Market Commentary – February 1, 2021

Kevin Jock

1st February 2021

    Reddit triggered buying frenzy seeps into commodity markets in Asia open as silver gaps open 5% higher to $28.53. The abnormal demand apparently started from sub-forum “WallStreetBets” encouraging members to purchase iShares Silver Trust. By Friday’s close an unprecedented $944m had flowed into the ETF. Over the weekend online sellers of silver coins and bars across the globe also experienced unhinged buying. Nevertheless, skepticism over how long this retail induced pressured could last. As unlike GameStop, silver futures and options according to the weekly COT reports has been net-long the precious metals since mid-2019.

    Last Friday Wall Street continued Wednesday’s bloodbath. A mix of disappointing vaccine data from Johnson & Johnson alongside anxiety induced selling resulting from the unpredictability of hivemind retail traders saw indices tumble another 2%. Questions arose whether hedge funds will need to liquidate positions to free up cashflow as buffer for short positions or whether trade restrictions on prominent brokerage platforms would hamper buying.

    European benchmarks suffered a similar fate. Despite the European Commission approving a 3rd vaccine for populace use, the current pain point for many investors, is the pace of roll-out. Thus far, being sorely behind schedule.

    By Monday Asia open, global indices regained some share of confidence as both Asia-Pacific indices and overnight futures pointed higher. Australia’s S&P200 posted 88 index points higher, Japan’s Nikkei 431 points and Hong Kong’s Hang Seng 488 points.

    Elsewhere, the U.S. dollar index held steady on aggregate. Crude continues to oscillate between $52-$54. And gold bumps up to $1,865 following silver’s irrationality.

    A smudge in an otherwise pristine recovery by China coming into 2021. Ahead of Lunar New Year, a recent uncontained outbreak in infections in Northern China has collapsed the nations domestic tourism industry. Historically much of Q1 growth, especially the services sector is reliant on the 6 days of national holidays. Monday open saw China’s yuan slip as much as 190 pips intraday.

    For the week ahead, central policy makers in the RBA will deliberate on Tuesday and the BOE on Thursday. No changes on policy are expected though a focus on vaccinations and the new variants impact is anticipated.

XAGUSD-2

Figure 1 (Source: IS Prime): XAGUSD Daily : Reddit fueled mania sees silver gap up 5% on open.

Headliner to Review

  • Chicago’s January Purchasing Managers Index (PMI) rose to 63.8, a sharp increase from 59.5 in December last year, and the highest since July 2018. The market had expected it to fall to 58.5.
  • The China non-manufacturing business activity index was 52.4, a decrease of 3.3% from the previous month. It has been above the threshold for 11 consecutive months, indicating that the non-manufacturing industry has maintained a recovery trend, but the momentum has slowed down.
  • The China comprehensive PMI output index was 52.8, a drop of 2.3% from the previous month, indicating that the overall production and operation activities of mainland enterprises have continued to expand recently, but the expansion has weakened.
  • The average hourly wage index in Italy slowed down to zero monthly growth (previous value rose 0.1%); the year-on-year increase accelerated slightly to 0.6%. For the entire year of 2020, the Italian average hourly wage index rose 0.6% year-on-year.

Headliner to Watch

  • Manufacturing data across developed economies is set to release Today. Many expected to illustrate a slight decline in activity or unchanged but remain in expansion territory.
    • UK manufacturing PMI expected to stay steady at 52.9
    • EU likewise at 54.7
    • Canadian expected to edge lower from highs of 57.9.
    • US too, anticipated for slower activity from 60.7 to 60.

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Authors:
Antony Tan
Ben Li
Kevin Jock