Covid vaccine breakthrough fuels global equity rally

Global share markets roared higher in a rally led by companies hit hardest by the pandemic after Pfizer and BioNTech revealed a breakthrough in the race to find a vaccine for Covid-19.

The drugmakers’ announcement that a vaccine had been found to be more than 90 per cent effective in a late-stage trial ricocheted through asset markets that had already been rising on optimism over Joe Biden’s victory in the US presidential election.

Wall Street’s blue-chip S&P 500 index was up 2.7 per cent in lunchtime trading in New York, after setting an intraday record high at the open, while the tech-heavy Nasdaq Composite rose by 0.5 per cent. MSCI’s All Country World index also set an intraday record and was up 2.3 per cent, while Europe’s Stoxx 600 closed up 4 per cent, its best day since May.

“After the US election, the focus for investors turned back to Covid versus a vaccine,” said Mohammed Kazmi, a portfolio manager at Union Bancaire Privée. “Today, the vaccine is winning.”

Airlines, hotels and aeroplane makers — three industries ravaged by the collapse in travel — were among the biggest winners. In the US, United Airlines, Delta Air Lines and American Airlines all rallied by more than 14 per cent. British Airways’ parent IAG closed up 25 per cent in London, while Airbus ended the day 19 per cent in Paris.

Rolls-Royce, the UK jet engine maker, closed up 44 per cent, its biggest ever one-day gain according to FactSet.

Line chart of share prices (rebased, % change) showing that travel-exposed stocks surged on the vaccine news while food delivery shares slumped

Groups seen as beneficiaries of the pandemic had the opposite reaction. HelloFresh, the meal delivery service, fell 15 per cent in Frankfurt while London-listed Ocado, the UK group that delivers groceries and sells technology to do so to big supermarket chains such as Kroger of the US, fell 12 per cent. Zoom, the videoconferencing service, fell 13 per cent.

Investors also dumped government bonds on hopes that central banks would not have to go to such extreme lengths to stimulate economies if a vaccine put an end to the recent wave of restrictions.

The 10-year US Treasury yield leapt 0.13 percentage points to 0.95 per cent, its highest level since March, with European bonds following in its wake.

Mr Kazmi of Union Bancaire said he had sold some German debt following the vaccine news. “Everyone has been assuming that monetary policy needs to do more,” he said. “That remains the case, but maybe it doesn’t have to do quite as much.”

Line chart of the MSCI All-World Index, showing that global stock markets have hit an all-time high

Gregory Perdon, co-chief investment officer at Arbuthnot Latham, cautioned the news from Pfizer “looks good, and it smells good, but we’re far from a done deal and history shows that there have been a lot of false dawns”.

In commodities, crude oil prices soared, with Brent crude rising 8 per cent to $42.52 a barrel.

Oil has been one of the hardest-hit sectors during the pandemic as demand has fallen sharply, with airlines operating well below capacity and lockdowns and working from home having restricted driving.

US oil companies’ shares soared. ExxonMobil and Chevron, the US’s two biggest crude producers, both gained more than 12 per cent.

The vaccine news would “drive a big reversal in momentum,” said Manav Gupta, an analyst at Credit Suisse, as “portfolio managers will likely get neutral or even long the energy sector”.

Gold, viewed by many investors as a safe place to park cash at times of uncertainty, slumped. The precious metal reached as high as $1,965 a troy ounce on Monday morning, before slamming into reverse and sliding 5 per cent to $1,854.

Corporate bond and loan prices jolted higher. A widely watched high-yield bond exchange trade fund — known by its ticker HYG — rose 1.4 per cent, putting it on course for its biggest one-day gain since May. 

Reporting by Adam Samson, Camilla Hodgson, David Sheppard, Neil Hume Tommy Stubbington and Joe Rennison in London, Hudson Lockett in Hong Kong and Colby Smith and Matthew Rocco in New York


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