Risk sentiment on thinning ice?

Asian stocks are mixed while US and European equity futures are slightly lower, as risk appetite attempts to overcome concerns over the efficacy of AstraZeneca’s Covid-19 vaccine. Investor confidence had been shaken after learning about the manufacturing error in the drugmaker’s vaccine trials, prompting Thursday declines in European equities, Oil prices, and even Bitcoin.

Since the US elections, traders had been pricing in a picture-perfect, post-vaccine world. The positive developments surrounding the three leading vaccine candidates formed a metaphorical three-legged stool, on which risk appetite rested upon. Now that one of those legs is showing signs of coming loose, given the unsettling AstraZeneca revelations, that has triggered a wobble in risk assets.

The market reaction of late underscores how sensitive investors sentiment is to developments surrounding the Covid-19 vaccine. Positive developments this month have translated into eye-popping gains in beaten-down sectors such as energy, financials, and even mall-based retailers, while the Dow Jones index posted a new record high. From such giddy heights, any dent to that rosey post-pandemic outlook has the potential to trigger risk-aversion, as was clearly the case in the latter part of the week.

Still, investors are hoping that the promise of a Covid-19 vaccine will come good, with the US Food and Drug Administration set to convene on December 10th to discuss the emergency use application for Pfizer and BioNTech’s vaccine. As long as those approvals happen without a hitch, that should ensure a supportive environment for risk assets to climb higher going into 2021, with the global rollout of the vaccine set to bring the world closer to pre-pandemic life.

Gold bulls waiting to catch a break

In the meantime, Gold prices have continued to struggled under the weight of the risk-on sentiment evident for much of November, with the top Bullion ETF set to record its highest monthly outflow since 2017. The climb in US Treasury yields since August, coupled with the Dollar index’s refusal to capitulate below the 92 psychological level, have also contributed to the 12 percent decline from Gold’s record high.

Traders will be closely monitoring how reliably spot Gold’s 200-day simple moving average can perform its role as a crucial support level. It remains to be seen whether Gold bulls can gather enough mass to keep prices supported, as they continue pinning their hopes on an overshoot in US inflationary pressures, aided by fresh rounds of fiscal and monetary stimulus. The relenting of such expectations en masse could then translate into a sustained presence below $1800, as investors rotate out of the precious metal into other asset classes that are currently in vogue, such as equities.

Oil awaits crucial OPEC+ supply decision

Oil prices are paring Thursday’s losses, as investors hold on to expectations that next week’s OPEC+ meeting will result in pushing back plans to ease their supply cuts by three months, despite signs of tensions within the group of major Oil producers. Both Brent and WTI futures are still on course for a fourth consecutive weekly gain, ahead of the crucial OPEC+ decision due next week.

Should OPEC+ press ahead with bringing 1.9 million barrels a day back into global markets in January as intended, that would deal a nasty shock to Brent Oil and bring the benchmark back down closer to the $40/bbl mark. A shorter delay of less than three months could also prompt Oil to unwind some of its November gains. Still, Oil prices should enjoy enough support from the optimism surrounding the Covid-19 vaccine, provided that too isn’t derailed.