencing the US greenback this morning for sure. And you can see the DXY is already down over 1/3 of a percent. And it's essentially been declining since Powell made his comments around here. It's been dipping ever since. And if you look at the major currency pairs this morning, as such, EUR/USD is up about 58, 60 pips. So on the daily chart, that previous level that we were looking at from those, uh, June kind of base of that price action, uh, which was that, that target we're looking at on the policy divergence trade on the euro short, um, from last week, has been responding nicely. And now we've traded from a 112 handle up towards 113.34 at the moment this morning. So the Powell comments definitely just kind of recalibrating the market expectations a bit on that runaway kind of hawkish pricing on acceleration of tapering and, and more timely rate increases. And as such, T-notes as well, just breaking out of the range from where we traded on Friday's high. We retested but failed to break through that at around the close yesterday on Wall Street, and then we've just popped above that on that Moderna comment, just provided the catalyst for the break, and we've now traded up higher up towards the R2 in the into the European Open. So those, those comments definitely important. Treasury Secretary Janet Yellen, just so you're aware, will be joining Jerome Powell and testifying before the Senate Banking Committee. That's going to happen at 3 PM London time today. The Fed chief and Treasury Secretary required to report to Congress each calendar quarter as part of their March 2020 economic relief legislation. So it's like an update to one of the chambers of Congress. Um, all right, other things briefly to mention, uh, before I go on. I'm going to drop a link in the video to subscribe to the Daily Market Maker newsletter, which is predominantly written by me but other members of the team, where we just put together a deconstruction of one of the major topics. So obviously Omicron, the talking point at the moment, we put out some insights of what our team think about that going forward. So all you need to do is pop your email in there and you can become part of that free distribution list if you would like. Um, in terms of other information to be aware of, we did have some Asian data overnight. So just very briefly, Chinese manufacturing PMI came in an expansionary territory, which was, um, better than expected, albeit slightly. 50.1 against 49.6 for the month of November, up for the first time in 3 months, as crippling surge in raw material prices and power rationing has eased somewhat. The non-manufacturing PMI, 52.3, was pretty much unchanged from previous. We also had Japan's industrial output rose in October for the first time in 4 months overnight. So reopening of Asian factories eased supply constraints for automakers, evident in both these countries' data points. However, a more severe outbreak obviously of the current variant that's been identified identified now could well then jeopardize this type of recovery going forward, dependent on how that virus performs, um, going forward. The other thing, um, finally was about the Senate. Um, US Senator Manchin has said he would not commit to Senate Majority Schumer's Christmas timeframe regarding the Build Back Better bill and wouldn't commit to voting to proceed to the bill, where he stated, we have to wait and see what we have. So that whole next bill on Biden's agenda has been pretty much parked at this point. But from a market perspective, I think we now just pivot at least short term and definitely this week to tracking of Omicron, and probably the stimulus talk won't get much of a look in at this point in time. But that's the latest status quo. In terms of the calendar for today, we've already had the Chinese data, so we've got German unemployment rate change just ahead of 9 AM this morning. We then get the eurozone HICP flash reading for November, and that is expected to potentially raise a few eyebrows. It's expected year-on-year to come in at 4.5%, an acceleration from 4.1% the prior month. The high-end estimate on the street is for 4.7%. This of course comes after German inflation surged more than expected in November to 5.2% yesterday. That was the highest reading we've had in Germany since 1992. 2. Um, how, you know, primed are markets for this? Well, to a certain extent. I mean, this is a global inflation phenomenon we're seeing at the moment. The US numbers have been tracking very high, of course, at the 3-decade highs, so it doesn't come as a great surprise. But nonetheless, in the context of the weakening dollar today after the Powell comments, which were quite downbeat on the impact potentially from Omicron, it's definitely worth just keeping an eye on the euro throughout the rest of the session. Otherwise, as we go through the afternoon, no major really 1:30s from the US. We get GDP out of Canada, but we do have Chicago PMI at 2:45 London with US consumer confidence to follow at 3, with the April inventories aftermarket at 9:30. Um, Powell, as I mentioned, with Yellen, they're going to be speaking at 3 PM. Feds Williams and Clarida, both voters, speaking at 3:30 and 6 PM. However, none specifically on the economy or monetary policy. And then you've got fixed income supply coming out of Italy and Germany, uh, later on this morning. But that is it. So any questions at all, feel free to drop me a comment. If you're watching this for the first time, thank you, and don't forget to like and subscribe. And I will see you same time tomorrow. Take care.