There was some market chatter on Wednesday around the notion that vaccine approval and distribution will be a “sell the news” event.
Essentially, a spate of positive developments wasn’t met with enough in the way of upside equity follow through to satisfy the punditry. The UK approved Pfizer’s shot and plans to start rolling the vaccine out in Britain next week in what Health Secretary Matt Hancock called “one of the biggest civilian projects in history.” The UK’s regulatory apparatus said Wednesday the shot met “strict standards of safety, quality and effectiveness.” While every nation needs a vaccine, the UK has suffered disproportionately on a number of fronts. Its economic contraction in 2020 is the worst in three centuries — not three decades, but three centuries.
Meanwhile, documents obtained by CNN suggest Pfizer’s vaccine will be delivered on December 15 in the US, with shipments of Moderna’s shot scheduled for delivery on December 22. Obviously, those dates depend on regulatory approval, but that’s now seemingly considered a foregone conclusion. “A list of ‘essential tasks’ was included for governors to complete by December 4, including pre-ordering Pfizer vaccines, enrolling providers in the COVID-19 vaccine program and completing microplans for distribution and administration,” CNN said.
That global equities didn’t explode higher (again) based on the above was enough to cause some feigned consternation. “S&P futures are languishing… even after news that the first vaccine deliveries are scheduled for December, and there’s a warning there,” Bloomberg’s Wes Goodman said. “The vaccines may turn out to be a case of ‘buy the rumor, sell the fact’ and they might lead policymakers to cut back on their stimulus plans a bit,” he added.
Maybe. But let’s not read too much into a few hours of futures trading after the best month for global equities in history. And when it comes to the stimulus discussion, the bigger hurdles are the Georgia runoffs and GOP Senate obstinance. Until the former are in the books, and the latter abates, the logjam can’t clear. Mitch McConnell now seems wedded to a $500 billion price tag for stimulus. That’s not even close to sufficient. And he knows it.
Markets’ new obsession is a 19-month high in 10-year breakevens, hit amid Tuesday’s abrupt bond rout which, frankly, is being hyped a bit more than is probably warranted. A ~12bps backup at the long-end is hardly unprecedented, even if it does count as a sizable selloff. Breakevens stalled after rebounding to pre-pandemic levels over the summer, and have now managed to kinda, sorta “break out.”
So, we’re now back to asking whether rising yields are good or bad for risk assets, and the answer is always the same: It depends.
Higher breakevens against a backdrop where disinflation beckons at every turn are a welcome development and a referendum on the Fed’s success. But, as ever, some will fret that past a certain point, the good, reflationary vibes and any mechanical, downward pressure on real rates, will be overwhelmed in the “eyes” of stocks by a “too” high level for nominals.
“There persists dueling narratives; one keeping rates down on real economy jitters and the other looking beyond the macro horizon to a time when COVID-19 is a fading memory,” BMO’s Ian Lyngen said Wednesday morning. “We’re doubtful there will be a convergence anytime soon, if for no other reason than the massive amount of stimulus in the system is both keeping rates low and risk assets well bid,” he added, noting that “the most meaningful risk to the present dynamic is any optimism that contributes to upward pressure on 10- and 30-year yields brings the rate plateau to a level that triggers a repricing in domestic equity and thereby a tightening of financial conditions.”
Of course, at that point, you’d probably get the Fed moving in to tamp down long-end yields which, with apologies to anyone who will be offended by this MMT-lens characterization, are ultimately just a policy variable too.
The bottom line is that we cannot risk upsetting the apple cart when it comes to easy financial conditions (figure above). And that means long-end yields can’t rise too far, too fast, no matter what’s driving them.
As far as the notion that anyone will be inclined to “sell the news” when it comes to vaccine rollout, I find that implausible, barring some reason to believe things aren’t going well or that the vaccine isn’t as effective as everyone thought.
Of course, “selling the fact” is something different from “not buying more,” and I think that’s a key distinction — equities being the greedy, spoiled asset that they are.