Vaccine approved amid surge in cases

Prior week summary

Despite positive COVID-19 vaccine developments and renewed stimulus bill hope, the major U.S. equity indices moved lower for the week as the continued rise in COVID-19 cases across the country and the recent return of virus-related restrictions in many regions dampened investor sentiment and darkened the economic outlook. As of Sunday evening, the U.S. tally of confirmed COVID-19 cases sits just above 16.2 million with over 108,000 individuals currently hospitalized with the disease. While state and local governments have implemented restrictions on activity and movement in recent weeks, cases continue to rise at an accelerated pace with the U.S. averaging over 209,000 cases per day and nearly 2,400 deaths per day over the last week. Notably, California, which recently imposed significant restrictions in many regions after ICU capacity dipped below 15% last weekend, saw a 47% week over week increase in the seven-day average daily case count. Separately, New York Governor Andrew Cuomo announced new restrictions on Friday which will see indoor dining in New York City suspended indefinitely, beginning Monday, after hospitalizations and positivity rates surpassed thresholds that triggered the restrictions. Detailing the new restrictions to reporters on Friday, Governor Cuomo highlighted the most severe tier-based restrictions saying, “If we don’t slow the spread and we overwhelm the hospital system — we get a red zone. Then, every restaurant goes to zero indoor, outdoor zero. That’s the worst-case scenario.”

As the virus surges across the country, market participants welcomed a Food and Drug Administration (FDA) panel’s recommendation that the Pfizer-BioNTech vaccine receives approval for emergency use on Thursday. As expected, the FDA authorized the new vaccine for emergency use on Friday, setting the stage for inoculations to begin next week. In a statement released announcing the Emergency Use Authorization (EUA), the FDA said, “The FDA has determined that Pfizer-BioNTech COVID-19 Vaccine has met the statutory criteria for issuance of an EUA. The totality of the available data provides clear evidence that Pfizer-BioNTech COVID-19 Vaccine may be effective in preventing COVID-19,” and noted, “In making this determination, the FDA can assure the public and medical community that it has conducted a thorough evaluation of the available safety, effectiveness and manufacturing quality information.” On Sunday, Centers for Disease Control and Prevention Director Robert Redfield formally signed off on an advisory panel’s recommendation that advocated the use of the vaccine in the community. With all the necessary approvals in hand, distribution of the vaccine began in mass on Sunday with the first inoculations expected to take place on Monday.

After several weeks with little discourse on a COVID-19 relief package, a bipartisan group of lawmakers announced the outline for a $908B relief package that includes both liability protections for businesses against COVID-19-related claims and aid for state and local governments. The proposed bill notably excludes a second round of direct payments to individuals. Support for the package from the senior leaders of each party remains lukewarm with the possibility of a deal before year-end uncertain, but the bill is expected to be formally introduced on Monday. House Majority Leader Steny Hoyer expressed optimism about the deal’s near-term prospects on Sunday saying, “House Speaker Nancy Pelosi and I spent a lot of time on the phone together. And I am very hopeful that next week, we will be able to act on substantial relief,” and noted, “We need to get the essential done. We’ll have time to get stuff done that we didn’t include because we couldn’t get political agreement, we’ll have time to do that.”

In a light week for economic data releases, market participants received updates that largely pointed to a slowing U.S. recovery. Jobless claims jumped to 853,000 filings last week, a three-month high and far above the 716,000 filings seen the week prior. The largest increases were seen in states with recent surges in COVID-19 cases like California, Texas, Illinois, and New York. Continuing claims also ticked higher, with 5.76 million individuals continuing to receive unemployment benefits compared to 5.53 million individuals the week prior. The Consumer Price Index (CPI) indicated that prices increased 0.2% in November, above analyst calls for a 0.1% increase and October’s 0.0% reading. The pace of inflation remains stubbornly low with prices up 1.2% year over year as measured by the CPI.

The look forward

Market participants are gearing up for a busy week of economic data releases with updated figures on the Empire Manufacturing Index, the Philadelphia Fed Business Outlook Survey, industrial production, retail sales, jobless claims, and housing starts, among others, set for release. The FOMC holds its final policy meeting of the year on Tuesday and Wednesday.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)