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The prospect of an effective coronavirus vaccine propelled Wall Street to record levels overnight, setting up the ASX’s strongest open in eight months.
The Dow Jones Industrial Average soared more than 800 points after Pfizer and BioNTech announced their experimental vaccine was more than 90 per cent effective in preventing Covid-19.
Oil jumped 8 per cent. Travel and tourism stocks recorded double-digit gains. Gold suffered its biggest single-session setback in seven years.
Australian index futures climbed 130 points or 2.1 per cent, positioning the market for its best start to a session since the first week of the February-March pandemic sell-off.
Wall Street
US stocks hit all-time highs on the promise of economic revival and an end to lockdowns. The Dow briefly surged 5.7 per cent before a late sell-off trimmed its advance to 835 points or 2.95 per cent. The S&P 500 put on 41 points or 1.17 per cent. The Nasdaq Composite fell 181 points or 1.53 per cent as traders rotated out of ‘stay-at-home’ stocks into recovery plays.
Pfizer and BioNTech reported independently-assessed trial results that exceeded most expectations. White House advisor Dr Anthony Fauci previously said a vaccine with 50-60 per cent effectiveness would be acceptable. Pfizer hopes to make the vaccine available in limited quantities by late next month and widely available by the third quarter of next year.
“I think we can see light at the end of the tunnel,” Pfizer Chair and CEO Dr Albert Bourla told CNBC. “This is likely the most significant medical advance in the last 100 years, if you count the impact this will have in public health, global economy.”
Stocks that have suffered most under lockdown performed best. The S&P 1500 airlines index surged 15.1 per cent. Cruise company Carnival jumped 39.2 per cent. On the Dow, planemaker Boeing gained 13.7 per cent and theme park operator Walt Disney 11.9 per cent.
Financial stocks wedded to the health of the global economy also recorded massive gains. American Express put on 21.4 per cent, JPMorgan Chase 13.5 per cent and Wells Fargo 10.6 per cent.
The big winners from this year’s ‘stay-at-home’ economy retreated. Netflix sank 8.6 per cent, Zoom Video 17.4 per cent and Amazon 5.1 per cent.
Australian outlook
The S&P/ASX 200 looks set to open above the 6400 level, a prospect that would have seemed unthinkable a few short sessions ago. The index gained 1.75 per cent yesterday.
The clouds have cleared over the last week. The US election is all over, bar the tweeting. The economy looks well supported through fiscal and central bank stimulus measures. And yesterday the ASX 200 smashed through a technical resistance level that had resisted every assault since June.
“It’s an important psychological milestone for investors,” ThinkMarkets Market Analyst Carl Capolingua said. “We’ve failed so many times since June around that 6200 level. It’s fantastic to be rid of it. Hopefully, we can now look up to the all-time highs around 7000. Investors who have been nervously sitting on the sidelines, or waiting for a pullback, must pay attention here… You don’t want to miss out on the next big move.”
The themes for the session ahead are crystal clear: recovery plays in, stay-at-home stocks out. Travel and tourism stocks will be in high demand. The US energy sector had an extraordinary night, climbing 14.2 per cent. Financials put on 8.2 per cent, industrials 3.3 per cent. Consumer and technology stocks declined.
While access to a vaccine remains a long way off for most Australians, the stock market is forward-looking.
“This hopefully is the beginning of the end of our fight against Covid,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said. “We need to shift our attention to those parts of the market that have been the most hammered because of Covid and away from the work from home stocks that have had such an incredible year because Covid is not forever.”
Domestic business confidence data and Chinese inflation figures are due this morning, but unlikely to sway the euphoric mood on financial markets.
The dollar hit its strongest level since mid-September overnight before easing back from 73.4 US cents to 72.79 cents.
Commodities
Oil recorded its biggest advance in around six months, fuelled by the demand implications of economies re-opening around the world. Brent crude settled $2.95 or 7.5 per cent ahead at US$42.40 a barrel.
Gold stocks tumbled as the precious metal recorded its worst daily drop in seven years. The NYSE Arca God Bugs Index shed 6.8 per cent. Gold for December delivery settled $97.30 or 5 per cent lower at US$1,854.40 an ounce.
The sell-off in gold was part of a general retreat from safe havens. Silver tumbled 7.6 per cent. US bond yields surged as prices fell, making precious metals less attractive as an investment.
Iron ore rallied ahead of the vaccine news as part of a general lift in risk assets following Joe Biden’s US election victory. The spot price for ore landed in China climbed $3.70 or 3.1 per cent to US$121.80 a tonne. Copper traded at its highest level in more than two years on the London Metal Exchange.
BHP‘s US-listed stock gained 4.01 per cent and its UK-listed stock 2.91 per cent. Rio Tinto edged up 1.17 per cent in the US and 0.28 per cent in the UK.
