Prior week summary
The major U.S. equity indices moved higher on the week as optimism over the prospects of the development of an effective COVID-19 vaccine buoyed investor sentiment despite rising tensions between the world’s two top economic superpowers, the U.S. and China. Many market participants were encouraged early in the week when Moderna Therapeutics, an American biotechnology company currently developing a COVID-19 vaccine, announced promising results in its first-stage clinical trial. While some members of the press have suggested that the first-stage results are hardly indicative of the prospective vaccine’s effectiveness, Moderna Therapeutics reported that all 45 volunteers during the first-stage trial developed abundant antibodies and suggested that the prospective vaccine could be available for emergency use in the fall if new trials continue to see positive results. On Thursday, the U.S. Department of Health and Human Services announced that it would provide $1.2 billion to support the development and production of a prospective vaccine engineered by Oxford University in partnership with AstraZeneca. Despite promising indicators of the prospective vaccine’s effectiveness and the recent influx of cash from the U.S. Department of Health and Human Services, Professor Adrian Hill, director of Oxford’s Jenner Institute, warned that “At the moment, there’s a 50% chance that we get no result at all.” As of Monday evening, COVID-19 has infected over 5.6 million people globally, a 14% increase week over week, with nearly 350,000 individuals succumbing to the virus. While the U.S. remains the hardest-hit nation by case count according to official figures, an escalating outbreak in Brazil has propelled the country above Russia with Brazil now hosting the second-largest number of infections in the world at 375,000. In response to the rapid rise in infections in Brazil, the White House has imposed a travel ban on foreign nationals who have been to Brazil within the last 14 days.
Tensions between the U.S. and China continued to mount throughout last week. The Trump administration has questioned China’s response to the COVID-19 outbreak in recent weeks arguing that China had not met international standards for information dissemination in the early days of the virus outbreak. While the escalation of tensions along with the severe economic impact of the COVID-19 outbreak has threatened the phase-one trade deal signed in January, China reaffirmed its desire to meet the purchase targets outlined in the agreement during an annual meeting of the National People’s Congress last week saying, “We will work with the United States to implement the phase one China-U.S. economic and trade agreement.” China further strained tensions late last week with the introduction of a draft national security law that threatens to bypass the legislature in Hong Kong and damage the credibility of the “one country, two systems” principle. Protests erupted in Hong Kong this weekend over the proposed bill and White House National Security Advisor Robert O’Brien suggested that the U.S. government would impose sanctions on China if the U.S. State Department cannot assert that Hong Kong has a “high degree” of autonomy. Speaking on the prospect of sanctions over the national security bill, Robert O’Brien said on Sunday, “It looks like, with this national security law, they’re going to basically take over Hong Kong and if they do Secretary Pompeo will likely be unable to certify that Hong Kong maintains a high degree of autonomy and if that happens there will be sanctions that will be imposed on Hong Kong and China.”
The look forward
In a holiday-shortened week, market participants are gearing up for a busy week of economic data releases with updated figures on new home sales, durable goods orders, consumer spending, and jobless claims topping the bill.
Market implied policy path (Overnight indexed swap rates)
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