Fans of “Schoolhouse Rock!” know the title. And in the third month of 2021, we now have three COVID-19 vaccines. Johnson & Johnson CEO Alex Gorsky was on the financial TV airwaves today beaming about his company’s successful bid for emergency use authorization over the weekend. It caps what was essentially a one-year process, from ideas circulating inside the company on email to where the company is today, pivoting to a massive rollout of the vaccine — 20 million doses by the end of this month and 100 million by the end of June. J&J designed its vaccine to be a “pandemic” vaccine in that it is only one dose, requires normal refrigeration and is very stable, hence the ability to get a lot of it transported to a lot of places.
This development is not surprising to the markets, but they used it as a reason to rally by a percent or two around the world. Fixed-income yields have backed off a bit, particularly the U.S. 10-year Treasury Yields, which has been the market indicator that is defining trading activity. After hitting 1.61% late last week, U.S. yields are back below 1.5% to start a new week and a new month. For the record books, February saw the biggest monthly loss for Treasuries in four years.
The U.S. dollar is fairly mixed this morning and trading in tight ranges, but of the moves that are there, we see a pattern leaning toward commodity currencies, such as the Canadian, Australian and New Zealand dollars; the Mexican peso; and the Russian ruble. And energy prices are indeed generally up this morning, though not by much.
All of this points to the reopening trade moving at full pace, even as investors keep an eye on central bank policy evolution, as Andy discussed in FX Compass yesterday. Central to this is the inevitable question of whether inflation is around the corner as well. So far … and that is a BIG caveat … but so far, inflation seems tame. The backup in longer-dated yields has been roughly parallel with inflation-protected counterparts. All eyes, however, will continue to watch the breakeven rates (the yield difference between a conventional Treasury and its inflation-protected counterpart), with the five-year rate ending the month at 2.42% and the 10-year equivalent touching 2.26% — the highest since 2014.
By way of data, several PMI numbers were released today, with China slightly underperforming on the Lunar New Year that was muted due to COVID-19 restrictions. The U.K., eurozone and Japan PMIs showed slight improvement. | |
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