The universe is asymmetric and also people's immunity against the pandemic. Moreover, the economic situation in the post-COVID world will be skewed. Coronavirus is splitting the world in two: those who have means to fight the bug and those who cannot. The more impoverished parts of the world and the lower strata of the society may face harder times.
A vaccine is needed not only to solve the health crisis but to prevent a global impoverishment.
Several countries introduced mandatory COVID testing to their borders and this trend will soon expand to all countries. Most likely , tests will be done during flights and results will be available at the border control. If a vaccine is available, being vaccinated may become a condition to enter in some countries. A divide will take place between countries that will have the means to manage the testing and those who do not. Therefore, an efficient vaccine serves not only to fight the bug, but also to avoid a bigger asymmetry between the rich and the poor.
Meanwhile, Pfizer’s alliance with BionTech promises to deliver a vaccine and governments jumped-in to pre-order the molecules. As a result, BionTech’s share almost doubled in value since the beginning of the year. It is a global trend for other pharmaceutical firms that achieved some success in COIVD vaccine trials. Russia announced also that several vaccines are in an advanced testing phase. China is already proposing financing solutions to countries aiming to buy their vaccines. Very few will profit from selling vaccines which nobody knows how functional they are, but most people will buy just hope for a return to a normal life.
The universe is asymmetric and I am persuaded that life, as it is known to us, is a direct result of the asymmetry of the universe or of its indirect consequences. The universe is asymmetric.
Louis Pasteur, French biologist that discovered the founding principles of vaccination
Both leading indices the Dow Jones and Nasdaq had an exciting start earlier this week. But towards the last trading session, they lost ground. Nasdaq retreated below 10,500, while the Dow Jones confirmed its support at 26,500. We would expect a further rally of tech stocks due to the impressive progress of pharma companies in the quest for Covid vaccines. Nevertheless, the rumour is that few significant buyers in the market start selling-off stocks, to mark to market their unrealized gains. The US stock market is massively overbought for reasons which are not related to economic fundamentals. Some speculators understood in March that the 2009 scenario is reloaded, and the market could be structurally overbought. When those investors decide selling off, the bubble may explode, but the dip will not bring the market back to fundamentals. It will only bring the volatility to higher levels.
Trump administration decided to put the kibosh on China's ambition and started with Hong Kong. The Hong Kong Autonomy Act imposes sanctions on financial institutions that do business with Chinese officials who are involved in actions against pro-democracy protesters. This law will hinder the banking sector in Hong-Kong and affect the economic development of the region. Banking and shipping industries could suffer serious consequences. Hang Seng, the leading stock index in Hong Kong, lost ground over the past year compared to its American peers.
HSBC, the Canary Wharf-based bank, that drives most of its profit from its Hongkongese office could be the biggest victim of the American law. HSBC has already a long history of penalties from the US regulators, so they will, for sure, be careful concerning the new set of American sanctions.
HSBC's share did not recover after the March dip and is going through a "descensus ad inferos". HSBC's massive cost reduction plan was delayed due to the pandemic, and this could be another factor that locks down its market value.
Singapore's services-oriented economy contracted by over 40% in the second quarter. STI, the leading Singaporean stock index is underperforming the Dow Jones since the beginning of the pandemic. It is another signal that non-industrial economies may have a hard time to recover after the pandemic.
Singapore and Hong Kong are the leading financial hubs in Asia and a major crisis in these markets could entail the beginning of an economic downturn in China. Japan and US are risking their economies' exposure to China, but this process will take time. China is currently the world's growth engine, and a recession in China will result in spillover effects in other economies, including the US and the EU.
EU Allowance Unit (EUA), the principal instrument aimed to tackle the CO2 emissions seems to do well amid a decrease in the industrial output. The EUA reached last month a ten years peak, and this occurred after the lockdown.
Satellites' imagery shows a reduction in the greenhouse gases emission since the beginning of the pandemic. In theory, the EUA price should plummet, but we see contrarian behaviour. There are no fundamentals to support this momentum, and we can expect a correction in the following weeks.
As expected, the Gold ounce and the Brent crude headed north. The Gold rush is live and investors show an increased appetite as they perceive it as safe harbour. We expect some corrections on Gold’s price next week due to technical sale but in the longer term the trend should remain positive. Same patterns are expected for other commodities including the Brent crude oil and Bitcoin.
The NASDAQ lost the support at 10,500 after flirting with 11,000. The Dow Jones managed to find support at 26,000 and was close to 27,000 level but retreated on Friday.
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.