The Impact of a Potential Covid-19 Vaccine & EU Stimulus Package


The potential vaccine against Covid-19 could be approved by the European regulators this year. But what impact will that have on the financial markets?

July 27 2020 | AtoZ Markets – When the global race began to find a potential vaccine for the coronavirus, it was suggested that identifying a viable solution would take years. In fact, the mumps vaccine remains the fastest ever approved to date, and this took four years from the collection of viral samples to issuing a licensed drug in 1967.

However, the initial progress has exceeded all expectations, with the efforts of the University of Oxford creating a safe solution that triggers some form of an immune response in humans. Clinical trials involved 1,077 people, and the quest has now begun to launch larger-scale tests and move towards the production of a commercial drug.

This has had a huge and largely positive impact on the financial markets, as have a number of additional socio-economic developments in recent times. We’ll explore these below while asking how these events have impacted on different aspects of the marketplace.

Heralding the EU Stimulus Deal – A Double-whammy for Europe

European equities and stocks certainly rallied in response to the vaccine development, while its gains were exacerbated following the announcement of a €750 ($860 billion) stimulus package for dealing with the socio-economic consequences of coronavirus within all member states.

This deal, which was split into €390 billion of grants and €360 billion in low-interest loans for stricken businesses, followed days of intense negotiations, during which time the markets became increasingly volatile and sentiment began to falter.

What’s more, 70% of these funds will be released in 2021, enabling member states and European businesses to successfully rebuild as the rate of Covid-19 infections continues to decline.

The settlement of this drawn-out negotiation, along with the news of a successful coronavirus vaccine trial, sent the single currency soaring to a six-month high above 1.15. Of course, these gains were boosted by the relative decline of the US Dollar, as the greenback continued to decrepitate as the number of coronavirus cases in North America peaked.

This is definitely a development to watch out for, with the plight of the USD also being compounded by another round of quantitative easing measures by the Fed.

What About Commodities?

 Not only has the confirmation of a stimulus package and the recent vaccine developments improved the outlook for European stocks and the single currency, but it has also triggered a spike in crude oil prices.

According to Edward Moya from Oanda, oil is certainly breaking out of its relatively tight trading range, as it inches towards the $45 per barrel mark.

Sure, this may not seem like a particularly high trading threshold, but it’s indicative of slow and sustained recovery after the price of Brent crude plunged below $30 per barrel and entered into negative territory as recently in April.

Of course, the decline of oil prices is intrinsically linked to the Covid-19 outbreak and the subsequent fall in global demand, and in this respect, positive developments regarding a potential vaccine have created the more positive sentiment in this marketplace.

More specifically, there’s genuine hope that crude demand will come closer to reaching pre-pandemic levels in 2021, while such prospects will definitely be boosted as the EU stimulus package begins to deliver tangible benefits.

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