Asset Markets Rally On Gilead Drug Hopes

Fundamental analysis of Forex market

The stage wasn’t set for a friendly Friday today in Asian markets. Overnight, another 5.25 million Americans lost their jobs overnight, and New York extended its lockdown until mid-May. Today, China’s GDP shrank 6.8% this morning, and its Retail Sales stubbornly refused to bounce in March, falling a massive 15.8%. There was a plethora of other COVID-19 economic doom headlines from around the globe overnight, including the IMF again, but I shan’t bore you with the details.

With markets set for a negative Friday under the weight of negative data and expectations, it was instead a surprise when US equity futures leapt by over 3.0%, followed shortly after by strong moves higher in Asian stock markets. The culprit was Gilead Sciences, a biotech company in the United States, and their legacy anti-viral drug, Remdesivir. Media reports on a small-scale study at the University of Chicago, suggested that Remdesivir had comprehensively reduced symptoms in most COVID-19 patients. It is only one study of a broader group that Gilead is conducting across the globe to create a statistically significant sample. With the end of April targeted for the collation of data, if proven effective, Remdesivir would be a game-changer in the COVID-19 pandemic fight. Especially being a tried and tested a legacy drug that has been around for many years.

Markets have understandably jumped on the first piece of good news in what seems like forever, regarding the COVID-19 pandemic. Gilead’s stock is 16.50% higher in after-market trading, S&P 500 futures are up 3.0%, Asian stock markets have rallied, as have regional Asian currencies. There will no doubt be cautionary announcements by various scientific bodies about the validity of a partial set of results from a tiny trial. Markets though will likely do their very best to ignore those, preferring to concentrate on the US Presidential lockdown exit protocols, and of course, a potential treatment for COVID-19 symptoms. That should ensure we trade from the positive side ahead of the weekend.

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Equities jump on Gilead Remdesivir hopes.

Asian stock markets have retained most of their gains from the Gilead Sciences headlines, despite China Retail Sales suggesting that a recovery in consumer spending remains elusive. A potential treatment for COVID-19 that is a proven compound and available immediately is clearly the bigger story and rightly so. The initial rallies have faded as the University of Chicago said its trial was statistically insignificant and the leaked report only partial.

Most of those gains have been maintained though. The Nikkei 225 is up 1.95%, with the Shanghai Composite up 1.30% and the Kospi by an impressive 3.20%. Jakarta has rallied 2.20% and the Straits Times by 1.70% with Australia’s All Ordinaries higher by 2.60%.

We expect the Gilead Sciences story, scientific validity or not, to maintain equity markets positive tones through Europe and into the US session, with equities set to finish the week on a positive note.

Currency markets are more circumspect than equities.

Although Asian regional currencies enjoyed a short-lived rally following the Gilead Sciences headlines, that has quickly run out of steam; the US Dollar is mostly slightly higher as we approach mid-session. The Dollar was stronger overnight following the poor US Initial Jobless Claims, with haven flows very evident in US markets into US Treasuries.

Asian currency markets appear to be applying more weight to the China data than the Gilead Sciences, with quarterly GDP shrinking by a worse than expected 6.80%. More worryingly, Retail Sales fell by 15.80% in March despite much of China reopening for business. Asian currencies, along with AUD and NZD, have all given ground to the US Dollar this morning.

With all the tier-1 data out of the way for the week, we would expect the hope of a COVID-19 treatment of some kind, to play much more strongly with Europe and the United States. As such, we would expect Dollar strength to be temporary, and an unwinding of the haven flows out of the Dollar and a move back into other developed and emerging currencies.

Oil rises gently, but demand concerns persist.

With oil traders desperate for good news anywhere they can find it, President Trumps reopening protocols announcement saw modest gains in US trading. Both Brent and WTI have moved higher this morning following the Gilead COVID-19 treatment headlines.

Brent crude futures have risen 2.0% to $28.30 a barrel, and WTI has climbed 2.50% to $20.75 a barrel. Both contracts are likely to remain supported into US hours from the Gilead boost, assuming the company itself does not issue a strong denial over the results.

In the bigger picture though, plunging global demand and an inadequate OPEC+ production cut mean that gains on either contract are limited at best. At the end of the day, the best we can expect is that the Gilead headlines put a floor on both contracts at present levels temporarily. Oil should finish the week not far from its current levels.

Gold eases on CIVID-19 treatment hopes.

Gold tested above $1740.00 an ounce overnight and again failed for the 2nd time this week. That was despite haven flows into the US Dollar and falling US Treasury yields. In the end, gold managed to finish only modestly higher at $1719.00 an ounce. With the end of US lockdown hopes to the fore overnight, gold appears to have traced out technical resistance at $1750.00 an ounce, along with very strong technical resistance at $1800.00 an ounce.

The Gilead Science’s headline has not been kind to gold in Asia either, it has fallen 0.80% to $1705.50 an ounce in the morning session, just below technical support at $1707.00 an ounce. With the market sentiment erring towards hope versus reality, after mostly ignoring the China data, gold is likely to remain under pressure into Europe.