Market Commentary 8th February 2021 from Charlie Hancock

The recent frenzy driven by retail investors driving up highly shorted stocks faded across the week, however, the week started with a group of investors targeting silver. Mining company Fresnillo PLC, one the largest silver producers in the world, saw their share price climb by 21% at one point during Monday’s session, before dropping back as the week progressed to post a gain of 4.29%.

The internationally exposed FTSE 100 index was held back by a strengthening pound. A weak outlook from GlaxoSmithKline (GSK) also weighed on the large cap index, with the pharmaceutical giant’s share price falling by 6.72% across the week, after stating that they expect profits to decline this year.

Sentiment on Europe was mixed last week. News reports covering the slow roll out of COVID-19 vaccines were widespread, whilst economic data was positive, with the Eurozone economy contracting by less than expected during the final quarter of 2020.

Investors were particularly positive on Italy last week, with former European Central Bank president, Mario Draghi, expected lead up a new government. The FTSE MIB, which is the most widely quoted Italian equity index, rallied by 7% across the week.

Investors were focussed on earnings results last week, with almost a quarter of S&P 500 companies reporting during the week. The owner of Google, Alphabet Inc, saw their share price gain 14.30% across the week after posting better than expected earnings, aided by strong growth in advertising revenue. In addition, investors paid close attention to news flow regarding further fiscal stimulus plans from the Biden administration. On Friday morning, the US senate passed legislation to authorise a $1.9 trillion package.

With the short squeeze driven by groups of retail investors fading, GameStop shares declined by 80.74% across the week. Cinema chain operator, AMC Entertainment Holdings Inc, which was another stock targeted during the previous week, fell by 48.84%.

News reports last week suggested that relations between the Chinese state and internet retail giant Alibaba have improved, helping the company’s share price to rise by 4.63% across the week. Alibaba reached agreement with regulators on restructuring plans for its subsidiary company Ant Group, paving the way for Ant’s initial public offering (IPO) to proceed.

Investor sentiment on China was impacted by authorities tightening travel restrictions ahead of the Lunar New Year holiday. Clusters of coronavirus outbreaks have prompted major cities to implement restrictions, with consumer activity likely to be supressed as a result.

Reports suggested that the Japanese central bank intend to allow Japanese government bond yields to rise by reducing their purchases of long-dated bonds. A former deputy governor of the bank stated during an interview that he thinks the bank’s 0% interest rate target will begin to change.

Data released on Wednesday showed that Eurozone inflation rose by more than expected during January, up to an annual rate of 0.90%. This may have contributed to investors anticipating higher interest rates in the future, although some economists noted that temporary factors were behind the increase in inflation, such as an increase in German value added tax.

GBP / EUR – Current 1.1401 Previous 1.1287

The Pound gained 0.20% against the US Dollar, whilst weakness in the Eurozone currency saw the Pound rise by 1.01% against the Euro.

Despite the expectation of further fiscal stimulus from the Biden administration and weakness in the US Dollar, Gold failed to find support amongst investors last week.