World markets at record peak on new COVID-19 vaccine optimism

World stock markets took a hope on Tuesday after a second major coronavirus vaccine boost in the space of a week had propelled them higher again and put Europe on course for its best month nearly three decades.

The pan-European STOXX 600 dipped 0.4% on the day with Wall Street set to follow, but there was little sign of an end to the November bull run that has also seen confidence-sensitive commodities and emerging markets surge.

MSCI’s main 49-country world stocks index was perched at a record high having risen 11% and every day but one this month, while China’s yuan hit a near 2-1/2 year peak in the currency markets as the US dollar continued to sag.

Investors are in “full bull” mode, BofA’s monthly investor survey showed on Tuesday.

With global economic growth and profit expectations running at a 20-year high among those the bank surveyed, the “reopening rotation” back into coronavirus-hit sectors is likely to continue for the rest of the year, BofA added, although they did also recommend cashing in in the coming weeks or months.

The latest boost had come from Moderna, which said on Monday its experimental COVID-19 vaccine was 94.5% effective in preventing infection based on interim late-stage data.

The US-based firm became the second drugmaker, after Pfizer, to announce promising data. The news had sent its shares up nearly 10%, though it was electric car maker Tesla in the fast lane on Tuesday, racing up 11% in premarket moves after it won a spot in the S&P 500.

Up about 450% in 2020, the California firm has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota, Volkswagen and General Motors.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.2% overnight, a day after hitting its highest level since launching in 1987.

Japan’s Nikkei 225 rose 0.4% after hitting a 29-year high the day before, but Chinese blue chips dipped as recent bond defaults hit sentiment.

“The market is assuming that we can see the end of the tunnel, that in 2022 a large part of the world’s population will start to receive access to vaccines,” said Herald van der Linde, HSBC’s head of equity strategy for Asia Pacific.

There were initial indications that this was sparking a change in investors’ attitudes, he added.

The positive vaccine news helped oil prices add to their 16% November gains.

US crude inched up to $41.57 per barrel after rising 3.02% on Monday, and Brent gained 0.7% after a 2.43% jump the day before.

In currency markets, China’s central bank on Tuesday lifted its official yuan midpoint to the highest in nearly 29 months, underpinned by solid gains in spot prices a day earlier on the back of strong economic data.

“The authorities are making a lot of effort to prevent the yuan from rising too fast,” said a trader at a Chinese bank.

The vaccine news also helped the risk-friendly Australian dollar, which climbed to a one-week high against its U.S. counterpart. Rising virus case numbers in the United States clouded views on the dollar, adding to the 10.5% drop it has seen against a basket of major currencies since March.

Euro zone bond markets showed little reaction to Hungary and Poland’s veto of the EU’s budget and recovery fund in early Tuesday trade.

Italy was expected to sell a U.S. dollar bond while China was preparing for a potentially record euro-denominated bond sale which was due to be finalised on Wednesday.

Euro zone bonds, which sold off moderately and then recouped losses later on Monday, were steady in early Tuesday trade, with Germany’s 10-year benchmark yield at -0.55% and Italy’s 10-year yield at 0.61%.

The closely watched gap between Italian and German 10-year yields - effectively the risk premium on debt from Italy, one of the main beneficiaries of the recovery fund - was near its lowest since early 2018 at around 115 basis points.

The lack of market reactions “tend to reflect the market’s view that the EU will find a way to hammer out a compromise that keeps all parties roughly happy,” Andy Cossor, a strategist at DZ Bank, said of the Polish and Hungarian vetoes.

Hong Kong stocks ended marginally higher on Tuesday, with gains by shares of energy firms on positive developments around a second possible coronavirus vaccine offseting losses by tech players due to fears of an escalation in Sino-U.S. tensions.

At the close of trade, the Hang Seng index was up 33.42 points or 0.13% at 26,415.09. The Hang Seng China Enterprises index fell 0.27% to 10,550.2.

 The top gainer on the Hang Seng was CK Hutchison Holdings Ltd, which gained 5.17%, while the biggest loser was Xiaomi Corp, which fell 4.37%.

 Energy shares led the gains, with the Hang Seng energy index closing up 2%.

There were concerns that U.S. President Donald Trump could take further unfriendly measures against China, which could weigh on the market for the short term, KGI Securities said in a report.