Germany’s CPI jumped in January to 1.6% y/y, well above the 0.5% expected. On a year-on-year basis, growth was down 2.5% in Q4, while monthly indicators have showed slowing momentum through November and December ahead of the $900b fiscal stimulus package agreed just before Xmas. US GDP came in close to expected, up an annualised 4.0% in Q4 (consensus 4.2%), following the 33.4% surge in Q3. Changing seasonal factors mean that one shouldn’t read too much into the figures about recent trends but what we can say is that they remain historically very high and consistent with a weak labour market.
US jobless claims rose by “only” 847k last week (consensus 875k) and down 67k from the previous week. US data also contributed to the turn around in sentiment While there remains delays in the vaccine rollout (the EU is threatening to tighten rules on the export of vaccines), the efficacy of the vaccine remains and still allows risk markets to price the other side of the pandemic. The study was done by Pfizer and the University of Texas Medical Branch and is broadly consistent with other preliminary studies by other research groups. Vaccine news also helped with more reports that Pfizer/BioNTech’s vaccine will still likely be effective against mutations in the virus (particularly the South Africa and UK mutations) according to laboratory studies. The broader equity market took the restrictions as a positive sign with the S&P500 up 1.8% overnight. The restrictions placed by retail brokers on the high-flying stocks that were being short squeezed is likely to alleviate some pressures with GameStop (-32%) and AMC (-52%) down sharply on the news. The WSJ noted three hedge funds that were taking eye watering losses due to their positions (Melvin Capital Management, Maplelane Capital and Candlestick Capital Management), with Melvin Capital Management having received $2.5bn in emergency financing on Monday from its partners which include Point 71 and Citadel ( see WSJ for details ). The first question is still contested with most still siding with the low rate view justifying valuations, while the second is less clear. Two key questions were front of mind for: (1) did the surge in these companies reflect a broader market bubble given the surge of retail money during the pandemic and (2) could some hedge funds collapse due to the need to cover their shorts on the companies that were being targeted. The FOMC Meeting on Wednesday didn’t have an enduring impact with markets having been captivated by the fortunes of GameStop and AMC which had shot higher in a massive short squeeze in what was pitched as a David and Goliath battle between Main Street and Wall Street. The USD (DXY) followed suit, reversing yesterday’s gains to be down 0.2%, while the AUD managed to reverse losses to be broadly unchanged. The recovery in risk sentiment also saw US 10yr yields turn around from breaking through 1% (low 0.99%) to be up 4.5bps to 1.06%. 875k expected), while Q4 GDP printed close to expectations at 4.0% annualised (consensus 4.2%).
Positive US data also added to the recovery in sentiment with Jobless Claims less than expected (847k v. The broader equity market took that as a positive sign after a number of hedge funds were facing eye watering losses due to the extreme short squeeze. Online retail brokers called Hammer Time on a number of high-flying stocks that were being short squeezed higher by their clients after regulators said they were monitoring the “ volatility in options and equities markets ”. “That’s word, because, you know You can’t touch this You can’t touch this Break it down! Stop, Hammer time!”, MC Hammer 1990 Coming up today: AU Credit Stats, German GDP, US PCE and Chicago PMI, Fed’s Kaplan.US data also contributes with Jobless Claims lower and GDP close to expectations.S&P500 +1.8% after yesterday’s sharp fall, US 10yr yield +4.2bps to 1.06% after going sub-1%.GameStop tumbles as brokers block trades, restoring equity market confidence.
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