The great vaccine rally ran out of puff very quickly on Tuesday – the weakness seen in Australia on Tuesday afternoon grew into European and US trading – driven by a continuation of the rotation moves by investors switching out of internet favs and into value stocks.
The Dow rose by 0.9% and the S&P 500 edged into the green very late in the session, then fell back into a small loss of 5 points but the Nasdaq fell by almost 1.4% on Tuesday (US time) as the first flush of investor joy excitement over what could be the first successful late-stage COVID-19 vaccine trial faded.
Overnight trading on the ASX futures platform saw the share price index trade 66 points (1%) higher close to 8am – it was up more in earlier trading.
Gold rose as did oil which will add to the upward impetus for the ASX today and may help offset the growing move out of pandemic friendly stocks like Kogan, Temple & Webster.
Local investors feel that with more value stocks listed than megatechs (and many of our big techs, such as Afterpay more hooked into retailing), the ASX is better placed to grow in the age of COVID-19 vaccines.
The Aussie dollar traded around 72.81 US cents on Wednesday morning in Asia – roughly steady on a day earlier.
US bond yields rose – the 10 year yield was around 0.96%, up four points or so on the session. That’s a sign investors are now more upbeat about the American economy in 2021.
Investors however realise there is a long haul ahead before the virus is controlled and economies can return to a normal policy footing – investors continued to pull money out of some megatechs like Amazon, Netflix, Facebook and Microsoft, which have boomed during the pandemic and lockdowns.
This saw the the tech-heavy Nasdaq down about 1.37% or 159 points. The S&P 500 was down a handful of points for much of the session but struggled into positive territory with half an hour or so to go, then fell back to close 4.9 points lower.
The Dow was up nearly 1% or 262 point – the reason for the performance of the late rise in the S&P 500 and the Dow is easy to see – the presence of so many value stocks which are now perceived to be better placed than the megatechs with the likelihood of successful vaccines appearing in 2021 and beyond.
Of course this all could go upside down if one of these vaccines proves to have problems. Brazil stopped trials on a touted vaccine candidate from China on Tuesday because of adverse results in some cases.
If there are more of these problems with US and European candidates then the megatechs will return to favour – very quickly.
Tuesday saw Wall Street’s tech, communication services and consumer discretionary indexes dropped sharply as investors moved to sectors expected to benefit from a full reopening of the economy, such as energy, industrials and materials.
In Europe, Brent crude futures settled up $US1.21, or 2.9%, at $43.61 a barrel. In New York, US West Texas Intermediate (WTI) crude futures added $US1.07, or 2.7%, to $US41.36.
Both contracts jumped 8% on Monday, in their biggest daily gains in more than five months, after drugmakers Pfizer and BioNTech said their experimental COVID-19 treatment was more than 90% effective based on initial trial results.
Gold also ended higher — around $US1,874 an ounce just before 8am – a rise of 1% for the session. Cheaper silver rose 0.3% to be around $US24.22 an ounce.
Copper also rose (despite weak Chinese inflation data). Reuters said benchmark three-month copper on the London Metal Exchange was up 0.3% at $US6,936.50 a tonne at after touching $US7,054 on Monday, the highest since June 2018.
Comex copper in New York was a touch easier at $US3.15 a pound which is still close to recent highs.
In Australia Tuesday’s rally eased from its earlier heights but the market still managed to close at a new eight-month high.
The 0.66% rise in the ASX 200 to 6,340.5 was a third of the initial 2.2%, $US42 billion surge which started running out of puff in the late morning as other Asian markets started trading with gains of just over 1%.
Energy, financials, industrials and REITS fared the best, while tech stocks and gold miners dragged on the wider market after gold’s big fall.
Iron ore prices edged higher on Tuesday – the price of 62% Fe fines delivered to northern China rose 52 cents to $US122.27 a tonne. But Metal Bulletin analysts warned the outlook is looking mixed with Chinese steel mills facing the usual winter slowdown in demand and profit margins.
Today’s rise at the start around 1% is almost a third of the mooted start on Tuesday – the end could be closer to flat by 4pm if the move into value stocks is hesitant, as it seemed at times on Wall Street.
