Covid 19 coronavirus: Despite vaccine news, war is far from over

It's likely we'll still need our masks for some time, writes Liam Dann. Photo / Getty Images

OPINION:

Sharemarkets around the world have reacted to the promising new Covid-19 vaccine as if it is news that the war is over.

Wall Street's Dow Jones index was briefly up by more than 5 per cent.

But the pandemic isn't over and we should expect to see markets settle back into the kind of volatile ups and downs we've grown used to in the past year.

Remarkably the the NZX-50 - which soared more than 2 per cent on opening - fell back to close up just 0.4 per cent.

Covid-19 is still rampant in many countries and there's a long way to go before we can even imagine life returning to what it was before the virus.

Despite that, it's hard to begrudge the sense of elation that investors have acted on.

If we look at it in the context of the panic that gripped the world in March then this is something to celebrate.

Perhaps we can assume that logistical issues - like the complexity of producing the vaccine at volume and rolling it out - are taken as a given by investors.

No one expects a sudden resolution, but the news at least brings the horizons of this crisis into focus.

Worst-case scenarios of years without international travel appear less likely and that's been reflected in big rallies for airlines and other travel stocks.

There's even a pathway back to the movies, as reflected in the big rise for locally listed Vista - a cinema management software company.

Shares in F&P Healthcare - which has boomed on production of medical respiratory equipment - took a dive.

In reality, sadly, they are likely to be in demand for some time yet.

The market reaction is far too binary to last.

And we can assume that somewhere there are analysts doing the maths on what the end of Covid would mean for interest rates.

If there is anything on the horizon that could really sink equity markets it would be a rise in returns available for bank deposits.

If and when Covid-19 is conquered, rates will need to rise and return to something approaching normalcy - whatever that is these days.

So there are conflicting forces at play as we assess the possible path to recovery from the pandemic.

Keep an eye on the US Federal Reserve.

What happens there - more so than the current pantomime at the White House - will determine how long this bull market lasts.

Looking at the headlines around the world, the vaccine jubilation seems most intense in the US and UK.

By comparison with the New Zealand experience, people in these countries have been battered by the virus.

They are heading into winter with cases hitting new records and the prospect of life without masks and lockdown looking dim.

It's not surprising that they are clinging more desperately to the vaccine news as a victory rather than just a step on the path.

In this country, we can afford to take it with a grain of salt and keep the prospects for a resolution to the epidemic in perspective.

But that in itself is something to be thankful for.