Potential Vaccine Spurs Economic Optimism – November 2020
Global share markets have rose over the last week, bolstered by positive news regarding a vaccine for COVID-19. US shares rose 2.2% and Eurozone shares rose by 2.2%, despite threats to growth ensuing from lockdowns in Europe and the US. Small business optimism has remained solid and with core CPI inflation falling to 1.6%. Australian shares rose sharply by 3.5%, spurred by a surge in energy stocks and higher oil prices that led to strong gains in industrial, financial and property shocks. Australian shares have broken past the consolidation limit set since June, potentially opening the way for more upside over the next 6- 12 months. Such growth could be upset by US election uncertainties and coronavirus lockdowns but is consistent with the vastly expansionary monetary policy, massive fiscal stimulus and Australia’s gradual economic recovery.
The past week saw assuring news with early results of the Pfizer/BioNTech vaccine indicating 90% effectiveness with Moderna showing 95% efficacy. The successful deployment of vaccines in the coming term in conjunction with massive policy stimulus raises the prospect of a supercharged rebound in both domestic and global economic conditions in 2021. Australian consumer and business confidence are continuing to rebound with the Westpac consumer confidence index at its highest level since 2013 (107.7). This has been spurred on by unwinding of restrictions across Victoria and the reopening of the Victoria-NSW border. Prospects for continued strength in sales of household goods are strong with a 6.7% increase in the ‘time to buy a major item’ sub-index rising to its highest level since August last year; a welcome sign for Australian retailers entering the Christmas season.
Further recovery in confidence around the housing market with the ‘time to buy a dwelling’ index surging 8% from 122.2 to 132.0; the highest reading since November 2013. Positive vaccine news with the boost from record low interest rate appears to be overriding the negatives from high unemployment; the overhang of deferred loan; slow population growth; and rising vacancy rates, encouraging optimism for future economic conditions.