Monday 1 February 2021 8:21 am

This morning: Silver receives Gamestop treatment on Reddit

Silver shines this morning as the metal is experiencing a rise in demand thanks to postings on Reddit, targeted in a similar fashion as Gamestop last week.

What silver is going through this morning is the same rude awakening financial markets received last week when a swarm of retail investors, who were chatting with each other on Reddit, started snapping up Gamestop shares.

“It was known that relatively large short positions have been taken out against the stock, so the gang of retail investors were buying up the stock in a bid to create a short squeeze,” said David Madden, market analyst at CMC Markets UK, this morning.

“The result was that Gamestop shares skyrocketed. A number of hedge funds incurred sizeable losses due to the monster rally. Other heavily shorted stocks like AMC Entertainment saw colossal moves higher too.”  

January

Equity markets enjoyed a bullish run in the first few weeks of January as sentiment was boosted by the prospects of Joe Biden going down the stimulus route. A $1.9 trillion relief package was announced by Joe Biden before he was inaugurated as the US president, global stock markets rallied as a result.

All time highs were seen on the DAX 30, the S&P 500, the NASDAQ 100, while multi-year and multi-month highs were recorded on European and Asian markets. Equity valuations were lofty but the optimistic mood still circulated.

Last week

The pandemic and reporting season took a back seat last week. Apple posted stellar numbers as quarterly revenue topped $100bn for the first time but the stock lost ground on account of the wider bearish sentiment. Microsoft’s cloud business registered a 50 per cent jump in revenue. Caterpillar saw earnings decline but it comfortably topped forecasts. Amazon and Alphabet will post their numbers this week.

“Vaccination rates are in focus as it should give us an indication of which economies will re-open first. Britain is powering ahead in the vaccine race.” Madden said.

In the region of 12 per cent of the population has received the first dose. By contrast, Italy and Germany have rates of sub 3 per cent. France’s rate is approximately 2 per cent.

“The EU’s row with AstraZeneca hasn’t helped the situation. Due to constrain issues, the pharma giant will only be able to deliver approximately one-quarter of the 100m vaccines they were supposed to deliver by March,” Madden added.

President Macron of France revealed tougher restrictions to curb the spread of the virus but stopped short of introducing a third lockdown. The major economies of Europe are unlikely to be easing restrictions in the near term but, the UK is in the best position to unwind constraints.                        

At the weekend, China announced its official manufacturing PMI and non-manufacturing PMI reports. The manufacturing reading for January was 51.3, slightly ahead of economists’ forecasts, but it cooled from the 51.9 posted in the previous update. The non-manufacturing update was 52.4, down from 55.7 in December. Overnight, the Caixin survey of Chinese manufacturing was 51.5, while economists were expecting 52.6. The December reading was 53.

“Even though US index futures initially traded lower last night, sentiment changed. Equity markets in Asia are showing solid gains and European indices are called higher too,” Madden explained.   

“As far as Western economies go, the US has had a good economic recovery but there have been some pockets of weakness,” he continued, adding that the advance reading of US GDP for the final quarter of last year was 4 per cent.

“It was a sharp cool down from the 33.4 per cent growth registered in the third quarter. It is encouraging to see the economy is still recovering but GDP is down roughly 13 per cent since the end of 2019,” Madden added.

Today

Between 8.15am and 9.30am UK time, the major economies of Europe will post their latest manufacturing PMI readings for January. Spain, Italy, France, Germany and the UK will reveal their figures, and economists are expecting 50.2, 52.5, 51.5, 57, and 52.9, respectively.

“The tougher restrictions seen recently has curtailed activity but expansion continues in all the reports nonetheless,” Madden said.

British lending data for December will be revealed at 9.30am UK time. The Bank of England consumer credit report, mortgage lending and mortgage approvals are predicted to be -£1.1bn, £5.59bn and 105,000, respectively. 

The eurozone unemployment rate for December is tipped to hold steady at 8.3 per cent, it will be posted at 10am UK time.

At 2.45pm UK time today the US manufacturing PMI report for January will be announced. 59.1 is the consensus estimate. Shortly afterward, the ISM manufacturing update will be posted, economists are anticipating 60.0, which would be a dip from 60.7 in December – the fastest rate of expansion since August 2018, Madden pointed out.

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