Markets appear losing steam following yesterday’s gains motivated by Fed Chairman Powell comment that monetary stimulus is still on the table as well as headlines concerning the potential discovery of a vaccine by Moderna Inc that could create an immune-system response in the body, bringing extra remedy ammunition against Covid-19 at the side of Gilead’s Remdesivir. However, questions over the sustainability of the upside are high considering that the latter is closing phase I and does not plan to start critical Phase III before July despite emergency use status while early fast-tracking drug to market does not deliver a solution to the current tight supply side of novel medicines. This is for instance the case of Remdesivir, which benefits from accommodative conditions in the US, Japan and in Europe. In the meantime, investors’ mood appear to turn after optimistic news from top EU leaders German Chancellor Angela Merkel and French President Emmanuel Macron confirmation of a EUR 500 billion borrowing aid package is not expected to be delivered until 2021, reinforcing the view that ECB President Christine Lagarde should announce a rise in the current pandemic emergency purchase programme from EUR 750 billion to 1.13 trillion, combined with the current asset purchase program envelope of EUR 120 billion.

So far, there is little evidence that a V-shaped recovery should be favored, as market outperformance is still being driven by a small number of stocks (i.e. technology and healthcare sectors). Furthermore, the latest rally seen in energy providers, largely driven by rising oil prices due to OPEC+ compliance with production cut plans of 10 million barrels per day started this month appears subdued amid urging cost cutting measures to be implemented in the coming quarters. Instead, smaller capitalizations appear more convincing in the longer term in spite of the longer-term catch up potential of small cap indices (e.g. S&P Small Cap 600).

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