US Market Open: Retail trading frenzy comes under scrutiny
Joshua Warner February 3, 2021 12:46 PM
US markets are to open slightly higher today, as regulators prepare to discuss the impact of social media-driven trading among retail investors that has caused wild price movements and increased volatility in recent weeks.
- Treasury chief says the poor outlook for the jobs market means Congress needs to act quickly on president Joe Biden’s $1.9 trillion stimulus plan.
- Amazon and Alphabet shares will be in focus today after they released results after the closing bell yesterday.
- European markets are largely down at midday, with the DAX bucking the trend, as investors digest PMI data.
- In forex, the weak PMI data out of Europe sent EUR/USD to a two-month low.
- In commodities, oil prices climbed to 11-month highs on supportive news from OPEC+ and US inventory data.
US markets struggle to open higher
The S&P 500 is called to open flat at 3837.7 from 3836.3 at the end of play yesterday.
The Dow Jones is set to open slightly lower at 30691.5 from 30709.0 at yesterday’s close.
Retail traders brace for increased scrutiny from US regulators
Bosses at the Securities and Exchange Commission will meet with Treasury chief Janet Yellen, heads of the Federal Reserve and leaders of the Commodity Futures Trading Commission this week to discuss the impact of social media-driven trading among retail investors.
Spurred on by sites like Reddit and Twitter, thousands of retail traders have been causing wild price movements in a number of stocks in recent weeks, targeting companies like GameStop and AMC Entertainment that had been heavily shorted by fund managers. For example, GameStop shares went from below $40 in early January to as high as $458 last week before crashing back below $100 today. Silver has also experienced severe volatility after traders moved onto their next target.
Regulators are due to discuss the impact this is having on the market and whether it is fair for markets as early as Thursday, reports suggest, but it is unclear how much appetite there is to introduce swift action as result.
Yellen says US ‘desperately’ needs to act on stimulus plans
The chief of the Treasury Janet Yellen said yesterday that new growth forecasts from the Congressional Budget Office shows the country ‘desperately’ needs to act on president Joe Biden’s $1.9 trillion stimulus plan.
Estimates from the CBO suggest GDP growth this year will be better than previously expected but that the jobs market won’t fully recover until 2024.
‘Last year, the economy shrunk more than any other since the end of World War II. With the growth that the CBO projects, it will be years before the country reaches full employment again,’ Yellen said.
It comes as Democrats push ahead with Biden’s stimulus plan with or without the support of Republicans, which claim the bill is too costly and proposed an alternative bill worth just $600 billion.
US to accelerate vaccine distribution to retail pharmacies
Retail pharmacies will start to receive direct shipments of coronavirus vaccines next week, increasing weekly supplies to 11.5 million doses, according to a White House aide Jeff Zients, who is coordinating the country’s virus response.
This will involve one million doses being distributed to 6,500 pharmacies next week with a view of growing supplies going forward. That is on top of the 10.5 million doses that the federal government intends to ship to states over the next three weeks.
Amazon and Alphabet to boost Nasdaq
Amazon and Alphabet both released results after the closing bell yesterday, meaning investors will get their first chance to react to the updates when markets open today.
Amazon grabbed all the headlines after revealing Jeff Bezos, the man who founded the company almost 30 years ago, will step down as the company’s chief executive in the second half of 2021 and become executive chairman, allowing him to retain a vital role in the company while also giving him more time to focus on his other ventures.
The surprising news came as Amazon revealed it generated over $100 million in quarterly revenue during the final three months of 2020 as the company continues to benefit from people living their lives online during the pandemic. Quarterly revenue jumped 43% to $125.6 billion and pushed annual revenue up 38% to $386.1 billion.
Google’s parent company Alphabet also released results after US markets closed yesterday that revealed annual revenue in 2020 jumped 13% to $182.5 billion.
Earnings season continues today, with the likes of eBay, GrubHub, PayPal and Qualcomm all due to release results after the market closes.
European markets largely down at midday
France’s CAC 40 was down 0.1% at 5576.5 from 5584.0 at the close yesterday.
Germany’s DAX was up 0.1% at 13909.0 after closing on Tuesday at 13894.9.
Meanwhile, over the Channel, the FTSE 100 was down 0.4% at 6516.5 from 6541.1 at the last close.
In today’s Top UK Stocks to Watch, Vodafone surprises the market as services revenue returns to growth, GSK signs a coronavirus vaccine partnership with CureVac, Unite Group extends its rental discounts to students, and Wizz Air’s passenger numbers slump in January thanks to the pandemic.
Eurozone PMI shows economy starts 2021 on back foot
Economic activity in the eurozone took a further battering in January as lockdown restrictions continues to prevent the bloc from returning to growth.
The latest IHS Markit PMI for the eurozone came in at 47.8 in January, down from 49.1 in December. Anything below 50 signals contraction. The figure came in slightly better than the flash reading of 47.5.
The services PMI dropped to 45.4 in January from 46.4 in December, partly cushioned by a more resilient performance from the manufacturing sector.
Meanwhile, CPI numbers for the eurozone showed consumer prices increased 0.2% month-on-month in January. The figure jumped 0.9% from the previous year, compared to the 0.3% year-on-year fall seen in December. That was above expectations for a 0.5% year-on-year rise.
UK PMI sees steep drop in January
Meanwhile, the latest UK PMI came in at just 41.2 in January, down from 50.4 in December, as new lockdown rules hampered economic activity. That was the lowest reading since May but was slightly better than the 40.6 flash reading.
The services sector was hard hit, with the PMI slumping to 39.5 in January from 49.4 in December to represent its third straight month of contraction.
‘While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent-up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year,’ said Tim Moore, economics director at IHS Markit.
UK asks EU for grace period to be extended to soften blow to Northern Ireland
The UK has asked the EU for the grace period on checks conducted on trade between Northern Ireland the rest of the UK to be extended until 2023, the BBC reports.
The BBC said cabinet minister Michael Gove had written to the European Commission’s vice president Maros Sefcovic to find a way to soften the blow of post-Brexit arrangements on Northern Ireland.
The two sides agreed a three-month grace period for checks on goods moving between Britain and Northern Ireland when they agreed the Brexit deal late last year, allowing the likes of supermarkets and wholesalers to move goods freely around the area.
Can AstraZeneca-Oxford vaccine reduce the spread of coronavirus?
The vaccine developed by AstraZeneca and Oxford university could lead to a ‘substantial’ fall in the transmission of the virus, according to a study, raising hopes that it will not only protect people from the virus but stop them from spreading it too.
The study, which has not yet been formally published or peer-reviewed, also supports the idea that the vaccine remains effective even with a long wait between the first and second dose, claiming it remained 76% effective during the three months after the first jab.
The study involved 17,000 people in the UK, South Africa and Brazil.
A separate study also showed that people retain strong protection from the virus after they have caught it, with 99% of participants retaining antibodies against the virus three months after testing positive and 88% still protected six months later.
The positive news comes at the same time as fears grow that the UK variant of the virus, also referred to as the ‘Kent variant’, has mutated again and could reduce the efficacy of vaccines. Public Health England said it has identified 11 people with the UK variant that features the E484K mutation, which is along the same lines of change seen in the South African and Brazil variants that have been identified.
The UK started surge-testing of 80000 people in eight regions yesterday after finding people that had contracted the South African variant without any links to anyone that has travelled, prompting fears it has already started to spread through the community.
Former ECB chief Mario Draghi to be asked to form new Italian government
Italy’s president Sergio Mattarella is to meet the former boss of the European Central Bank today to discuss whether he is willing to form a government following the resignation of prime minister Giuseppe Conte last week.
The president has said the country needs a ‘high profile government’ to battle the pandemic and revive the economy. Mattarella is hoping Draghi can be the key to forming a new government with the backing of parliament to avoid having to hold early elections.
Forex: EUR/USD sinks on back of eurozone PMI data
EUR/USD was down 0.2% at 1.20185 – its lowest level since the start of December - from 1.20435 at the end of play yesterday.
EUR/GBP was up 0.1% at 0.88180 from 0.88115 when markets closed yesterday.
Meanwhile, GBP/USD was down 0.3% at 1.36297 from 1.36673 at the last close.
Commodities: Oil prices climb to 11-month high
Oil prices surged to their highest level in 11 months today after finding support from OPEC+ and a decline in US inventories.
OPEC’s secretary general Mohammad Sanusi Barkindo opened the meeting yesterday by stating the prospects for the oil market and global economy were improving and that 2021 should be the year that demand recovers.
‘With the crude oil market currently switching into backwardation, we are hopeful that 2021 will be a good year for overall demand,’ Barkindo said.
OPEC+ will hold a further meeting today but is not expected to announce any policy changes or adjust its outlook.
The group of some of the world’s largest oil producing countries agreed to make substantial cuts to output this year to account for the slump in demand during the pandemic in order to help support prices. The expectation now is that stockpiles will decline to below a five-year average by June, suggesting the production cuts are working.
Additionally, the American Petroleum Institute revealed that US crude oil inventories fell by 4.3 million barrels in the week to January 29 – surprising the markets that had forecast a 446,000 increase.
Brent traded at $58.02 today, up 0.4% from $57.77 when markets closed yesterday, while WTI followed higher to $55.17 from $54.99.
WTI will remain in focus ahead of the Energy Information Administration releasing the latest weekly crude oil stocks change figures at 1530 GMT.
Gold was trading flat at $1838 from $1838 at the end of play yesterday.
Silver showed signs of rising again after a heavy selloff yesterday, trading 1.3% higher at $27.04 an ounce from $26.68 an ounce at the close yesterday.
Market-moving events in the economic calendar
The headline event in the economic calendar today is the US ADP employment change at 1315 GMT. The US Markit Services PMI will come out at 1445 GMT and followed by the ISM Services PMI at 1500 GMT.
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