Heisenberg Report

‘Extreme Bullishness’: Risk Assets Vaccinated

For the second day in a row, risk assets are buoyant.

Reports of progress in the fight against the coronavirus along with Donald Trump’s partisan State of the Union address which was heavy on economic rhetoric, combined with Pete Buttigieg’s strong showing in Iowa to propel US equity futures higher.

In Asia, stocks rose for a second session, the first back-to-back gains in weeks. The Shanghai Composite has recovered around 2.5% of Monday’s reopening plunge, even as the death toll from the virus approached 500 and Hong Kong quarantined thousands of travelers from the mainland, while others are stuck on cruise ships after some passengers tested positive. Foxconn slashed its outlook.

News that the Wuhan Institute of Virology applied for a Chinese patent to use Gilead’s experimental remdesivir (which isn’t yet approved for anything, anywhere) to treat the malady along with reports that scientists in the UK are on the way to developing a vaccine, helped propel risk assets globally.

US equity futures have risen some 3.5% off the local lows.

The yen fell to the weakest levels since January 22 and 10-year US yields rose to 1.64, now some 14bps off the virus panic lows.

“News of a possible vaccine clearly gives a boost to sentiment, but market impact clearly highlights how sensitive things are at the moment”, DNB Bank ASA strategist Magne Ostnor, remarked.

Oil surged as OPEC and its allies debate a possible supply response to crude’s plunge for a second day in Vienna.

“There are three pesos in the top currencies so far this month, along with the ruble and the rand. That’s a pretty clear sign that risk sentiment has improved”, SocGen’s Kit Juckes said Wednesday. “The coronavirus outbreak is still more evident in some parts of the FX market than it is on the high alter of sentiment, where equities are flying high and the EUR/USD option market reaches extreme bullishness”.

Of course, it’s far too early to sound the all-clear. Reuters later cited a WHO spokesperson reiterating that as of now, there are no known effective therapeutics against coronavirus.