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Stocks steady as retail traders switch focus to silver

1 February 2021

The war between the establishment on Wall Street and small-time investors is far from over as not only are retail traders still betting against short sellers of GameStop and other Reddit favourites, but they are now moving into the commodities sphere. Silver has become the new target for Reddit traders after someone on the online forum posted that it was “the biggest short squeeze in the world”. The spot price of silver has shot up about 10% today following two days of strong gains.

In the meantime, the price of the so-called ‘meme stocks’ such as GameStop and AMC Entertainment rallied again on Friday after the online brokerage firm Robinhood eased some of its trading restrictions on these stocks.

However, it remains to be seen whether Reddit traders will have the same success in triggering a massive short squeeze for silver as they did for downtrodden stocks such as GameStop. Unlike single stocks, the market for silver is much larger and more complex and therefore more difficult to manipulate. Some analysts also questioned the notion that the big banks were bearish on silver purely because they hold huge short positions as they happen to be running large long positions as well.

The mayhem on Wall Street has already attracted the attention of regulators and lawmakers but until action is taken, it’s looking unlikely that the frenzy will settle down. The VIX index, which spiked to a 3-month high on Friday, was sharply down today, though still elevated. The steadier mood lifted sentiment at the start of the new trading month. Asian shares had a solid session, taking their cues from an upward reversal in US stock futures, while European bourses also opened firmly in the green.

EU’s vaccine blunder knocks down euro, pound shines

Amid all the latest chaos in equity markets, it is easy to deduce that the risk-off moves were solely driven by the panic sparked by rookie investors. There’s been a steady build-up of underlying worries in recent weeks about the rosy outlook for the global economy. The latest vaccine trials from Johnson & Johnson and Novavax, although encouraging, raised question marks about the long-term efficacy against new strains.

In the meantime, much of Europe remains under lockdown and there is no clear timeline as to when those restrictions will be lifted. The European Union has fallen behind the vaccination race and is facing delays to the delivery of its vaccine doses. The European Commission has not only come under heavy criticism from member states for the slow vaccine rollout but also for placing export controls on the vaccines produced in the bloc. The ban even included Northern Ireland at one point, risking undermining the fragile peace process and the Brexit treaty, before the EU backtracked on its decision.

The UK in comparison has moved much more swiftly and has now immunized almost 9 million people. Hence, despite the British economy having taken a heavier blow than most from the pandemic, investors are more optimistic about the UK’s outlook for the next year or two and it’s why the pound outperformed its peers in January. That trend certainly seems to be holding at the start of February, with cable edging towards 33-month highs and euro/pound slumping to an 8½-month low. The euro, meanwhile, remained subdued, struggling to stay atop $1.21.

Dollar creeps up as US stimulus talks eyed

But the growth jitters aren’t confined to Europe as the latest regional lockdowns in China may be dampening economic activity there. Both the official and Caixin/Markit manufacturing PMIs slipped in January, though they remained above the key 50 level that separates expansion from contraction.

The aussie was flat on Monday, highlighting the mixed sentiment as well as some caution ahead of the Reserve Bank of Australia’s policy decision tomorrow when policymakers will likely provide updated growth projections.

However, a more pressing matter for the markets in the immediate term is likely to be the timing and size of the next fiscal stimulus package in the United States. President Biden is due to meet with Republican Senators later today to discuss his $1.9 trillion relief plan. Republicans want to water this down to $600 billion, which would fall well short of both Democrats’ and investors’ expectations.

The US dollar was last trading slightly up on the day against a basket of currencies, maintaining its sideways range of the past three weeks.



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