ASX to drop from seven-month high, Wall Street slips on COVID-19 vaccine delay
Australian shares are expected to drop in early trade, after hitting a seven-month high on Tuesday.
- The ASX 200 has jumped 6.5pc since October 1
- The Australian dollar has risen 3.1pc in the past three months
- Markets fell after Johnson & Johnson and Eli Lilly delayed their COVID trials
ASX futures were down 55 points (or 0.9 per cent) by 7:10am AEST.
The Australian dollar had also fallen (-0.7pc) to 71.58 US cents, on reports that China has stopped taking shipments of Australian coal.
It was also weaker because the US dollar rebounded from a three-week low.
Currency traders rushed to the safety of the greenback after a participant in Johnson & Johnson’s COVID-19 vaccine became ill, and the the company said it would take at least a few days to evaluate the situation.
J&J said it did not yet know if that person was given the vaccine or a placebo.
Investors see the quick introduction of a vaccine as key to helping economies recover.
Meanwhile, US drugmaker Eli Lilly and Co has also paused clinical trials of its COVID-19 antibody treatment, similar to one taken by US President Donald Trump recently, because of a safety concern.
Mr Trump touted the experimental Lilly drug — along with the antibody treatment from Regeneron Pharmaceuticals that he received for his coronavirus treatment — as tantamount to a “cure” in a video he posted last week.
“It shows once again that the vaccine is still far away, and it’s a good thing that so many pharmaceutical companies are working on it,” said Oliver Pursche, president of Bronson Meadows Capital Management in Connecticut.
J&J’s news comes after its rival AstraZeneca, which uses a similar technology, paused the trial of its experimental vaccine in September due to a participant’s unexplained illness.
“Markets have already priced in perfection,” said Ken Polcari, chief market strategist at SlateStone Wealth in Florida.
“It’s ‘buy the rumour, sell the news.'”
Stocks fall on vaccine setback
Meanwhile, the ASX is set to follow a weak lead from Wall Street and European markets.
The Dow Jones index fell 158 points (or 0.6 per cent) to close at 28,680.
The S&P 500 dropped (-0.6pc) to 3,512 points, while the tech-heavy Nasdaq slipped (-0.1pc) to 11,864.
Germany’s DAX and Britain’s FTSE lost 0.9 and 0.5 per cent respectively.
Some analysts say Tuesday’s pullback in stock markets was not indicative of a deeper aversion to risk.
That’s because many investors are convinced that the bitterly divided US Congress will eventually reach a fiscal stimulus deal, but most likely after the November 3 presidential election.
That was despite US House Speaker Nancy Pelosi rejecting a $US1.8 trillion coronavirus relief proposal from the White House, saying it “falls significantly short of what this pandemic and deep recession demand”.
Meanwhile, millions of Americans are struggling to make ends meet, nearly two-and-a-half months after emergency unemployment assistance expired.
As investors turned away from the risk of stock markets, they piled into safe-haven government bonds.
The US Treasury yield (for 10-year bonds) retreated to 0.7289 per cent, a low not seen since August 4.
Interest rates on bonds move in the opposite direction to their price. That means as bond prices rise, their interest rates fall.
A stronger US dollar capped gold prices, which dropped (-1.6pc) to $US1,891.96 an ounce.
Oil prices rose after China, the world’s second-largest economy, released some upbeat economic data on Tuesday.
China’s exports lifted 9.9 per cent in September and imports swung to a 13.2 per cent gain (versus a 2.1 per cent drop in August), raising hopes of a slow recovery in energy demand.
Brent crude oil futures lifted (+1.7pc) to $US42.41 per barrel.