Vaccine focus drives Asian stocks to record highs

Passersby wearing protective face masks walk past a screen displaying Nikkei share average and world stock indexes outside a brokerage, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan

Asian equities hit a record high on Monday as investors set aside fears about rising coronavirus cases and bought stocks, cheered by data showing a robust recovery in China and Japan.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 1.1% to hit its highest since its launch in 1987, with markets across the region making milestone peaks.

Japan’s Nikkei .N225 rose 2% to a 29-year high. South Korea’s Kospi .KS11 hit its highest since early 2018 and Australia’s ASX 200 .AXJO hit an eight-month top, before jamming there when a glitch halted trade.

S&P 500 futures ESc1 rose 0.9%, Nasdaq 100 futures NQc1 leapt 1% and European futures were up strongly with EuroSTOXX 50 futures STXEc1 up 0.9% and FTSE futures FFIC1 up 0.6% late in the Asia session.

“There’s just mountains of cash sitting on the sidelines, waiting to be put to work,” said Kyle Rodda, analyst at IG Markets in Melbourne.

“And since we’ve got this vaccine news, as well as diminished risk around the U.S. elections, all of this is flying into equities … everyone’s thinking now that it’s the cue to get in.”

Currency, bond and commodity markets were a little more circumspect, but the dollar slipped against trade-exposed currencies and oil bounced off Friday’s lows.

Japanese economic growth, which beat records and forecasts to pull the world’s third-largest economy out of recession and better-than-expected industrial output in China added to the enthusiastic mood.

“Rising COVID-19 cases are a risk, but keep the faith,” Morgan Stanley strategists said in their 2021 outlook note.

“We think this global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook. Overweight equities and credit against cash and government bonds, and sell dollars.”

The announcement, a week ago, that Pfizer PFE.N had developed a very effective vaccine has investors hoping for similar good news soon from rival Moderna MRNA.O and looking past a tough winter to a better spring and summer ahead.

Beaten-up benchmarks in Thailand .SETI and Singapore .STI have gained more than 5% since the news, with a regional trade deal sealed over the weekend further supporting the mood.

“A Northern hemisphere slowdown will inevitably appear … probably prompting more easing by the Federal Reserve and the European Central Bank,” said OANDA analyst Jeffrey Halley.

“But Asia, comfortably orbiting China’s event horizon, seems to be moving closer to escape velocity of its own accord.”

Besides the virus, Brexit trade talks are chief among European investors’ concerns on Monday and hopes for a breakthrough have supported sterling against the dollar and the euro.

The departure of hardline adviser Dominic Cummings from Downing Street is seen as a positive, perhaps allowing more British concessions, but chief negotiator David Frost said on Twitter that talks “may not succeed”.

Elsewhere the Aussie and kiwi made small gains, much of which they handed back late in the Asian day.

The next move for the Australian dollar may depend on a clutch of data and speeches this week, beginning with central bank governor Philip Lowe at 0840 GMT.

A slew of U.S. Federal Reserve speakers are also up this week, beginning with Vice Chair Richard Clarida at 1900 GMT.

Bonds, which had sold off strongly on vaccine news last week, were steady with where they left off on Friday, with the yield on benchmark U.S. 10-year debt US10YT=RR at 0.8930%, down from last week’s high above 0.97%.

Oil prices inched higher, with Brent crude futures LCOc1 up 1% at $43.26 a barrel but below last week’s two-month high of $45.30. U.S. crude CLc1 rose 1% to $40.55 a barrel.

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