The 10 stories to remember from last week: it was all about "B"s... Biden, "Big" Yellen, Big Tech, Bullion and (battered) Bitcoin

Read the 10 stories to remember from the week which ended January 22, 2021.  

Story #1: Stocks continue to new highs on “Big Yellen”, peaceful Biden’s inauguration

The S&P 500 hit a new intraday high on Thursday before a pullback on Friday. Trading volumes remained exceptionally high due to heavy participation by individual investors. Hopes for substantial new stimulus under the Biden administration appeared to drive much of the gains early in the week. On Tuesday, Treasury Secretary nominee Janet Yellen told the Senate that it was necessary to “act big” to help the economy deal with lockdowns and high unemployment. She added that Biden was focused on supporting the economy rather than raising taxes. Biden’s inauguration on Wednesday took place without any significant protests or violence, which also seemed to calm nerves on Wall Street. On the Covid front, Daily deaths from the virus in the U.S. hit the second-highest level on record on Wednesday, but daily cases and hospitalizations showed signs of moderating.

Story #2: The come-back of BIG TECH means Growth is outperforming Value…again

Communication services shares led the gains in the S&P 500 Index, boosted by a sharp gain in Netflix shares following its report of surprisingly large subscriber gains in the fourth quarter. Facebook and Google’s parent company, Alphabet, were also strong, as were video-gaming stocks, while energy shares lagged as oil prices fell back on a surprising rise in U.S. inventories. As fast-growing technology-related stocks led the gains, the market’s recent rotation into small-caps and value stocks reversed, at least temporarily.

Story #3: Stocks with highest short interest continue to surge

One of the best investment strategies on Wall Street during the QE-ear has been to go long the stocks with the highest short interest. GameStop, for which the short interest was at some point as high as 140% of market cap (!), surged again last week led by a massive short squeeze. The stock surged 50% on Friday, sending the stock to an all-time-high. At one point, Gamestop was the most actively traded U.S. company with a market value above $200 million, data compiled by Bloomberg show, as millions of shares exchanged hands every few minutes. The same day, the “Most U.S shorted stocks” index gained 5%.

Story #4: Bitcoin had its worst week since September

There were lots of headlines about Bitcoin last week as the largest cryptocurrency dropped from a high of $42,000 the previous week to as low as $30,000. There were many reasons brought by experts (and non-experts) to explain this sudden and ample pullback. Among them: concerns about scrutiny by regulators as both Yellen and Lagarde forewarned investors during their speech last week, no positive developments on an ETF, an unconfirmed report from BitMEX research suggesting a critical flaw called "double-spend" occurred in the bitcoin blockchain, bearish comments by Guggenheim CIO (who now fears a pullback to $20k while he was talking about $400k a few weeks ago) and some “bitcoin whales” moving Bitcoin out of Coinbase to engineer a consolidation phase. On Friday, Bitcoin bounced back by 17% n Friday off the level at which it is flat on a year-to-date basis as Microstrategy reported adding to its massive long position. With regards to the other cryptocurrencies, Ethereum hit an all-time high earlier in the week and closed higher on the week but the rest of the big cryptos were lower.

Story #5: Gold and precious metals recovered as the dollar weakened

Gold was volatile during the week but was bid each time to end with its best week of the year. Silver had a strong week as well as the brief rebound in the dollar to start the year seems now to be over. The decline of U.S real bond yields seem to support precious metals performance. Gold's outperformance of Bitcoin this week erased the cryptocurrency's relative gains Year-to-date. The de-correlation between precious metals and cryptocurrencies was apparent.

Story #6: Steady Treasury Yields as Treasury purchases offset positive U.S economic data

Weekly jobless claims fell back from a multi-month high but remained elevated, at 900,000, while IHS Markit’s preliminary gauges of both manufacturing and service sector activity in January surprised on the upside. The housing sector remained in outstanding shape, with existing home sales and housing starts at their highest levels since 2006. Treasury yields remained generally steady over the week. The generally positive economic data helped to offset downward pressure on yields from the Fed’s Treasury purchases and fears of double dip recession in Europe.

Story #7: ECB statement interpreted as hawkish by investors

Core eurozone government bond yields rose after the European Central Bank (ECB) indicated that it may not use the entire amount available in the pandemic emergency bond-purchasing program—news that the market interpreted as somewhat hawkish. Growing expectations for additional U.S. fiscal stimulus under President Joe Biden also sent yields higher. The rise was capped by the PMI survey which suggested that business activity in the eurozone contracted at a faster rate in January, as renewed lockdowns weighed on services. However, factory output expanded for a seventh month, albeit at a slower rate, due to growth in new orders, exports, and backlogs. Peripheral eurozone bond yields largely tracked core markets, although they eased before the ECB’s statement, when Italian Prime Minister Giuseppe Conte won a confidence vote in Parliament. However, this story might be over as Conte is struggling to attract sufficient support among senators to strengthen his minority government and is considering whether to call fresh elections.

Story #8: Flattish Eurozone equities as lockdowns are being prolonged

The STOXX Europe 600 Index finished the week roughly flat as extended lockdowns by most EU countries held back gains. Germany extended its tough lockdown restrictions until February 14. The Dutch government imposed the first nationwide curfew since World War II and banned flights from the UK. EU leaders stepped back from imposing an EU-wide travel ban but warned that stricter lockdowns measures are likely to persist due to the new strains of the virus. Ireland will extend its lockdown, due to end February 5, to March 5.

Story #9: ECB statement interpreted as hawkish by investors

The UK’s FTSE 100 Index fell 0.60%, partly held back by the British pound’s strength relative to the dollar and fears that the strict coronavirus lockdown would not end anytime soon, raising fears that restrictions could last until midyear. However, Gilt yields and the Pound rose on optimistic comments about an economic recovery from Bank of England (BoE) Governor Andrew Bailey and the encouraging pace of inoculations in the UK. BoE Governor Bailey said at an online event that he expected a “pronounced” economic recovery in the UK later in the year due to the rollout of vaccines. Earlier, the BoEs Chief Economist Andy Haldane said he expected the economy to begin to recover quickly in the second quarter, potentially enabling the government to end its support for furloughed workers before the recovery is complete.

 

Story #10: Chinese stocks rallied amid strong economic data and on hopes of warmer U.S.-China relations

The CSI 300 large-cap index rose 2.0% over the week. In an early test case for U.S.-China relations, China's three biggest telecom companies appealed the NYSE’s recent decision to delist their U.S.-listed shares, a move that is expected to receive a response within 25 days. China’s economy officially grew by 2.3% in 2020, near forecasts and underscoring the country’s remarkable recovery from prior-year coronavirus lockdowns. Q4 real GDP growth accelerated to 6.5% year-on-year, making China the only major economy to regain its pre-virus trend. For the year, China benefited from its status of being the first large country to emerge from lockdown, a feat that allowed the production side of its economy to recover as global demand for personal computers, consumer electronics, and medical equipment drove exports. December economic data, including better-than-expected industrial production, showed that momentum in early 2021 remained strong. On the monetary front, The People’s Bank of China left the loan prime rate unchanged for the ninth straight month. In currency trading, China's renminbi was stable versus the U.S. dollar.

Source: www.zerohedge.com, T Rowe Price.  

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