Markets May 19

Vaccine hopes a booster shot for markets

Stock markets surged on renewed hope that a vaccine for the coronavirus could be on the horizon 

Vaccine hopes a booster shot for markets
Potential vaccines could be available before the end of the year. Photo: AFP

(ATF) Renewed hopes that a coronavirus vaccine is on the horizon sent stock markets surging, with oil prices and bond yields also rising on expectations the economic revival could be rapid.

Japan’s Nikkei 225 jumped 1.79% and Australia’s S&P ASX 200 climbed 2.1% even as the Reserve Bank of Australia warned of a 10% fall in GDP in the first half.

“An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts,” the RBA said in the minutes of its last meeting published on Tuesday.

Hong Kong’s Hang Seng benchmark rose 2% while mainland China’s CSI 300 index was up 0.82%. US 10-year treasuries added 3 basis points to 0.71% and WTI crude rose 2.6%.

Overnight, on Wall Street, the S&P 500 surged 3.15%, the Dow Jones Industrial Average jumped 3.85% and the Nasdaq Composite advanced 2.44%.

But while vaccine discovery progress stoked optimism in financial markets, economists remain cautious about the path to recovery. IHS Markit economists Nariman Behravesh and Sara Johnson, projected real global GDP to fall 5.5% for the 2020 calendar year, which is more than three times the contraction in the 2009 aftermath of the Global Financial Crisis.

“The fastest we can expect output in key economies to return to pre-pandemic levels is early 2022 (the exception is China, where the infections occurred earlier and recovery is now underway) — in many economies the recovery could be even more prolonged,” they said.

Others are not so pessimistic, with Morningstar analyst Preston Caldwell forecasting global GDP to contract 2.4%.

“Policy response has been extremely impressive, especially the United States' historically large fiscal stimulus. Likewise, we think risks of a financial crisis are small currently as central bankers are unconstrained by the moral hazard quandary,” Caldwell said in a note.

Still, the markets remain optimistic about vaccine development programmes across the world. Morgan Stanley analysts shortlisted six vaccine candidates to watch, from among 110 possible vaccines under development. Eight of those are in clinical studies.

“We believe millions of doses could be available by fall 2020, assuming no delays and >1B doses in 2021,” said Morgan Stanley analysts in a note.

“We see three waves of potential vaccines available commercially, with those from Moderna, Pfizer/BioNTech, AstraZeneca/University of Oxford and CanSino likely in the first wave before the end of 2020. We expect vaccines from J&J in 1H21 and Sanofi/GSK in 2H21.”

Later in the day, Asian markets will focus on the Indonesian central bank rate decision, Hong Kong unemployment data and Japan’s industrial production figures.