Markets Up as GME Frenzy Stops

The Catch Up

• Markets in Asia continued their rise today, as optimism regained its strength among investors, led by hopes that a stimulus package in the US will arrive soon and global economic recovery will be boosted. At the same time, retail investors retreated from GameStop, allowing hedge funds to breathe, and found a new object of obsession in silver.

• Gains in Asia were across the board, with KOSPI, the Hang Seng, and the CSI300 posting the largest gains. The first two rose by more than 1.3% while the last was last up by 1.2%. At the same time, the Nikkei rose 0.91% and the ASX moved 0.68% higher. Stock index futures were also in the green, with the US500 rising by 0.61% and the DAX up by 0.28%.

• The day is marked by negotiations between US President Joe Biden and Republican senators on a new pandemic support bill, with the Republicans promoting a $618bn stimulus plan, about a third the size of the President's proposal. Top Democrats filed a joint $1.9 trillion budget measure.

• The big question is how will stimulus be affecting the markets, as they have been pricing in the fiscal aid package. The most likely outcome is a market drop in the case where the stimulus package is rejected.

• Meanwhile, policymakers continue to promote growth using support packages all over the world. Australia's central bank is expected to maintain its current policy setting of record low interest rates, while in South Korea the country's ruling party gets ready for another round of cash handouts and an extra budget.

• In the trading world, the fact that retail investors managed to corner institutional ones is still a big theme on Wall Street. As they moved to Silver, the metal's price rose by around 10% to its highest since 2013, even though it fell by around 1% today to 28.30. At the same time, GameStop stock dropped by more than 30% for the day.

• A military coup took place in Myanmar, where the army handed power to military chief General Min Aung Hlaing and imposed a year-long state of emergency, saying it had responded to what it called election fraud. Analysts expect that the coup will exacerbate strains in US-Myanmar ties following sanctions imposed by Washington in December 2019 and would further complicate trade relations. At the same time, the hardest hit sector will be Apparel and Footwear, with a spokesman for H&M saying that they are closely following the developments.

• Still on the politics front, President Joe Biden will maintain tariffs on aluminum imports from the United Arab Emirates, reversing Donald Trump's move to end the levies on his last day as president saying it is necessary and appropriate in light of the national security interests of the US.


Currencies

• In the currency markets, the US Dollar eased by 0.15% but continued to hover around seven-week highs.

• The moves were across the board, with the Dollar losing ground against the AUD and the NZD, while it was marginally higher against the Yen. In one of the largest long-term movements, the GBPUSD continues to rise, gaining 0.21%.

• On the other hand, the Euro moved to 2.5-week lows as German retail sales were disappointing, dropping 9.6%m/m under the boot of a second wave of the virus.


Oil & Gold

• Brent crude was up 0.75% at $56.77 per barrel and WTI rose by 0.80%, almost crossing the $54 per barrel level this morning, as falling inventories and rising fuel demand due to a massive snow storm in the Northeast United States propped up prices.

• At the same time, Saudi Aramco estimates that demand will return to pre-pandemic levels later in the year, adding that it is confident the worst of the pandemic has passed. Similarly, Shell bought five cargoes of North Sea crude and is bidding for another seven next week, also signalling a feeling that prices are moving higher and supply will contract.

The phenomenon, known as backwardation, is visible in the markets, with short-term contracts being higher than longer-term ones. Overall, analysts believe that this situation will prevail over the next few months.

• The focus on Silver caused Gold prices to drop by 0.28%, last trading at 1,858 per ounce. The metal is expected to regain its strength when the US fiscal package is finally approved.


The Look-Out

• It's the day of the preliminary GDP release in the Euro Area, with forecasts suggesting that it will likely go down 0.9%q/q, compared to a 12.5% increase in the previous month, as European countries have been struggling with the second wave of Covid-19.