Hamsters vs. Robin Hood or what small, trained capital is capable of

Oil at $ 55? Euro at 1.35? Nonsense! An enchanting short squeeze organized by Reddit activists temporarily turned off all fundamental factors. Wall St. survived, SEC in panic, Europe in crisis. Only China and COVID-19 are calm.

The market flash mob of retail traders united by WallStreetBets and Robinhood led to cumulative losses for all hedge funds in January of approximately $75 billion, of which $10 billion was in GameStop stock.

Among the victims are Citron, Melvin Capital Management, Maplelane Capital, D1 Capital Partners, Candlestick Capital Management. Over the past 5 trading days, GameStop ranked 3rd in terms of trading turnover among all stocks on the NYSE, behind only Tesla and Apple. And if not for the reporting periods, it would be the first.

References to active amateurs are poorly substantiated − only professionals can unite so many people to play against garbage shares. Even if it is possible to prove conspiracy, these traders cannot be accused of damaging the company. The media suggests that the situation will develop and aggressive «hamsters» are already eyeing new companies. An attempt to raise the price of silver to $ 1000, in the same way, has not yet been successful.

The Biden administration had to react. Spokeswoman Jane Psaki commented on the situation, Yellen controls personally.

Alas, gentlemen always play by the rules; when gentlemen fail, they change the rules. On Wednesday, TD Ameritrade restricted trading in shares of Gamestop and AMC, Robinhood, Interactive Brokers, Schwab and other US brokers imposed restrictions on trading in stocks and options, as well as increased margin requirements. Everything happened without warning, the list of securities closed for trading increased. On the same day, angry traders filed at least two lawsuits against Robinhood. We are waiting for the development of events.

  • FRS

Powell was not pleased with surprises, the final document was practically no different from the December version. Head of FED tried to abstract away from the situation with the «Robingodes», but still had to answer an extremely unpleasant question − are the sharp ups in risky assets, including GameStop shares, the result of the Fed's ultra-soft policy? Powell strongly rejected the idea of using monetary policy tools to eliminate stock market bubbles, even though the market had proven otherwise.

  • Oil

Iran has notified the Biden administration of the deadline for lifting sanctions by February 21, otherwise, Iran will refuse to allow UN inspectors to its facilities and will increase uranium enrichment. US Secretary of State Blinken said that Iran must first return to implementation of agreement. Experts believe that a step forward from Biden could be a decree to revise sanctions against Iran without immediate lifting. Oil is not yet responding to a very serious threat from Iran, but a general risk aversion is hampering further growth.

What do we expect this week?

  • Nonfarm Payrolls, February 5

Expectations for this year's first report are exaggerated, although it is unlikely to be a disaster or unexpectedly strong, and preliminary data will not put pressure on the market. Job growth, especially with revisions upward for December, could lead to a surge in risk appetite. However, doubts about the size of the congressional fiscal stimulus package and fears of FED scrapping QE will ultimately give the dollar an edge. Main focus is on the U3 unemployment rate and labour force participation rate.

  • Eurozone crisis

Last week, the ECB announced the inadmissibility of further growth in the euro and a possible rate cut to counteract this process, this process, and then took his words back at end of week, saying that a rate cut is unlikely, and the growth of euro over the past six months is not significant.

Despite the rather strong data on GDP growth and inflation in the Eurozone countries, the euro remained under downward pressure. Italian President Mattarrella gave the mandate to build a coalition to the speaker of the lower house of parliament, Roberto Fico. Search for a possible coalition continues. The saga is likely to drag on until tomorrow and may end positively if Renzi does not mind keeping Conte, otherwise, the discussion could drag on for a couple of weeks.

  • USA

Media leaked information that the White House is ready to share Biden's $ 1.9 trillion fiscal stimulus package. dollars in two parts, since it does not yet find support from the Republicans. Both chambers will be working this week to pass a fiscal stimulus package through a budget reconciliation process. This means that the tax hike could come earlier than expected, which is bad news for stock market.

Financial committees of both chambers of Congress intend to hold hearings on the situation in stock market, but situation will not be resolved until the appointment of a new head of the SEC.

Please pay attention to the following data:

  • USA − NFP, ISM Industry and Services, ADP report, weekly jobless claims, productivity and labour costs.
  • Eurozone − GDP for Q4, consumer price inflation for January, PMI of industry and services, retail sales and unemployment rate in the Eurozone, factory orders in Germany.
  • UK − Industry and Services PMI, BOE Meeting and Bailey's Friday Speech.

The BOE meeting will be decisive for the pound, any rhetoric about the possibility of a rate cut will send the pound into a downward correction. Key data from the US and the Eurozone will adjust market expectations regarding the outlook for Fed and ECB. On Wednesday we are waiting for the meeting of OPEC + monitoring committee and the first press conference of Janet Yellen as the US Treasury Secretary, as well as the ECB meeting − inside information is required.

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Author: Alexander Ward,
ForexChief Currency strategist