Does the optimistic news about the COVID vaccine come at a price in the market?



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A growing list of candidate vaccines has been rolled out in recent weeks, offering the world a potential way out of a global pandemic nightmare that claimed the lives of some 1.4 million lives in less than a year.

Monday, Astrazeneca AZN,
-1.08%
and the University of Oxford said their experimental COVID-19 vaccine candidate has shown 90% efficacy in preventing infection, in late-stage trials, helping markets rally to start a shortened week .

Monday’s news marks the third time in a row that the week has started with a report on progress towards a viable cure or treatment for the deadly pathogen entering a new deadly phase. Pfizer PFE,
-0.49%
and its partner BioNTech BNTX,
+ 2.33%,
as well as Moderna MRNA,
+ 3.50%,
have also announced potential high-efficiency remedies, with the markets responding positively.

On Monday, the Dow Jones Industrial Average DJIA,
+ 1.12%
completed 1.1% higher and the S&P 500 SPX,
+ 0.56%
clinched a gain of 0.6%.

However, the question posed by Alan Ruskin of Deutsche Bank is simple. “Is that it; is the price of a vaccine high?”

The macro strategist concludes that the answer is simply no, and it is possible that the reaction of markets, especially currencies, will occur at a minimum over the next year and a half.

“The short-term effect as far as financial markets are concerned, suggests that indeed immediate leveraged transactions begin to struggle. however,
if the vaccines fulfill their promise, their impact would dominate the real economic landscape for the next 18 months at least, ”Ruskin wrote.

Deutsche Bank analyst said that government bonds TMUBMUSD10Y,
0.866%
could remain pegged lower as the central bank’s easy money policies and other stimulus measures remain intact for the foreseeable future, and stocks could remain elevated despite high price-to-earnings ratios that many believe are emerging. to get out of balance with the fundamental benefits.

Ruskin said the rotation so ballyhooed into value-driven assets and away from popular trades, which has worked best during the social distancing phase of this public health crisis, could keep stocks healthy.

But currencies may have the most leeway to rise and have not responded well to bullish reports on vaccines, the analyst wrote.

“The good news is that, unlike the assets described above, most valuation indicators still place some of the more obvious currency beneficiaries.
a vaccine, also inexpensive, ”Ruskin wrote.

The researcher said that the Brazilian real BRLUSD,
-0.02

USDBRL,
+ 0.02%,
the Turkish lira TRYUSD,
-0.31%

USDTRY,
+ 0.31%,
the Russian ruble RUBUSD,
0.23

USDRUB,
-0.23%,
The Chilean peso CLPUSD,

USDCLP,
,
the Indonesian rupiah IDRUSD,
-0.21

USDIDR,
+ 0.21%
and the COPUSD in Colombian peso,

USDCOP,

are relatively inexpensive and have substantial ground to cover higher than their foreign currency rivals, as vaccines help recharge the global economy and quell contagion.

Ruskin said that many currencies considered undervalued fall under emerging markets and may also benefit from carry trades, where traders borrow in a low-interest currency, such as the dollar or yen, and invest in a higher yielding currency.

Ruskin said breakthroughs in vaccines could provide a downward floor in markets and could help cause a more synchronous upwash in markets.

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