The Catch Up
• Following a stressful week, Asian markets and stock index futures were all in the green, as retail investors move away from the stock market to precious metals in an effort to short squeeze hedge funds which are shorting silver.
• A short squeeze refers to the practice of buying a security (e.g. silver, GME stock, etc.) for the purpose of raising its price in order to force those who are already short the security to close out their positions as their losses increase. This would also mean that the price eventually goes even higher as the shorts are covered and short sellers are faced with huge losses.
• In the markets, Asian stocks were led by the KOSPI and the Hang Seng, rising by 2.34% and 2.01% respectively, with the ASX up 1.15% and the CSI300 gaining 0.96%. At the same time, the Nikkei was up 1.50%. In the futures market, US500 was up 0.48% and the DAX rose by 0.98%.
• Still, what remains to be seen is how the US stock market will behave after the open, as retail investors do not deal in futures but only buy real stocks.
• At the same time, talk now was that silver is the new target for retail investors, causing the metal to jump 6% to reach a six-month high. This could possibly take some liquidity from the market and thus limit the need for distressed selling by hedge funds, even though it is still too early to tell. On the other hand, funds which have been shorting silver will be in a dire position.
• On the other hand, analysts cautioned that this entertaining episode, driven largely by the stimulus checks received by US households, was really a sideshow compared with signs of a loss of economic momentum in the United States and Europe as coronavirus lockdowns increase.
• In line with this, two surveys from China showed factory activity slowed in January as restrictions took a toll in some regions. The manufacturing PMI was 51.3, against the 51.6 in consensus forecasts and December’s 51.9. The non-manufacturing PMI came in at 52.4, against December’s 55.7. The Caixin manufacturing PMI, released earlier in the day, was 51.5
• News on vaccine rollouts were also on the downside, especially given doubts about whether they will work on new Covid-19 strains.
• As a result, analysts suggest that this is what has been pushing the markets down and not what is happening to the GME stock. Perhaps more realistically, the GME situation is a mere excuse, the straw that broke the camel's back, as below the surface worries about the high market valuations and the world's future with regards to Covid-19.
• As if that was not enough for the markets, Republicans have been arguing against President Joe Biden's $1.9 trillion relief package, with 10 senators urging a $600 billion plan.
• Bond markets were not affected much. Treasury yields rose late last week, most likely as they view that fiscal support will be coming on way or another, and that US government debt will rise. A record $1.11 trillion of gross Treasury issuance is slated for this quarter, up from $685 billion the same time last year.
• The impact of Brexit? Irish freight volumes to and from European Union ports doubled in January, while the UK's exit from the EU has led to a three-fold rise in direct routes in the last 12 months, mainly to French ports, in the midst of the coronavirus pandemic.
• In another industry development, global semiconductor sales rose 6.5% overall in 2020, as a recovery during the last three months of the year helped offset a sharp drop in March and April, when pandemic stay-home orders rolled out around the world. Global sales were $439 billion in 2020, with chip sales in the US rising by 19.8% compared to 2019.
• In the currency markets, the US Dollar lost some ground compared to the previous week's increases, albeit the losses were small. The Dollar index was last at 90.523, having bounced from a trough of 89.206 hit early in January.
• Currencies overall did not move much. The Euro remained at 1.2129, well off its recent peak at $1.2349, while the Yen was stable at 104.70.
• The Aussie and the Kiwi were slightly up, rising 0.11% and 0.15% respectively, while the session's biggest loser was the Yuan, dropping 0.56% against the USD.
• Sterling continues to gain, rising by 0.27% against the greenback.
Oil & Gold
• In commodity markets, Gold followed silver higher to $1,862 an ounce, but has repeatedly stalled at resistance around $1,875. The gold/silver ratio, measuring the number of silver ounces needed to buy an ounce of gold, fell to its lowest level since 2014, while the squeeze saw silver climb nearly 15% since Thursday.
• Oil also tracked the gains in other commodities, with US crude rising 10 cents to $55.14 per barrel. At the same time, Brent crude futures gained 33 cents to $55.37.