Vaccinehopeandmanufacturingrebound

Firstly a look at the important news items from yesterday.

 

A covid vaccine being developed by a German biotech firm and a US pharma giant has shown potential in early stage human trials. The development ties well with Dr Anthony Fauci’s statement earlier this week that he remains hopeful of seeing a vaccine in place by early 2021. It needs to be noted that there are multiple teams working on vaccine formulation which are running in parallel but none has yet been accorded approval for commercial use.

Contrasting news was the surge in new cases in the US. The number of new cases soared past 50,000 for the first time in the country as the world number spiked to 160,000 new cases per day.

Another news item was the better than expected ISM Manufacturing Index data for the US, which came in at 52.6 against the estimates of 49.6 for the month of June.  The ISM manufacturing index data is based on a survey of purchasing managers at 300 manufacturing firms. As the purchasing managers are at the forefront of their companies’ production cycles and supply chains, they have to either ramp up or scale back the purchases of material in response to their demand estimates. The data point which gets released on the first working day of the month is one of the most direct ground level assessments of prevailing economic conditions.

The EU and Chinese PMI numbers also came better than expected.

The stock markets showed a sober response to the news mix. Amid the hope of a vaccine and an increase in manufacturing, and the contrasting alarming rise in new cases, the Dow Jones closed 70 points lower at 25734. Asian markets like the Nikkei are also trading close to the previous day’s levels in the opening today. Indian stock markets, though, are upbeat with a close to 1% tick up as of now.

The Dollar Index which is one of the clearest measures of risk on sentiment retreated a little as was the case with the Japanese Yen. Domestically, Indian bonds had a field day yesterday as the 10 year benchmark yield which opened at 5.88 went to 5.82 before settling at 5.84 for the close. The lower than expected quantum notified in the SDL calendar and close to normal run rate GST collections for June played a part in the rally. The expectation that further OMO announcements will be made either in the form of twist or outright has also helped the yields.

Today the important data to watch out for would be the US NFP which will come a day early as Friday is a holiday in the US. The number which showed an unexpected rise last month will be important in order to decipher the strength of the economic rebound.