Normality returns with “Reddit frenzy” reversed, stocks surge

Intermediate

Macroeconomic/ geopolitical developments

  • This past week has seen a reversal of the price action from the frenzied stock market activity driven by the Reddit posts, particularly from WallStreetBets.
  • The surge in stocks such as GameStop, AMC and Blackberry, alongside the Silver price was reversed.
  • In turn, the broader markets shrugged off their panic sell offs in reaction to this activity and climbed significantly higher, undoing the late January losses.
  • Earnings data continued to impress, with Google and Amazon positing strong numbers (despite the announcement of Jeff Bezos stepping down as Amazon CEO).
  • The Democrats managed to progress President Biden’s COVID relief bill, with many of the main elements intact, which also gave stocks a lift, given the anticipated strong fiscal stimulus.
Biden
  • The Bank of England seemed to step further away from a negative interest rate policy on Thursday, at least in the short to intermediate-term which helped the Pound back higher.
  • Markets managed to shrug off a slightly disappointing US Employment report on Friday.
  • The EU have managed to secure more vaccinations from Astra Zeneca, which will hopefully get their vaccination program on a better track.
  • The spread of new variants of COVID-19 have seen cases, hospitalisations and deaths rise in Europe in early 2021, BUT the current lockdown measures have started to have a positive impact in Europe over the past week.

Global financial market developments

  • The major global equity indices surged back higher last week, reversing the plunge the prior week, with US averages and some European counterparts hitting new record or cycle highs.
  • The US Dollar extended its rebound into February, building on gains from earlier in January, but did see a dip lower after the US employment report at the end of the week.
DXY chart
GBPUSD chart
  • In the commodity space, Oil surged higher to multi month highs, reacting to OPEC+ supply constraints and the broader reflation trade.
  • Copper rebounded, leaving a slight positive bias to a current consolidation theme.
  • Gold sold off, reinforcing the earlier January plunge lower, in reaction to a still strengthening US Dollar.

Key this week

  • Geopolitics:
    • The Trump impeachment trial starts this week but will probably not impact financial markets.
    • Traders should monitor the progress of the Democrat’s COVID relief bill.
  • Watching for possible statements on timelines for the removal of lockdown measures in Europe.
  • COVID-19 cases, hospitalisations and deaths stay in focus in US and Europe.
    • Markets will be waiting for further vaccine approvals and delivery developments.
  • Central Bank Watch: No central bank activity of note this week.
  • Macroeconomic data: A quiet week on the data front with various CPI data and UK GDP the minor standouts.
DateKey Macroeconomic Events
08/02/21German Industrial Production
09/02/21Chinese trade data
10/02/21Chinese CPI, German CPI; US CPI
11/02/21US weekly Jobless Claims
12/02/21UK GDP, Manufacturing and Industrial Production

Editor in chief

Steve Miley is the Market Chartist and has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued

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