The announcement last Monday that a Pfizer-BioNTech potential vaccine has a better than expected efficacy sent the stock market higher. Suddenly, both corporations and governments have easier task planning.
Let’s start with governments. Most countries resisted a second round of lockdowns in the fall. Even the countries that were forced to impose such measures (e.g., France, Germany, Belgium, Italy, Spain), they did so differently. Total lockdowns were out of the question for a simple reason – you can’t keep people inside unlimited if there is no time horizon for when this would end.
Only now there is – the best case scenarios project some first-line workers may receive a vaccine as early as the end of this year, the latest in January-February 2021. Therefore, governments have an easier task “selling” to the population even harsher lockdowns now that there is a time limit in sight.
Corporations also received much-needed good news. A European study earlier in the year showed that over half of the European small and medium businesses are at risk of bankruptcy, should the pandemic continue in Q4 2021. In other words, that was the deadline. For a business, the financial help received from banks and governments is welcomed. However, what businesses need more are customers – without them, the business makes no sense. With the vaccine-positive news, businesses make sense again.
Good News for the European Banking Sector
We must start from the 2008-2009 Great Financial crisis and consider the impact of the housing crisis on the banking system in the developed world, especially in the U.S. and Europe. While the U.S. recapitalized its banks in the aftermath, Europe had no time – the 2012 sovereign debt crisis began. As such European banks went from one crisis to another. Even the growth up to 2019 in Europe was anemic. Moreover, the ECB has negative rates in place for several years now, affecting banks’ profitability.
As such, the banking sector remains fragile in all European countries. From Spain to Germany, France to Italy, the problems are the same.
The German banking sector, for instance, is among the weakest in Europe. One of the biggest challenges for this particular country (seen in other European countries too) is the uncertainty of corporate insolvencies. A study by Bundesbank, the German Federal Statistics Office, and Deutsche Bank Research shows that insolvencies in Germany are projected to rise in a couple of years ahead.
However, that was before the vaccine news. As an irony, one of the companies part of the medical breakthrough is German (i.e., BioNTech) and benefited from strong financial support from the German government.
Money well spent!