It was a positive start to the week as optimism rose in the hopes of a vaccine for COVID-19. Moderna, Novavax, and GlaxoSmithKline, as well as a number of other companies, are all making promising progress towards a successful, effective vaccine. This boosted stocks and the S&P500 moved above its 200DMA midweek. However, the market traded mixed due to US-China trade tensions, Brexit woes, and the reduced chances of getting the EU Commission’s new recovery Fund Proposal agreed by all 27 member states.

Key events from the past week

• EURO: European Recovery Fund, Europe, Wednesday, May 27. The euro extended gains midweek after the European Commission mobilised €750bln for the European Recovery Fund, increasing it from €500bln. However, euro gains were capped when it became clear how hard it will be to get all 27 member states to agree on it.
• US-China: Trade war tensions return, All week. On Wednesday China’s Global Times said that China could exert financial pain on the US by dumping its US dollar-denominated assets. At the time of writing President Trump is due to announce measures against China.
• Vaccine optimism: Cure hopes rise. Successful vaccine hopes boosted global stocks at the start of the week and multiple countries are now showing positive trials to treat COVID-19. Even negative news from one company’s trials will likely be ignored by the market as positive hopes are getting priced in.

Key events for the coming week

• AUD: RBA interest rate decision, June 02. Even though OIS markets have priced in a 53% probability of a further 25bps rate cut by the RBA the contract prices remain steady over a 12 month period, so a further rate cut is unlikely for Tuesday’s meeting.
• CAD: BoC interest rate decision, June 04. OIS projections for the next year suggest further cuts are more likely than hikes for the Bank of Canada. The 12month contract implies only a 20% chance of a cut, so no change is most likely.
• Coronavirus Vaccine: Good news being priced in. With 20+ companies working on vaccines or treatments for COVID-19 at what point does the good news of a vaccine become ‘priced in’ and fail to move the markets?