We all work in an exciting and dynamic industry where tectonic shifts are peppered with flurries of thematic activity. That’s an important thing to remember when you find yourself in periods such as these where both buy and sellside firms are searching for the next big catalyst. Don’t get me wrong, the inflation debate rages on with eyes looking to which central bank will be first to show their hand in the next upward rate cycle.
We’re already halfway through May, but given the weather it wouldn’t surprise me if I was writing February! The markets have been equally as unpredictable with some wild intraday swings to keep everyone on their toes. Flow wise this month we’ve seen a significant uptick in Hedge Funds buying the Industrial Services names, while interest in buying Autos has dried up. In the Institutional realm, the big trend has been the shift from selling banks in April to buying in May.
April was an interesting month for flows with Autos and Banks catching the eye thematic wise. Hedge Funds saw significant buying interest in Autos on the back of the VOW/VOW3 spread widening and generally positive results. This came at the expense of Tech, which suffered on the back of a mixed earnings and toppy valuations. Turning to Institutions, the flow was mainly focussed on Apparel names being bought and profit being taken in the Banks.
Quite a slow morning today with lacklustre volumes across the board (down -44% vs last 30 days). I could have probably copied and pasted the trading call from yesterday, as you can tell, not much has changed dramatically. Brexit – zero progress overnight. We are starting to see some headlines coming through but all we need is the official statement really. Only exciting news today is the rollout of the Pfizer/BioNTech Covid vaccine here in the UK. Hooray! First jab took place early this morning and is set to be next distributed to those aged 80+ and care home workers.
We need some more kindling to keep this fire going.
With markets buffeting against recent highs, the vaccine factor’s ability to stoke bullish sentiment is having a diminishing effect. Europe is having a second day of chopping trading on lower volumes, as investors wait for the next catalyst. Progress on the US stimulus bill, or a breakthrough in the (seemingly perpetual) Brexit talks, should see markets leg higher, though for how long remains a mystery. For now, as markets trundle sideways in a state of short-term purgatory, the overall sense is that investors are taking risk off the table after the aggressive moves higher in November, which is reflected well by our pad today that has a 2-to-1 sell skew.
Reports that the Pfizer vaccine could be given emergency use status, with some of the hardest hit regions in the US receiving doses as early as mid-December, saw the pendulum swing marginally from risk-off to risk on today. While we have seen a little dampening of the earlier gains as we have progressed through the session, it is still positive to see us finish the week on a good note.
After a lower open, news from Pfizer/BioNTech that final results of their Covid vaccine delivered 95% efficacy has seen most risk assets catch a bid. Both Growth and Value were trading in lock step with each other for most of the morning, however currently we are starting to see that diverge with Value outperforming Growth by around 40bps. The usual open-economy names leading Europe higher today, however news that Carnival is cancelling US embarkations for January, has seen the stock doing over 3% and is weighing on the Travel& Leisure sector.
So a bit of reversion across Europe today, after yesterday’s excitement over the Moderna vaccine news. Implementation timelines remain the main speedbump to any sustained rally, though we are starting to see a growing dichotomy amongst clients, between those buying the longer term horizon, and those trading the shorter-term volatility. Both Growth and Value are currently trading in lockstep with each other after initial outperformance by Growth. We are seeing most sectors in the red, and while there’s no real surprise seeing Travel & Leisure at the bottom of the pile given today’s reversion, Healthcare is also struggling. The VIX is creeping higher, but nothing much to report there until it gets close to the 25-30 range.
Another Monday and another vaccine breakthrough!
Granted it wasn’t met with quite the same exuberance as last week, however news that Moderna’s vaccine candidate hit its interim target and managed 94.5% efficacy saw markets jump higher around midday today. Participation has flooded back as well in a promising sign after volumes had tailed off into the end of last week. As was the case following the Pfizer news, Value is leading the charge higher, outperforming Growth by over 200bps. The Stoxx Value Index is now only 2% below its June relative peak, which is a key resistance to watch. The vaccine news has also seen a recovery in yields, which has pushed Banks higher. The SX7E now is above the June high of 71.64. Note though that BBVA is also heavily influencing the move in the sector, up 19% after announcing the sales of its US business to PNC.
It’s Friday the 13th but there isn’t anything that scary in the markets today. After the crash, bang, wallop earlier in the week, today we are seeing an almost serene drift sideways into the weekend. Given the week we’ve all had, I’ll keep it brief today.