Markets Update Thursday 28/01/2021 – Short-Squeeze

Frankfurt – 28/01/2021

Short-Squeeze

The day after the story of GameStop Corp and the Reddit group wallsreetbets, where major Wall Street hedge funds got short-squeezed out of their short-seller positions by a group of smaller investors, the market overall continued its Zick-zack movement.

On the European exchanges and also on Wall Street, bargain hunters saved the day and psuhed prices back up.

US Markets at a glance

After initial losses, the US stock market was able to make significant gains. The Dow Jones Industrial Index finally closed 0.99 per cent higher at 30,603.92 points. The NASDAQ Composite was also able to make gains and ended the session with a plus of 0.5 per cent at 13,337.16 points.

Wall Street thus calmed down somewhat from the previous day’s substantial setback. Investors focused on the quarterly reports of some heavyweights, and some quarterly figures turned out to be quite good. Besides, the latest economic data from the US were robust overall. For example, the number of weekly initial jobless claims surprisingly fell significantly.

Far East Markets at a glance

The Asian stock exchanges fell sharply on Thursday. The Japanese benchmark index Nikkei lost 1.53 per cent to 28,197.42 points. On the Chinese mainland, the Shanghai Composite slumped 1.91 per cent at 3,505.18 index units while the Hang Seng in metropolitan Hong Kong dropped 2.55 per cent to 28,550.77 index points.

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After the slide on the US stock markets the day before, the Asian stock markets followed the trend from overseas. Investors were increasingly uncertain about a quick recovery of the economy. US Federal Reserve Chairman Jerome Powell yesterday also held out the prospect of a long period until full recovery. High corona figures and delays in delivering vaccines, which are causing widespread vaccination campaigns to stumble, also continued to weigh heavily.

European Markets at a glance

The European stock exchanges rose on Thursday. The EuroSTOXX 50 was able to overcome its initial losses and turn positive. Finally, it ended the day 0.59 per cent stronger at 3,557.23 points.

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The DAX opened significantly weaker and then remained in the loss zone for a long time. In the afternoon, however, it was able to work its way into the profit zone and closed 0.33 per cent higher at 13,665.93 points. The TecDAX also turned slightly positive after initially starting with a loss. In the end, it went into the evening 0.22 per cent firmer at 3,407.63 points.

The ups and downs of today’s Thursday show that volatility and nervousness are back in the market. Thanks to data on the business climate in the eurozone and economic sentiment, prices were able to recover from their daily lows. Support also came from Wall Street.

Forex, gold, oil and crypto

The euro benefited from broad-based dollar weakness on Thursday, gaining despite fresh warnings from the European Central Bank (ECB). In the US Forex trading session, the euro was sold for 1.2133 US dollars, about half a cent more than in the daily low.

US economic data did not have a lasting effect on oil prices today. The price of a barrel of North Sea Brent fell by 19 cents to 55.62 US dollars while a barrel of West Texas Intermediate (WTI) fell by 38 cents to 52.45 US dollars.

The gold price reacted positively to the weakening greenback in the late afternoon after trading flat for a long time. At times, it jumped as high as to $1,862 before coming down again and closing with a small daily gain to $1,842.

After days of consolidation and suppression, the cryptocurrency space was seeing a sea of deep green today. Gains, partially in double-digits, were seen across the board with Bitcoin increasing by 6.2 per cent to $32,800. Ethereum rose 5.8 per cent to $1,342, Polkadot gaining 9 per cent to $17 and XRP increasing 2.8 per cent to $0.2620.

Corporate and world economic news

Economic data

The German economy apparently also defied the tighter lockdown in December. The leading indicator of (non-price-adjusted) turnover in trade and industry, collected by the Federal Statistical Office (Destatis), rose by 5.1 per cent compared to the previous month, seasonally and calendar-adjusted, after having increased by a revised 0.9 (provisional: 1.3) per cent in November.

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The economic outlook in the USA improved further in December. The composite index of leading economic indicators rose by 0.3 per cent compared to the previous month, as the private research institute Conference Board announced in Washington on Thursday. Economists had expected an increase of this magnitude.

Also, the US economy continued its recovery from the Corona crisis in the fourth quarter of 2020. Still, the gain was not enough to avert a contraction in the full-year gross domestic product (GDP). In an initial release, the Commerce Department said that annualised GDP increased 4.0 per cent between October and December. The consensus of market economists surveyed by Dow Jones Newswires had expected an increase of 4.3 per cent.

The number of initial jobless claims in the USA also gives cause for hope, as it fell more than expected last week. Compared to last week, the number of applications fell by 67,000 to 847,000 according to the US Department of Labour in Washington. Economists surveyed by Dow Jones Newswires had predicted only a decline to 875,000.

Are the interests of large investors being protected?

Online brokers Robinhood and Interactive Brokers restricted trading in some recently hyped stocks such as GameStop, AMC, Nokia and Bed Bath & Table. On Twitter and other channels, some users criticised the brokers for protecting big Wall Street investors’ interests at small investors’ expense. In the past few days, small investors had forced hedge funds to unwind their bets on falling prices of certain companies with concerted purchases, causing them to lose billions. 

A renewed discussion about the ban on short-selling has not yet erupted, but the current events could create considerable pressure in the market. 

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