GameStop share battle sends jitters through markets but major currencies relatively unaffected

Mon 1 Feb 2021
Posted by: William Barns-Graham
Features

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The stock markets were in the centre of a media storm last week when a Reddit community took on Wall Street hedge funds and investors over GameStop shares.

The share battle had little impact on currencies, with the US dollar benefitting from its safe haven status.

Elsewhere, the UK-EU vaccine dispute did little to knock Sterling.

GameStop

US retail brand GameStop’s stock spiked after online buyers purchased its shares at rapid pace having noticed that seasoned investors were ‘short selling’ the retail brand.

According to Investopedia, short selling is ‘an investment or trading strategy that speculates on the decline in a stock or other security's price’.

The quick buy-up of GameStop’s shares by new investors – many of whom were in contact with each other via online communities on Reddit – led to losses for the hedge funds who had banked on the short-selling approach, having seen the brand was in decline.

This led to Wall Street investors liquidating their other equity positions to cover losses.

Dollar stable

While the GameStop situation shook stock markets, the US dollar saw an uptick in value in part due to its safe haven status for investors.

The dollar exchange (DXY) remained in a relatively narrow 90.12-87 range and has opened the week around the 90.60 level.

Vaccine war

The vaccine dispute between the EU and UK had little impact on the pound as markets adopted a ‘wait and see’ approach.

This was ultimately vindicated by the EU’s quick U-turn on its decision to impose controls on vaccines traversing the Irish border.

Sterling had dipped to a weekly low of around US$1.36 and €1.12 on Tuesday before climbing back to the mid-$1.37s and re-establishing itself above €1.13.

Due to greater business certainty following agreement of the UK-EU trade deal last year and the so-far successful rollout of the vaccine in the UK, it is thought that the pound will be in a good position when the global economic recovery begins in earnest later this year.

Oil demand up 

The price of oil didn’t move too much last week and was supported by larger-than-expected demand. It has settled within a broad $50-55 per barrel range.

Silver rush

Silver hit its highest level since 2013 following reports that it could be the next target for flash buying, dragging gold up slightly with it.

Prices jumped from around US$25 per ounce to as high as $30.

Bitcoin

Bitcoin and other cryptocurrencies experienced volatility again, dipping as low as US$29,400 on Wednesday following rumours of tighter international regulatio.

It hit a weekly high of around US$38,500 on Friday and opens the week just below the 35,000 mark.

Week ahead

The Bank of England (BOE) is expected to leave interest rates unchanged once again, though any move towards negative rates would undermine the value of the pound. Any further monetary easing from the BOE is likely to take the shape of increased quantitative easing.

Markets will be looking at data for the number of jobs created in the US last month when the US Employment report is released on Thursday, while tomorrow’s Eurozone Q4 GDP release is expected to show less of a contraction than originally feared.

Economic Data 

Highlights this week include:

Today (1 February)      

  • Global Manufacturing PMIs
  • Eurozone unemployment rate data
  • Speeches from:
    • Bostic and Rosengren from the US Federal Open Market Committee (FOMC)

Tuesday      

  • Eurozone Q4 GDP and core Consumer Price Index releases 

Wednesday    

  • European Central Bank (ECB) monetary policy statement
  • Global services and composite PMIs
  • US ADP non-farm employment change and crude oil inventories data

Thursday    

  • UK Construction PMI
  • BOE interest rate announcement
  • US weekly initial jobless claims numbers and factory orders
  • Speech from:
    • FOMC member Daly

Friday     

  • US Employment report for January
  • Speech from:
    • BOE Governor Bailey