Market Commentary – February 3, 2021

Kevin Jock

3rd February 2021

    Following a disappointing January, Wall Street begins February returning to a glimmer of normalcy. Short interest in GameStop collapsed from 114% to 23% yesterday as Reddit’s crusade continue to “hold the line”. The stock subsequently tumbled 74% to $90 after rallying 1,600% in January. Short sellers are estimated to have taken a $80bn hit last month. With concerns of retail volatility receding, alongside renewed progress on pandemic relief, Nasdaq outperformed posting consecutive days of gains just shy from record highs, whilst Dow lagged etching out just 1.6% yesterday. President Biden and Republicans reassured markets after “very productive” meetings these past 2 days as a budget resolution was introduced yesterday. Considered as the first step in passing the $1.9tn stimulus.
    Despite lockdowns’ being extended well into the 1st quarter, Europe’s benchmarks posted gains 2-days in a row on upbeat economic data. On the coronavirus front, amid a slower than expected roll-out schedule, EU leaders like Angela Merkel have been reassuring citizens on the vaccine’s availability.
    Asia-pacific indices opened following overnight U.S. sentiment, set to post 3 consecutive days of gains. Speaking at the National Press Club, RBA governor Lowe noted the central bank estimates it would take at least 3-years before the economy meet’s policymaker targets, implying rates and quantitative easing will stay accommodative for years. Elsewhere Japan’s Nikkei edged 0.56% higher driven by a boost in earning forecast.
    Crude oil breaks out of its 14-day consolidation to $55. It’s highest it’s ever been since January 2020 as U.S. inventory reveals an unexpected drawdown and ahead of OPEC’s meeting, estimates reveal a global supply deficit for 2021.
Silver crashes back to reality following a chaotic Monday open briefly hitting above $30 before closing $26.68 yesterday. As anticipated by analyst, unlike GameStop weighed down by heavy short selling interest, the CBOT COT report portrayed a net-long exposure in futures and options for the precious metal.
Though risk-on appetite has returned to equity markets, the U.S. dollar index remained relatively unchanged by Tuesday close. Gold falls back down to $1,837 and bitcoins resurgence continues following Elon Musk stealthy endorsement.

XAUUSD-4

Figure 1 (Source: IS Prime): XAUUSD 1-Year Chart

Headliner to Review

  • Australia kept the cash rate unchanged at 0.1%, in line with market expectations. The Reserve Bank of Australia unexpectedly announced earlier than market expectations that it will purchase another 100 billion Australian dollars of government bonds when the current bond purchase plan is completed in mid-April.
  • Italy’s Prelim GDP in the fourth quarter of last year shrank by 2% quarter-on-quarter (the previous value increased by 16%, which was the best in history), in line with market expectations. The year-on-year contraction intensified to 6.6% (the previous value shrank by 5.1%), in line with the market period, shrinking for four consecutive seasons.
  • The euro zone’s gross domestic product (GDP) in the last quarter of last year fell by 0.7% quarter-on-quarter, far below market expectations for an expansion of 12.7%. The previous value of growth was revised down from 12.7% to 12.4%.
  • In January of this year, the New York area business conditions index rebounded sharply, from 61.3 in December last year to 51.2, which is far below the market consensus of 58.

Headliner to Watch

  • OPEC-JMMC members will meet today to deliberate on production forecast in the coming months. Most expect an increase in production considering global growth to return to normalcy later this year.
  • ADP Non-Farm Employment change expected to expand from -123K to +48K following President Trump’s piecemeal stimulus package signed back in December 2020.

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Authors:
Antony Tan
Ben Li
Kevin Jock