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Restrictions on retail trading platforms restore market confidence. US GDP up 4%; US jobless claims fall back. US equities up 2%, UST10s higher after going sub-1%. NZD and AUD show decent bounce-backs

Restrictions on retail trading platforms restore market confidence. US GDP up 4%; US jobless claims fall back. US equities up 2%, UST10s higher after going sub-1%. NZD and AUD show decent bounce-backs

US equities have bounced back strongly overnight after the previous day’s plunge, supported by economic data and a move to curtail speculative activity in the market on retail trading platforms. Better risk sentiment sees the US 10-year rate higher, after temporarily going sub 1% late yesterday, while the AUD and NZD are on a much better footing than they were during Asian trading.

After we went to press yesterday, the Fed’s policy update came and went with little fanfare. Policy guidance on asset purchases was unchanged and Chair Powell pushed back on any talk of tapering purchases anytime soon or concerns about the inflation outlook. On inflation he suggested “it is very unlikely anything we see now would result in troubling inflation.” While “talk of tapering is premature”, adding that the FOMC would communicate any potential policy shift well in advance.

The policy announcement came on a day when market sentiment was looking pretty grim and the S&P500 eventually closed down a hefty 2.6%. Even though the market fell into the close, we wouldn’t attribute that to the Fed’s announcement, which we took as effectively underwriting more juice for the market, even though the Fed claims that low rates don’t have much to do with it and there are no financial stability concerns – apparently the connection between interest rates and asset prices are not as closely connected as many people think (cough, cough).

We’d put yesterday’s market purge as more linked to the stories around retail investors using the market as a play thing to wipe out hedge funds. Bloomberg reported rumours swirling among traders of heavy losses at multiple hedge funds, following the short-selling squeeze induced by retail investors – who have been using public forums to band together and target a handful of small cap stocks. The update overnight has been online trading platforms like Robinhood and Interactive Brokers putting on trading restrictions to reduce speculative activity. Meanwhile the SEC is actively monitoring the situation. 

With some sanity returning to markets, investors have returned and the gain in the S&P500 is currently around 2%.

US economic data have lent a helping hand.  US GDP expanded by an annualised 4.0% in Q4, following the 33.4% surge in Q3, close to market expectations. 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. Even higher frequency (daily) data suggest a possible pick-up in activity early 2021, as the fiscal stimulus kicks in and the number of new daily virus cases eases.

US jobless claims rose by “only” 847k last week, down 67k from the previous week and some 30k lower than expected. 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.

In Europe, Germany’s CPI jumped in January to 1.6% y/y after the temporary sales-tax cut was phased out, while economic confidence in the euro area slipped by less than expected.

US Treasuries were well supported during the Asian trading session, as risk sentiment was poor at that stage, and the 10-year rate got down to as low as 0.994%, but it has since shot back up to almost 1.06%, up over 4bps from the NZ close.

Trading in the NZD matched the changing vibes in risk sentiment – the currency touching a low of 0.7106 before showing a nice recovery and trading near its highs for the day as we go to print near 0.7180. The AUD shows a similar pattern, down to 0.7592, a new low for the year, and now closer to 0.7680. NZD/AUD is little changed for the day at 0.9350.

China’s PBoC has been draining leverage from the financial system over recent days, reducing the incentive for traders to use leverage to speculate in the market, with the carry trade in the bond market having become popular. The move helped support CNY, with USD/CNY down 0.5% for the day to just under 6.45.

Other majors don’t show a great deal of movement. Since the NZ close, the USD has dragged the chain, with GBP and EUR showing modest gains and USD/JPY square at 104.30.

Yesterday, NZ Debt Management announced the appointment of the syndication panel for the new May 2026 bond, with an expected launch sometime next week, with an issue of at least $2b and capped at $4b. Market reaction was well contained. There was good bidding for the 2024 and 2027 bonds tendered, less so for the 2041s, reflected in some very mild curve steepening against a backdrop of slightly higher rates at the close. Swaps outperformed a little, with rates flat to down up to 1bp across the curve.

On the economic calendar, tonight sees the release of a number of monthly US indicators for December and January while Germany Q4 GDP is expected to be flat.

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2 Comments

Quote: 'Restrictions on retail trading platforms restore market confidence. '

There is so much wrong with that, I don't even know where to start: but it's incontrovertible evidence again of how broken and rigged financial markets are - financial markets which by this stage are floating abstracts with no connection to the real economy.

The Fed can manipulate markets by breathtakingly reckless amounts via stimulunancy in the biggest organised state theft in history and for the benefit of the 1%; yet this little band of retail investors organising themselves to operate on the same basis as Wall Street gets cancelled and regulated out of existence to protect the establishment after just one day's trade.

There needs to be a revolution, and that revolution with one goal: get us back to free markets and free market price discovery. The only way there now I am convinced is a total collapse of this rotten at core command system we have forced on us via central banks.

The second the owners of RobinHood pressed the red "Stop!" button, and prohibited traders wanting to buy GameStop up any futher - only allowing them to sell, - they knew it was probably "Game Over" for their business.
Who in their right mind would use RobinHood - or Sharesie, now, for that matter - if at the whim of the site owners, trading can be stopped or manipulated? No one.
So the question to be answered is "How much were they paid to press that button, and what immunities from any subsequent fall-out were they promised".
maybe time will tell us, as it does everything.....