Fear and Greed Paralyze Markets as Traders Seek Next Trigger

(Bloomberg) -- Global markets are in limbo, with traders juggling their optimism for a vaccine and concern over a virus that’s still spreading.

The push and pull between fear over the impact of fresh lockdowns and greed for cheap valuations has cornered some assets into a range and subdued volatility. The ICE BofA MOVE index, a gauge of price swings in the $20 trillion Treasury market, is languishing near record lows after spiking to the highest since April. German 10-year bonds, widely considered among the safest assets in Europe, have whipsawed between gains and losses all week.

“Financial markets continue to range nervously, sandwiched between Covid-19 vaccine-driven hopes for the future, and the reality of the here and now,” said Jeffrey Halley, a senior market analyst with Oanda Asia Pacific Pte. The market just needs “one more kicker to restart the buy everything rally, which is being driven by the search for yield in a zero-percent world,” he said.

The following are charts on the tug-of-war’s impact on markets:

Stocks Torn

Sentiment on the S&P 500 turned bullish earlier this month, according to Bloomberg’s fear-greed indicator, which measures selling strength relative to buying strength. Yet while the index has risen 0.5% since Nov. 9, when vaccine trial results from Pfizer Inc. and BioNTech SE boosted investor optimism, it has pulled back from a record high.

Swerving Curve

The U.S. yield curve steepened last week amid hope that a solution to contain the pandemic may come sooner than expected. That move has since retraced, driven by a renewed spread of the virus in the U.S. and elsewhere.

Stronger Yen

Weakness in the Japanese yen following vaccine announcements has been short-lived, and the haven currency is ever closer to its strongest levels in March. After Pfizer and BioNTech’s study was published on Nov. 9, the dollar-yen cross initially sold off to 103.19, a virtual double bottom from the previous trading session.

It then rallied all the way to 105.68. On Nov. 16, when Moderna announced its trial results, the pair topped out at 105.13 and has since been in retreat.

Stuck on Volatility

The euro’s volatility curve has flattened since Nov. 2, but not necessarily because traders don’t expect price swings. Rather, it suggests they’re unsure of whether to focus on short-term or long-term volatility, as the battle between progress on a Covid-19 vaccine and tougher restrictions drags on.

Europe Lockdown Winners

Stocks of European food delivery firms, payments companies and other beneficiaries of remote working slumped last week after Pfizer and BioNTech’s vaccine announcement.

Yet following more positive study results from Moderna, Pfizer and AstraZeneca this week, reactions in shares of the so-called lockdown winners have been less pronounced. That may be due to the fact that economies across Europe are still enforcing restrictions to prevent the spread of the virus.

©2020 Bloomberg L.P.