The markets continue to respond well to the vaccine news, giving stocks, crude and other risk assets, except growth stocks, a shot in the arm.
This week’s big turning point was on Monday when risk assets surged higher on the back of news of the Pfizer-BioNTech vaccine. For the first time since the pandemic, there was hope and light at the end of the tunnel that coronavirus restrictions that have been imposed across the world could soon be over. On Tuesday, the markets consolidated those gains, and there has been some further follow-through at the start of today’s session. There is not much happening on the macro front today, with the US observing Veterans Day. So, vaccine optimism will likely remain the theme, unless something changes dramatically.
The Pfizer-BioNTech shot will take time to be produced on a large scale, and still needs to be approved, but with more vaccines in phase 3 trials, expect to hear further good news in the weeks to come. Indeed, Russia has said that tests prove its own vaccine is more than 90% effective. In the meantime, coronavirus cases, deaths, and hospitalizations continue to rise. The US reported a record number of Covid patients in hospital as the virus surge shows no signs of slowing there. Germany reported its highest daily deaths since mid-April.
Still, this has not derailed the risk rally yet. It looks like investors are pricing in a brighter economic outlook as speculation grows that lockdowns and restrictions will be lifted in the coming months.
As well as value stocks – those that had been badly hurt by the pandemic, especially in the hospitality and travel sectors – investors have also been buying crude oil. The thinking is that as lockdowns and restrictions ease, more and more people will travel, and this will boost demand for crude oil and crude products.
As investors now start to look forward to more normal times ahead, oil prices could recover increasingly sharpy should the OPEC+ group decide to keep their supply restrictions in place for a while longer than needed. The big risk is obviously if the vaccine and other COVID treatments take longer than expected to be produced, or if the lockdowns are extended. That would further hurt demand.
But for now, hopes of a recovery in demand has potentially paved the way towards $50 Brent:
Source: ThinkMarkets and TradingView.com
As per the chart, the path of least resistance is clearly to the upside as prices have broken several resistance levels. So, expect dips back to support to be defended. Among other things, Brent crude oil has broken above its bearish trend line that had been in place since the of the summer, as well as resistance in the $43.40-$44.00 range. This area is now going to be the first support zone for the bulls to defend. If they lose this area, then Brent could drop to test the upper side of the broken trend line around $41.50 next. But in the likely event if prices continue higher, the liquidity resting above $46.50 area is the next upside target for the bulls. Beyond that level, the psychologically-important $50.00 ties in with the 61.8% Fibonacci retracement, making it a key long-term target.