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Morning Brief
Financial markets remain tense in early Thursday trade after the S&P500 VIX volatility index spiked by around 60 percent on Wednesday, following massive price moves and trading volumes surrounding the GameStop and AMC stocks.
Asian markets have also taken a hit this morning amidst a raft of pre-Chinese New Year profit taking and fears over more wild moves on Wall Street. The Nikkei 225 has suffered its sharpest intraday drop in over three months during the Asian session, while the South Korean KOPSI bled lower with a -2 percent intraday loss.
The fact that the trading action and volatility surrounding GameStop has overshadowed the FOMC policy meeting speaks volumes about the concerns that financial markets have about retail traders targeting other US stocks.
Very briefly, the backdrop for the ongoing turmoil in markets is based on Redditors and Robin Hood traders buying GameStop and other heavily shorted stocks, while hedge funds and Wall Street firms remain trapped in these large short sell positions.
Currently, hedge funds are suffering heavy losses as main street essentially takes on Wall Street. Markets are extremely worried that the power main street now has, and that these online traders could now target any stock, such is the power they have to determine price.
Fears are also high that hedge funds may need to sell existing stocks to cover their losses, sparking fears of a coming sell-off in some of the major US indices, and other large overseas stocks.
The latest news surrounding GameStop is that Wallstreetbets, a discussion forum which is popular with Reddit traders has briefed turned to invitation only mode. This caused GameStop to plunge by around 20%, however, the latest news is that the forum has now reopened.
Getting back to the FOMC decision, the Federal Reserve policy statement gave very few hawkish comments, and largely met the markets expectations. The US dollar index remains notably firm at the moment, despite the Federal Reserve playing down any market hopes of tapering of inflationary pressures.
Speaking of the US dollar, the USDJPY pair is starting to breakout this morning. After weeks of range bound trading action the USDJPY is starting to firm above the 104.00 handle.
Japanese retail sales came in at -0.7 percent, which was much softer that the +0.8 percent figure markets had been expecting. Any weakness in the Japanese yen would be very welcome from the Bank of Japan at the moment.
The Australian dollar is also taking a notable hit, following a decline in risk-sentiment and heavy losses on the Australian ASX. The AUDUSD pair is trading close to the 0.7600 handle, as the greenback holds ground and traders move into safe-haven currencies.
Day Ahead
German CPI inflation headlines the economic docket during the European session, although the central focus of traders will be on weakness in EU stocks and the single currency. European markets have taken their cue from Asia and are set to trade lower.
So far, the euro currency has bounced back after yesterday’s heavy losses, traders will be keeping a close eye on the 1.2060 to 1.2130 price range for the next major directional move. The British pound is notable weaker against the US dollar, after suffering another false breakout above the 1.3700 level after the FOMC policy meeting.
A slew of high-impacting data is set to be released during the US session. US GDP, Weekly US jobless Claims, and Core PCE will be the big market movers for traders and investors. Core PCE is the Federal Reserve’s preferred measure of inflation, so any big rise or fall in this metric has the ability to upset markets.
Metals are notably weak this morning, with gold and silver both failing to capture buying interest after the FOMC meeting. Silver is finally balanced, and recent reports suggests that the metal is starting to capture the attention of Redditors. Thursday looks set to be another volatile trading day.
