Good Morning,

The market could barely contain the feel-good factor as results of a vaccine trial has shown positive results. The US company behind the vaccine, Moderna, have said they’ve seen early successes with the first volunteers on the trial producing protective antibodies. Importantly, the study showed that those that received a 25-100 milligram dose of the vaccine produced more antibodies in people than would otherwise have been produced by someone contracting and recovering from the virus. Not ones to rest on their laurels, Moderna used the announcement to go and raise $1.3bn to fund further development – something that got a lot cheaper than expected for existing shareholders, as stock rallied 20% on the news. People were keen to stress that this was a phase one trial though and designed around patient safety and not vaccine efficacy. That said, they seem to have ticked both boxes.

Stock markets rallied hard on the news, with the FTSE breaking convincingly above 6,000 and the S&P barrelling towards 3,000 – but not quite getting there before the final bell. Amazingly, it’s now only about 13% away from its all-time highs, despite profit warnings coming in left, right and centre. The price-earnings ratio of the index is now over 21 times, which is the highest its been since pretty much the turn of the century! The dislocation of price Vs. reality is a function of the massive stimulus efforts by central banks and is either setting us up for an incredible fall, or the market will somehow continue to justify itself and everyone that went short on fundamentals looks an incredible fool (me included)

One stock that might come under a bit of pressure is Google. According to the Wall Street Journal, officials in the Obama administration have laid out an anti-trust case against the tech giant, saying they have may have broken the law in as many as 20 different ways to gain dominance in the online advertising space. The case isn’t being taken up by the government as yet, but as Wired points out, it would be easy to see this being something that Joe Biden could pick up and run with if he were to get into the White House. The article is worth a read, particularly around the stats on just how much control Google has in every step of the online ad space – basically they have a market majority in every step of the online advertising process and in a lot of instances they control both the selling of the ad space and also are the only venue you can buy it through, putting themselves in a position to make their own market.

In Europe; Angela Merkel and Emmanuel Macron have agreed a €500bn package to resuscitate the Eurozone economies.  A unified fiscal response has been long overdue from Europe, but just because these two agree on an amount, doesn’t mean it will come easily. The first major obstacle will be for them to convince some states that the funds should be given as grants and repaid from the common European budget. However Austria have already said that they want the monies to be lent to countries in need and then repaid – they also mentioned that Holland, Denmark and Sweden also feel the same. Additionally, how this money would flow to countries needs to be nailed down and with a few options to choose from and various pros and cons of each, that might not be a simple exercise. Still, where there’s a will there’s a way, especially with Angela Merkel exerting her influence in proceedings.

Elsewhere in the world; both Australia and New Zealand are going to bide their time before deciding whether more quantitative easing is necessary. Both countries have managed to avoid high death tolls from the virus, but as export driven economies have struggled with the logistics of a locked down world. Additionally Australia seems to have fallen foul of it’s largest trade partner, China, after saying an investigation into the outbreak needed to happen. China have imposed an 80% tariff on Australian barley, adding to the ban on certain red meat imports last week. Australia are weighing up an appeal to the WTO, but do risk poking the bear further and that bear takes more than 35% of all of Australia’s exports by value.

Brazil is now the global hotspot for Covid-19 and is only getting worse. They’ve got 255,000 confirmed cases, overtaking the UK, but have only given half a million tests, so the numbers are going to be considerably higher. The acceleration in the spread of the virus means they are hot on the heels of catching Russia and there is still no centralised strategy for trying to manage the spread – as three health ministers have come and gone in a month. Jair Bolsonaro has said he’ll keep the deputy health minister running the show for now (who’s a general and not a doctor) and he’s expected to expand the use of chloroquine as a treatment, despite research showing it doesn’t treat the virus at all – amazingly Donald Trump said last night that he’s been taking the drug for the past week and a half as a preventative  “and I’m still here” –  Brazil is South America’s largest economy and the ripple effects in the region of their outbreak will be massive for other countries. Unsurprisingly their stock market is down more than 50% and their currency is the worst performing major out there. Bloomberg has the story.

In the UK there’s been some more talk from BoE members of the technical possibilities of negative interest rates. We’d say it’s mixed messages, but now that Mark Carney has gone there doesn’t seem to be too much in the way of resistance to the idea. Markets are pricing them in for next year, but all this talk might actually be warming the markets up. It’s unlikely they’ll go down that road at the next policy meeting, which is set for mid-June, but all this talk isn’t doing the Pound any favours in retaining its value.

Out of the UK this morning we’ve seen unemployment benefit claims numbers for the month of April. There were 865k new claims, taking the total to over 2 million. They also released the first quarter unemployment numbers, but they can’t be read into as they only covered one week of lockdown. The Resolution Foundation has published some research that young people are the ones most likely to have lost their job as a result of this.
Later in the day we’ve got a European finance ministers teleconference, which might lead to something for the market to get its teeth into. After that we’ve got some housing data from the US and also the June oil expiry this afternoon, so expect some price action in that market as people work out what a barrel of oil is actually worth in physical form and not just on paper.

Be well

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