Vaccine progress injects optimism into global stocks

November 10, 2020: Global stocks and oil jumped and Treasuries sold off on Monday as progress in the development of a coronavirus vaccine lifted investor confidence in a world economic recovery.

"Preliminary trials have caused markets to come alive, not that they needed much encouragement," Chris Weston, Pepperstone's Melbourne-based head of research, wrote in a note Monday.

Pfizer Inc said its COVID-19 vaccine, developed with German partner BioNTech SE, was more than 90% effective in preventing infection, marking the first successful results from a large-scale clinical trial.

On Wall Street, the Dow Jones Industrial Average rose 2.95%, the S&P 500 gained 1.17% while the Nasdaq Composite dropped 1.53%. E-mini futures for the S&P 500 rose 0.47%.

Japan's Nikkei 225 rose 1.5% to a 29-year high in early trade and Australia's S&P/ASX 200 rose 1.4%. Hong Kong's Hang Seng index futures rose 1.85%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.12% higher.

Pfizer's announcement jolted European shares to an eight-month high, building on expectations of more stable trade policies following the U.S. election.

While stocks have also rallied on the assumption that Democrat Joe Biden would be the next U.S. President, the top Republican in U.S. Congress on Monday did not acknowledge Biden as president-elect, raising concerns about a rough transition of power.

Senator Mitch McConnell said in a speech that President Donald Trump was well within his rights to look into charges of election "irregularities" but did not offer any evidence of fraud.

The dollar index rose 0.65%, but Joseph Capurso, a strategist with Commonwealth Bank of Australia in Sydney, expects the move to be short-lived.

"As a counter cyclical currency, the USD falls against most currencies as the global economy improves, with the exception of the JPY," Capurso wrote. He noted modeling suggested the dollar was "significantly undervalued" against the yen.

The Australian dollar fell 0.07% versus the greenback at $0.728.

The Japanese yen strengthened 0.25% versus the greenback to 105.09 per dollar, while Sterling was last trading at $1.3171, up 0.06% on the day.

The vaccine news also sent long-dated U.S. Treasury yields sky-rocketing in their biggest one-day jump since March. The yield curve, an indication of risk appetite, hit its steepest level since March.

Benchmark 10-year notes last fell 31/32 in price to yield 0.9235%, from 0.82% late on Friday.

The CBOE Market Volatility index, a barometer of investor anxiety, hit its lowest closing level since late August.

Oil prices surged, posting their biggest daily percentage gain in more than five months as the vaccine news and an OPEC output deal fueled optimism about rebounding demand.

Gold prices slumped as investors pivoted away from the safe-haven metal in favor of riskier assets.

Spot gold added 0.4% to $1,868.68 an ounce.

Reuters