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Sentiment Lifts On Vaccine Optimism and EU Stimulus Deal

Article By: ,  Senior Market Analyst
July 21, 2020 3:20 AM

A combination of vaccine optimism and fiscal stimulus is boosting the mood in the market on Tuesday. Encouraging results from Oxford’s vaccine candidate, in addition to EU leaders agreeing to a €750 billion Recovery Fund is overshadowing rising tension between the UK and China and soaring covid numbers in California.

As the marathon EU leaders’ talks entered the fifth straight day, an agreement was finally reached. The EU Recovery Fund will be €390 billion in grants and the remaining €360 billion in loans to help those countries most affected by the coronavirus pandemic and help the region out of its deepest recession since World War 2. Italy, Spain and Poland are set to gain the most after leaders compromised over the proportions of the fund which would be grants and or loans to please the frugal four. This is being hailed a historic moment for the EU, which is more than a little late to the stimulus party. However, given the boost to risk sentiment this is definitely a case of better late than never.

Whilst risk sentiment is lifting stocks across Europe, the Euro is working on a buy the rumour sell the fact basis. EUR/USD popped to a fresh 4 month high before dropping lower, although it remains around $1.1450.

Vaccine optimism
Vaccine optimism continues to underpin the market after Oxford /AstraZeneca reported a good immune response in Phase 3 trials for its vaccine candidate, which crucially had no adverse side effects. Given that a vaccine is the surest, quickest and possibly the only way to return to pre-coronavirus economic growth and normalcy, investors are particularly sensitive to vaccine headlines.

Brexit talks & Mike Pompeo visits
Brexit talks are due to restart today. Hopes and expectations of any agreement are low after recent talks’ disappointment. US Secretary of State Mike Pompeo is also in the UK to discuss China, 5G and free trade deal with Prime Minister Boris Johnson. His arrival comes after Britain suspended its extradition treaty with Hong Kong in retaliation to the national security law imposed by China. The move has stoked tensions between the UK and China accelerating deteriorating relations

Coronavirus stats
There is no high impacting economic data due to be released leaving sentiment to drive the markets. Coronavirus statistics are also likely to remain in focus, particularly after California reported almost 12,000 new cases, taking the total to 400,000. If it were a country it would be up there with some of the highest infected countries.

FTSE Chart


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