Another Groundhog Monday, JPMorgan Chase predicts collapse

24 nov 2020

For the last three weeks on Mondays, we've seen variations of the same thing. Two weeks ago on Monday, Pfizer announced 90% + effectiveness of its vaccine. Moderna said last week on Monday that their vaccine is 94.5% effective. And yesterday the British AstraZeneca made its contribution to the Monday vaccine race news. Their vaccine, however, turned out to be weaker - just over 70%. But on the other hand, you can add to the dose and increase the effect. Plus, the vaccine from the British is much cheaper and as simple as possible in terms of storage and transportation (it can be stored in usual refrigerator). If the Pfizer vaccine costs forty dollars (for two doses needed for the effect), then an injection from AstraZeneca will cost 4-5 dollars.

As usual, the markets reacted extremely positively to this information: safe-haven assets were losing value (dollar, gold, yen fell in price, and the yield on US Treasury bonds grew).

If you believe the analogies, then today the attention of the markets will switch to numbers for sick and lockdowns, and we will see reverse price processes. For example, Canada's largest city, Toronto, with a population of 3 million, is in lockdown for 28 days.

Moreover, the latest data on business activity in the Eurozone (for November) drop below 50, that is, business activity in the service sector is declining (for the first time in the last 5 months). Against this backdrop, France and the UK announced a gradual easing of restrictions because of significant progress in the fight against the pandemic.

JPMorgan Chase predicts a local collapse of the global stock market. They base their predictions on simple calculations: traditional investment funds tend to maintain a 60 to 40 distribution between stocks and bonds in their portfolios. But due to the sharp rise in stock prices, the proportion has been distorted recently and stocks dominate. If, by the end of the year, investment funds decide to return to the basic ratio of 60 to 40, they will have to sell off shares for about 300 billion. It is unlikely that the market will be able to “eat” such a volume without consequences.

There was a local turmoil on the oil market yesterday related to the information of a military strike by Yemeni Houthi rebels on an oil storage and distribution center in Saudi Arabia. And although the information has not yet been officially confirmed, all this is very similar to the events of a year ago, albeit on a much smaller scale.