FDA Approval As Catalyst

Macro Perspectives: Tue 24 Aug 2021

Stocks trade to new record highs, the dollar is lower and commodities are up.

While the Fed has another highly anticipated speech for markets to parse this week, the driver for global markets (higher) was an FDA approval of the Pfizer vaccine.

Just as CDC guidelines have become the standard for corporate and government decision-making, under the assumption that any legal judgement will defer to the guidelines of the governmental agency. This FDA approval will trigger, and very likely set a standard for U.S. mandates - and global mandates will follow the lead of the U.S.

This comes as downward revisions have been coming in for Q3 GDP, in the wake of a resurgence in COVID cases over the past two months, and related softening economic data. The FDA vaccine approval should reverse that tide, especially combined with the $4.5 trillion of new government spending that the House is "evaluating" this week.

I'm reminded of the well placed November 9th (2020) announcement from Pfizer, of vaccine efficacy. It sparked hope of the end of the pandemic, and that came alongside an election that was telegraphing massive fiscal spending.

From that date, stocks soared, rallying 28%, and at a near perfect 45-degree angle. Crude oil never looked back, following a similar path to that of stocks (up and to the right on the chart) - from $37 to as high as $77, whilst yields never looked back, trading from 0.80% to as high as 1.78%.

This FDA approval could provide a similar catalyst for hope on the pandemic outlook, and for markets.

Given the recent pull back in crude oil and bond yields, these two markets look like a big bounce is in store, following the FDA catalyst.

Crude oil put in a technical reversal signal (a bullish outside day), the rest of the energy sector looks like this…

And 10-year yields trade more than 1/2 percentage point lower than the highs of just March, despite a Fed talking about exiting emergency policies ...