Global Macro: FDA report suggests Pfizer vaccine approval on Thursday or shortly after – The U.S. Food and Drug Administration (FDA) has made available the briefing document on the Pfizer/BioNTech COVID-19 vaccine ahead of Thursday’s public hearing and external review. In the report, the FDA basically concludes that the efficacy, safety and immunogenicity data in Pfizer’s/BioNTech’s emergency use authorisation (EUA) application supports a positive assessment of risk and benefit for the COVID-19 vaccine. The Pfizer/BioNTech COVID-19 vaccine clinical trial will continue as long as possible to monitor participants and obtain additional data to support a Biologics License Application (BLA) filing in the “near future”, or in other words a full licensing of a vaccine. Pfizer/BioNTech plans to also have an extensive post-authorisation plan to monitor long-term safety on vaccine recipients under an EUA.
There is still not verdict on the durability of the vaccine-induced immune response beyond two months or whether vaccination prevents transmission of SARS-CoV-2. Especially the latter is a critical unknown about all vaccine candidates because while they may be highly effective at preventing COVID-19, it remains uncertain whether they are able to stem the spread of the coronavirus. That is of course important because it is a key factor in determining how quick the world is able to return to ‘normal’.
Today’s communication implies that the FDA already feels that the Pfizer/BioNTech vaccine is worthy of an EUA. The external review will take place as aforementioned this Thursday where we expect the vaccine to be authorized. The Vaccines and Related Biological Products Advisory Committee—a committee made up of external experts—will provide feedback on the Pfizer/BioNTech data. We expect the committee to be in favour of granting an EUA given the overwhelming evidence regarding the safety and efficacy of the Pfizer/BioNTech product. The risk here is that the committee recommends waiting for additional data to monitor longer-term safety and immunogenicity to get a better idea of the duration of the immune response. However, our base case scenario remains that a vaccine is approved under an EUA this week either on Thursday or in the days that follow. This should provide a boost to risk assets, albeit the move is mostly priced in at this stage. Cyclical assets and battered names could benefit as institutional money continues rebalancing amid the confirmation that a recovery is on the horizon. (Daniel Ender)
ECB preview: ECB to downgrade its forecasts for growth and inflation – We set out our expectations for the ECB’s stimulus package in yesterday’s daily. In today’s note we look ahead to the new ECB staff macroeconomic projections for the euro area, which will also be published on Thursday. Its previous forecasts are from 10 September, so before the second wave of covid-19 infections in the eurozone. This renewed flaring up of the virus has resulted in new lockdown measures in most countries as from mid-October onwards, although these new lockdown measures were only partial or regional in many instances, and in general less stringent than the lockdowns that were implemented in March-April. Therefore, they had a less dramatic impact on economic activity than during Q1-Q2 of this year. Also, the ECB’s September forecasts were published before Eurostat released the first estimate for eurozone Q3 GDP growth, which was higher than expected (the ECB had projected a rise by 8.4% qoq, whereas the outcome was 12.5%).
A final element to consider is the changes in financial conditions between September and December. The ECB uses technical assumptions for the financial variables that have an impact on its forecasts for growth and inflation. These are interest rates, oil and other commodity prices and the euro exchange rate. Compared to the ECB’s assumptions in September, the most striking differences are in 10y government bond yields and the euro exchange rate, which also are the variables that are the most affected by the ECB’s own policy changes (including its forward guidance). With regard to bond yields, the ECB observes the weighted average of the 10y government bond yield of all the individual member states. This weighted average yield has fallen by around 25bp since the ECB’s September forecast and currently is more than 30bp below the ECB’s assumption for the average level in 2021. This drop is a combination of lower Bund yields and narrowing peripheral spreads. Turning to the exchange rate, the euro nominal effective exchange rate (bilateral exchange rates, weighted by the shares in eurozone foreign trade) currently is almost 5% higher than a year ago, which is twice as high as the average rise that the ECB has projected for 2021 (for instance, the ECB’s technical assumption for the EUR/USD in 2021 is that it is stable at 1.18, versus the current level of 1.21).
Taking all the above factors together, we think that the ECB’s forecast for annual growth in 2020 will be revised higher (from its current forecast of -8%, probably to around -7¼%), whereas its forecast for 2021 will be revised lower, probably from 5% to around 3.5%-4%, which would be higher than our own estimate of around 3%. The outlook for inflation is expected to be reduced as well. In its September forecast the ECB projects that inflation excluding food and energy will rise by 0.8% in 2020 and by 0.9% in 2021. Given that this inflation rate stood at 0.2% in November and has been 0.7% on average so far this year, the average for 2020 will have to be lowered to 0.7%. Given that a lot of slack and spare capacity has built up in the economy since the start of the pandemic we think that disinflation will re-assert itself as the dominant trend over the 2-3 year horizon. However, as the ECB has a long track-record of over-estimating future inflation, we think that it will reduce its forecast for inflation excluding food and energy in 2021 to around 0.8%, from 0.9% now. Our own forecast would be around 0.5%. (Aline Schuiling & Nick Kounis)