Please see below Daily Investment Bulletin received from Brooks Macdonald earlier this afternoon. The commentary provides analysis of the markets following a promising start to the mass-vaccination rollout in the UK.
What has happened
Equities continued their positive start to the week as critical earnings beats justified another leg higher in valuations. Alphabet (Google) and Amazon both beat market expectations with the latter rising in after-market trading despite CEO Jeff Bezos announcing that he will step down to become executive chairman. Even Exxon, which had its first annual loss in 40 years, saw its shares rise as it recommitted to its dividend pay-out in a yield hungry world.
Italian twist
The market’s base case was that former Italian Prime Minister Conte would be able to form a new Italian government by utilising a range of independents and a myriad of smaller parties. In fact, the former ECB President Mario Draghi is reportedly in line for the role and is meeting President Mattarella to discuss the formation of a new government. Betting odds have also shifted with Draghi now the front runner. Draghi’s tenure at the ECB is most famous for embarking the ECB on its quantitative easing programme as he pledged to do ‘whatever it takes’ to save the Euro during the European sovereign debt crisis. As a result, markets have taken this news quite positively as it suggests a maintenance of the political status quo between Italy and the EU, a perpetual tail risk for European politics.
Vaccine news
There were two big unknowns around the vaccine rollouts, would the vaccine be effective after one dose and would the vaccine slow transmission rates. A study yesterday showed positive news on both of these points. The study showed that the Oxford/AstraZeneca vaccine had 76% efficacy after a single dose (day 22-90 after vaccination) and that the level of protection was fairly constant. This builds the narrative for a quicker reopening of national economies even as the rollout is still continuing. Secondly, test results showed a 67% reduction in positive COVID-19 PCR tests amongst those vaccinated addressing a key concern that the vaccination might not slow the speed of transmission.
What does Brooks Macdonald think
Yesterday’s report on the ongoing efficacy of the AstraZeneca vaccine provides some comfort to markets that are struggling to effectively price in the risks of the new variants. We expect this tug of war to continue however if the variants are emerging within the context of higher vaccination levels (the vaccine still being effective against the South African variant of the virus, but less so) and continued COVID restrictions, the probabilities of a more normal state by the summer rise.
Source: Bloomberg as at 03/02/2021
Please check in again with us soon for further market analysis and news.
Stay safe.
Chloe
03/02/2021