It seems that the news of breakthrough in vaccine making is an unquestionably positive development for the stock markets, but there is a fly in the ointment. In less than a month since the news from Pfizer came out, the chances of a rate cut by major central banks have dwindled while tightening of credit conditions started to lurk on the horizon.

There are two main channels through which expectations of central bank rate affect stock market - suppression of bond rates and subsequent “liquidity spillover” into stocks and availability of cheap loans for companies which reduces/increases risk in current debt, impacting on R/R in shares.

About a month ago, the markets expected that large central banks would cut rates at least once, fearing recessions due to a second wave of restrictions. Following Biden's victory and news from Pfizer that reduced uncertainty on several fronts, Fed rate futures began to [rice in a 10bp rate hike by September 2022 and by 25 bp by September 2023.

Interest rate expectations of other central banks have also been tempered. A month ago, the ECB was expected to cut the rate by 15 basis points by September 2021, now expected size of cuts decreased to 5 bp. Markets have sharply revised the odds of NIRP from the BoE and are expecting a cut of only 5 bp. by August 2021 (was 15 bp).

The meeting of OPEC joint monitoring committee was held yesterday, however, contrary to expectations, experts did not give a clear signal that they would recommend oil ministers to extend output curbs at the meeting on November 30. However, oil is on the rise today thanks to extra news on vaccine efficacy & safety (especially for older persons), which increases the chances of quick approval and production start.

Further growth in prices is constrained by downside API data, which indicated an increase in US inventories (+4.17 million barrels). Today's EIA report is expected to confirm the upward trend in US inventories which is a big barrier for oil rise.

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