WCU: Vaccine hopes and virus fears battle for supremacy

WCU: Vaccine hopes and virus fears battle for supremacy

Ole Hansen

Head of Commodity Strategy

Summary:  Following the U.S. election, the focus as expected, quickly returned to the Covid-19 pandemic and the promising news on the vaccine front which saw precious metals and energy react strongly in opposite directions. As the week wore on, the continued surge in coronavirus cases in Europe and not least the U.S. reduced the excitement somewhat. The Bloomberg Commodity Index traded up by 1.3% on the week with a 3.8% drop in precious metals being more than offset by gains across the agricultural sector and not least energy which jumped by 6%.


Following the U.S. election, the focus as expected, quickly returned to the Covid-19 pandemic and the promising news on the vaccine front. Precious metals and energy reacted strongly in opposite directions after Pfizer and BioNTech said their coronavirus vaccine was more than 90% effective in preventing Covid-19. Gold slumped by more than 100 dollars while crude oil jumped by close to 10%.

As the week wore on, the continued surge in coronavirus cases in Europe and not least the U.S. reduced the excitement somewhat. This in the realization that the economic pain will likely increase further in the short term before eventually improving as scientists deliver a number of vaccines that will support a move towards normality during the second half of 2021. In one of our daily podcasts we touched upon the market impact of the short-term Covid gloom versus long-term hopes that science will get the world back on its feet.

From a commodity perspective, this is interesting given the potential for another short-term policy response to the resurgence potentially leading to a policy mistake through excessive stimulus. A development that in our opinion will drive a renewed, and for metals supportive, focus on reflation sometime in early 2021.

The Bloomberg Commodity Index traded up by 1.3% with a 3.8% drop in precious metals being more than offset by gains across the agricultural sector and not least energy which jumped by 6%.

The grains sector as seen through the Bloomberg Grains Index (ETF ticker example: AIGG:arcx) reached a fresh 17-month high, thereby continuing the strong rally that started back in August. The latest jolt higher was provided by the U.S. Department of Agriculture after it in a report said that U.S. corn and soybean stockpiles at the end of the 2020-21 marketing year will fall to their smallest in seven years. 

Normally, the November World Agriculture Supply and Demand report (WASDE) tends be a non-event given the amount of established clarity with regard to production and stocks. This year, however, has been anything but normal due to adverse weather and accelerated buying from China. Soybeans reached a four-year high and corn a 15-month high before profit taking emerged with bullish news drying up.

The WisdomTree Grains ETF which is UCITS eligible tracks the Bloomberg Grains Subindex with a 37.5% exposure in soybeans, 34.8% in corn and a combined 27.6% in CBOT soft and KCBT Hard Red Winter Wheat. 

Source: Saxo Group

Crude oil surged higher on the vaccine news only to deflate somewhat following downgrades in world demand from the Energy Information Administration, OPEC and the International Energy Agency. The IEA in its monthly Oil Market Report cut forecasts for global oil demand amid new lockdown measures and rising oil production from countries such as Libya. It further raised the pressure on OPEC+ to postpone its planned January production hike. The group meet to discuss their next move on December 1.

With this meeting in mind, the IEA wrote “With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provide a difficult backdrop”. “Unless the fundamentals change, the task of rebalancing the market will make slow progress.” The group lowered its oil demand forecast for both this year and 2021 with a meaningful recovery not envisaged before H2 2021.

While we believe that the energy sector eventually will see a strong revival, patience is currently required. The energy sector has been the hardest hit as fuel demand has suffered amid lockdowns and reduced mobility. While a vaccine eventually will drive a normalization in demand, we should not forget that crude oil and commodities in general do not, like equities, have the luxury of being able to roll forward expectations as supply and demand need to balance every day. Too much supply and the price will suffer in order to force a reduction in supply while attracting demand, as an example through storage plays.

Brent crude is likely to remain range-bound close to $40/b with supporting OPEC+ headlines ahead of the meeting potentially offsetting a continued surge in coronavirus cases.

    Source: Saxo Group

    Precious metals’ post-U.S. election rally proved short-lived as the Pfizer vaccine news helped alter the short-term outlook. The dollar reversed higher and bond yields jumped while “safe-haven” technology stocks took a hit with the market instead buying the Russell 200 grouping of small-cap stocks, seen as a barometer of the U.S. economy and its potential recovery. Gold got caught up in this large rotation towards value from defensive assets as it forced a recovery in U.S. real rates, a key driver for gold.

    We believe that the vaccine will help improve to outlook for 2021 but in the short term politicians and central bankers are likely to panic as the coronavirus case count continues to rise. Something that was highlighted by three of the world’s top central bankers after warning that the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic.

    Additional stimulus when the world is on the cusp of a scientific breakthrough on the vaccine front will likely drive inflation expectations higher next year. Not only due to an over easy liquidity situation but equally important a rise in input cost from increasing food and energy prices. With this in mind, we expect a rise in longer-dated bond yields will primarily be driven by rising inflation expectations which should leave real yields anchored deep in negative territory.

    In addition to this, we still see the prospect for the dollar to weaken. Such an event will not only reduce the appetite for “safe-haven” technology stocks priced in dollars, it may also support higher EM growth and with that a pickup in demand for jewellery which suffered a 29% YoY decline in Q3 according to the World Gold Council.

    In conclusion, we maintain our bullish outlook for gold and with that the potential for an even greater performance by silver and platinum. The timing of the next move higher remains highly uncertain with the prospect for additional vaccine news driving a deeper correction than the “weak” one already witnessed. Key support remains the area between $1850/oz and $1835/oz while a break above $1970/oz is needed to attract continued momentum buying.  

    Source: Saxo Group

    Quarterly Outlook

    01 /

    • Upending the global order at blinding speed

      Quarterly Outlook

      Upending the global order at blinding speed

      John J. Hardy

      Global Head of Macro Strategy

      We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
    • Equity outlook: The high cost of global fragmentation for US portfolios

      Quarterly Outlook

      Equity outlook: The high cost of global fragmentation for US portfolios

      Charu Chanana

      Chief Investment Strategist

    • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

      Quarterly Outlook

      Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

      Jacob Falkencrone

      Global Head of Investment Strategy

    • Commodity Outlook: Commodities rally despite global uncertainty

      Quarterly Outlook

      Commodity Outlook: Commodities rally despite global uncertainty

      Ole Hansen

      Head of Commodity Strategy

    • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

      Quarterly Outlook

      Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

      John J. Hardy

      Global Head of Macro Strategy

    • Equity Outlook: The ride just got rougher

      Quarterly Outlook

      Equity Outlook: The ride just got rougher

      Charu Chanana

      Chief Investment Strategist

    • China Outlook: The choice between retaliation or de-escalation

      Quarterly Outlook

      China Outlook: The choice between retaliation or de-escalation

      Charu Chanana

      Chief Investment Strategist

    • Commodity Outlook: A bumpy road ahead calls for diversification

      Quarterly Outlook

      Commodity Outlook: A bumpy road ahead calls for diversification

      Ole Hansen

      Head of Commodity Strategy

    • FX outlook: Tariffs drive USD strength, until...?

      Quarterly Outlook

      FX outlook: Tariffs drive USD strength, until...?

      John J. Hardy

      Global Head of Macro Strategy

    • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

      Quarterly Outlook

      Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

      Althea Spinozzi

      Head of Fixed Income Strategy

    The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

    All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

    Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

    The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

    Saxo Bank (Schweiz) AG
    The Circle 38
    CH-8058
    Zürich-Flughafen
    Switzerland

    Contact Saxo

    Select region

    Switzerland
    Switzerland

    All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

    This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

    The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

    If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

    Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.