Short squeeze war, More strong earnings, Markets drop sharply
MY CALL THIS WEEK : BUY AUDNZD
In a week that saw concern about the rising number of cases and speed of vaccine rollout, and despite a dovish Fed, markets were sharply down, with Wednesday being the worst day for over three months. Markets were also spooked by a retail ‘army’ piling into institutionally shorted loss-making retailer Gamestop, short-squeezing the share up 642% from $65 as high as $420 (P/E 1,477!), with many commentators concerned that this could happen.
The safe haven dollar rose, although notably traditional havens did not move as expected. The yen fell sharply against all currency, Gold and yields were flat on a V-shaped week, as was Oil which had a very narrow range. The Fed were as dovish as could be expected, but for the first time in weeks, we saw FFR Futures rise, as reflected by a 4.1% rate hike being priced into the next Fed meeting in March, according to the CME Fedwatch tool.
Next week sees more of the same, and important earnings from AMZN and GOOGL, and of course Non-Farm Payrolls, all of which are potential points to either arrest or accelerate the current turn in sentiment.
Monday Jan 25After an opening dip, SPX closed up 0.4% and NDX outperformed. The general increase was put down to stimulus hopes, whereas tech outperformance was put down to worries about vaccine distribution. The safe haven dollar was up very slightly, although all this movement was against EUR. Other currencies and Gold were flat. Yields followed the opening dip down. Oil was up in line with equities.
Tuesday Jan 26
JNJ, MMM and AXP all beat on earnings and revenue to give a good start to the day, and unlike yesterday, Europe closed up. However, markets then faded again as markets were concerned about the Fed the next following day. The recovery in stocks meant the dollar turned down again, as did Gold (following stocks for once, not the dollar). Bonds moved down in line, but Oil also fell, in a narrow whipsaw pattern which lasted all week.
Wednesday January 27
Great MSFT (up 6% AH Tue) earnings gave the day a good start, but a massive miss from BA (down 4%). Added to concerns about COVID variants, and the slow progress of stimulus, markets finally gave way and plummeted posting the worst day since October. The drop was broad with both SPX and NDX falling 2.6%. Markets were also spooked by a Robinhood retail ‘army’ going into battle with institutional shorts on obscure stock GME, (up 140%) and AMC (up 300%) and stayed there. VIX hit 40 for the first time since November with the first VIX marubozu candle (no tails) for nearly a year.
The sharp equity collapse led to a strong surge in the safe haven dollar. The Fed was dovish with open-ended commitment, but crucially nothing new. This cause a spike up in USD and a spike down in Gold which finished down. Once again inter market relationships failed, bonds were up and Oil was down, albeit both marginally.
Thursday January 28
Today was a bounce back day following the large drop. VIX gapped down, down 19% despite only a 1% move up in SPX and DJI, with NDX underperforming, an indication of weakness, after the GDP miss. The battle stocks GME and AMC were down 44% and 57% respectively on profit-taking. The dollar and bonds were down in line, although surprisingly Oil was also down. Gold was flat on the day.
Friday January 29
The volatility continued today, with another leg down on major indices. SPX was down 1.9% and NDX lost 2%. Short squeezed stocks GME and AMC were 67% and 54% up. The dollar was down again in line as was Oil, however bonds were also down. Gold was flat on the day.
WEEKLY PRICE MOVEMENT
All indices pulled back this week with FTSE faring the worst. The largest forex move, very unusually, was AUDNZD, down 1.42%. AUD is very closely correlated with SPX, NZD is not. Crypto was back up, maintaining its recent volatility, and FANGS generally fared worst than NDX, in other words more volatile.
Unfortunately my EUZNZD long was down 0.32% last week (I should have bought EURAUD), so my 2021 position is now +0.91% with 3/4 wins. My view is that move in AUDNZD must revert to mean, so I am buying AUDNZD this week.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
- New Month
- AMZN and GOOGL earnings
- UK and Aus Rate Decisions
- Non-Farm Payrolls
Monday February 1
A new month may see some repositioning, maybe restoring some of the end of month activity on Friday. Also, it’s manufacturing PMI Monday.
00:00 Aus TD Securities Inflation
01:45 China Caixin Manufacturing PMI(Jan)
07:00 Germany Retail Sales (p5.6%)
08:55 Germany Markit Mfr PMI
09:30 UK Markit Mfr PMI
10:00 Eurozone UnEmp
14:30 Canada Markit Mfr PMI
14:45 US Markit Mfr PMI
15:00 US ISM Mfr PMI e59.5 p60.7
19:10 Fed Rosengren speech
Tuesday February 2
Today’s earnings before the bell are vaccine producer PFE, and once-giant XOM, but much more important are the last two FANGs AMZN and GOOGL reporting after the close.
03:30 RBA Rate Decision/Statement (e0.1% hold)
10:00 Eurozone Q4 Prelim GDP (QoQ e-1.8% p12.5%)
18:00 Fed Williams speech
22:00 Aus Commonwealth Bank Svcs PMI
Wednesday February 3
No significant earnings today, so attention will turn to the ADP and ISM figures, both important economic indicators.
01:30 RBA Governor Lowe speech
01:45 China Caixin Services PMI
08:55 Germany Markit Comp PMI
09:00 Eurozone Markit Comp PMI
10:00 Eurozone CPI (YoY e0.4% p-0.3%)
13:15 US ADP Employment Change (e40k p-123k)
14:45 US Markit Svcs/Comp PMI
15:00 US ISM Services PMI (e56.5 p57.7)
Thursday February 4
Dow Pharma (but not vaccine) player MRK reports before the bell. However, the main news of the day is the BoE Rate Decision, or more particularly the report and speech.
00:30 Aus Imports/Exports/TB (TB p+5.02B)
10:00 Eurozone Retail Sales (YoY e0.4% p-2.9%)
12:00 BoE Rate Decision/Statement (e0.1% hold)
12:30 BoE Governor Bailey speech
13:30 US Jobless Claims
15:00 US Factory Orders (MoM)(Dec)
22:30 RBA Governor Lowe speech
23:30 Japan Overall Household Spending
Friday February 5
First Friday and so it’s NFP, the first in the Biden era, with a very modest positive estimate. The pace of re-employment has slowed considerably, and it is important to still be going in a positive direction. Canada’s report is simultaneous offering volatility possibilities in USDCAD.
00:30 RBA MPC Minutes
00:30 Aus Retail Sales (p-4.2%)
07:00 Germany Factory Orders
13:30 US NFP/AHE/UnEmp (NFP e85k p-140k)
13:30 BoE Governor Bailey speech
13:30 Canada NFP/AHE/UnEmp (NFP p-62.6k)
15:00 Canada Ivey PMI
