US open – Vaccine boost short-lived

Focus on tech and central banks

European stock markets have pared earlier gains to sit a little flat on Monday, with the positive vaccine news doing little to deliver a sustained boost.

Vaccine news has been welcomed with open arms in recent months, typically adding fuel to the fire of the stock market recovery, but it seems the latest announcements aren’t being viewed as significant enough to warrant such a move.

It doesn’t help that these minor updates are coming in a nervy environment and they’re just not the gamechanger announcements that would shift the dial, as far as sentiment is concerned.

Don’t get me wrong, it’s a relief that AstraZeneca/Oxford University trials have resumed and it’s great to hear that the Pfizer CEO is optimistic that their vaccine with BioNTech could be ready for approval by the end of next month, and distribution this year, but it’s nothing people aren’t now expecting.

When the AstraZeneca/Oxford trial was paused, there was no panic as it was assumed it would restart quickly, had there been bad news in the investigations, we would certainly be witnessing a far more significant move.

A raft of M&A activity may also have excited investors at the open as well but even that has fizzled out quickly. That’s not to say these things aren’t important – and the TikTok deal most certainly is given the geopolitical ramifications – but the focus is just elsewhere at the minute.

There are a number of major central bank meetings this week – including the Fed, BoJ and BoE – and the tech sell-off will likely continue to dominate. Early gains in Nasdaq futures are already being pared which could be problematic ahead of the open.

EUR steady despite ECB efforts to warn on currency strength

On the central bank front, it’s interesting how many ECB policy makers have sought to clarify their views on the damaging impact of the currency gains since the meeting on Thursday, having given the impression they were perfectly comforable with it.

The message effectively welcomed a run at 1.20 against the dollar but the comments since suggest that would, in fact, be problematic and could force them to reassess their policy stance.

The central bank doesn’t target a specific exchange rate but a rapid appreciation, the likes of which we’ve since March can be a major headwind towards hitting their inflation target and undermine stimulus measures. The euro is slightly higher again today, despite all of these comments, the real test will come if it tests 1.20.

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam