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Written by: Edward Moya | OANDA
The Reddit army of retail and obviously some big money traders appear to be at it again.
GameStop mania is back and this time no one has a strong indication on how this latest surge began. The video game retailer short interest in January reached 140% but has since settled closer to 30%. Last night, shares of GameStop more than doubled after the close and hit a high of $200 a share. The option market is once again seeing some insane prices for GameStop, with calls expiring the next day that are so far out of the money demanding over $20 per option.
One thing is clear, the institutional money behind this move found options expiration as a pivotal opportunity that will make it easier for market disruption. The violent price swings might remain elevated around options expirations for the Reddit-WallStreetBets crowd. This round of stock market frenzy trading also impacted AMC, Koss Corp and Blackberry.
US Data
A nice drop in jobless claims comes with a caveat as the deep freeze in the South might have impacted the numbers. Initial claims printed at 730,000, a decrease of 111,000 from the previous week's revised level and a strong beat to the 825,000-consensus estimate. Continuing claims also improved to 4.419 million, down from the upwardly revised prior reading of 4.52 million.
The durable goods order release painted a mixed picture for the manufacturing sector. Business spending seems to be improving, with transportation leading the way. Higher prices could become a greater problem in the coming months. Shortages in chips and Boeing's woes could also weigh on the numbers over the next couple of months.
Pending home sales in January posted a surprise 2.8% decline, worse than the expected flat reading, and the revised higher prior reading of 0.5%. The housing market rally has hit its peak. Mortgage applications plummeted yesterday, and surging yields will definitely pour some cold water over the hot housing market. The 30-year fixed rate has now risen from 2.85% in early December to 3.08%.
Stocks
Nothing in today’s data changes the script for the Fed or the Biden administration. US stocks will continue to closely take its cue from the trajectory of Treasury yields. If the 10-year Treasury hits 1.50% this week, it will be difficult to remain bullish even with small cap stocks. The Nasdaq will continue to lead the slide lower, while some investors will prefer to continue the rotation back into REITs, consumer staples, financials, and utilities.
FX
The euro is the top performing currency on the day after a survey showed improved economic sentiment across industry, services, and the consumer. The reopening of the eurozone economy however still has many questions as European regulators are once again reviewing their restrictions on who can get vaccinated. The euro rally could be short-lived as US growth exceptionalism and demand for US Treasuries could remain strong in the short-term.
Oil
Thanks to COVID vaccine success, it seems the reopening of the global economy will happen a lot sooner and everyone is rushing to upgrade their crude demand outlooks. Last week’s deep freeze is proving to have a greater impact as producers struggle to fix leaks and burst pipes, which should keep production somewhat soft over the next month. With the US slowly getting their production back to normal and with a low chance that OPEC+ will deliver a repeat of what happened last year between the Russian and Saudis, oil prices seem poised to consolidate higher.
The best case scenario is unfolding for the global oil demand recovery but the crude price rally is reaching exhaustion, which should mean WTI crude should struggle to break the $65 level this week.
Gold
The faster the global bond yields rise, the sharper the fall is for gold. The dollar is down today and weakness in gold is showing no signs of easing. The precious metal is having a rough 2021 and the only thing that can right the ship is if central banks thwart the trajectory of bond yields. The Fed will have plenty of opportunities to stem surging Treasury yields, but for now it seems they can be a little more patient.
At what point does skyrocketing bond yields threaten financial stability? It seems we may have to wait a while longer to find out. If financial conditions breakdown over the next couple of weeks, that could trigger a strong move by the Fed.
The surge in Treasury yields mostly likely can’t keep this pace up so gold should start to stabilize soon. If the bond selloff continues and gold does break critical support at the $1750 level, technical selling could see this get another 5% uglier.
Bitcoin
Bitcoin is rising after a Dubai private equity firm pledged a $4.8 billion investment and after another wave of bullish cases are made at the Bloomberg Crypto Summit. If Bitcoin keeps getting massive endorsements across the globe, like IBC Group’s $4.8 billion investment the liquidity crunch could send prices much higher.
The Bloomberg Crypto Summit will likely deliver a wave of optimism for the cryptoverse. Ark Investment Management CEO Cathie Wood argued that Bitcoin has trillions of dollars of market-cap potential, while Silver Lake co-founder Glenn Hutchins noted that cryptocurrency success will be determined on consumer adoption.
Bitcoin’s success will be determined on how fast corporate America embraces cryptos and on growing institutional interest.
Related: Bitcoin Is on a Wild Ride