Risk sentiment looked to recover on the first day of February coming off the largest weekly decline for US equities since October.
The presence (and perseverance) of the retail crowd was on display again as silver surged to an eight-year high.
The Reddit crowd has determined — and I’m quoting WallStreetBets here — that silver is “THE BIGGEST SHORT IN THE WORLD.” It’s far from clear whether this market is as susceptible to being commandeered by the common man (so to speak) as beaten down shares of GameStop and AMC, but Monday’s frenzy did manage to push the most-active future through $30.
It’s also not entirely clear who it is Reddit is angry at in this particular trade. One theory floated by the Reddit faithful is that banks are deliberately suppressing the price of precious metals in a conspiracy to hide inflation. But gold outperformed every other major asset in 2020 (it rose nearly 25%) and silver is up some 70% over the past 12 months. There are myriad additional factors which appear to make this incongruous with last week’s squeeze in GameStop, AMC, and the like. But narrative consistency (or a lack thereof) probably won’t deter this crowd.
If nothing else, they can probably manage to push around shares of miners, and I suppose money is money.
Stepping away from this train wreck in waiting, the yuan fell Monday as the market pondered softer PMIs out of China and signs that the PBoC is done engineering a cash crunch that drove interbank rates sharply higher last week.
The color accompanying the Caixin release wasn’t particularly upbeat. “Overall, the manufacturing sector continued to recover in January, but the momentum of both supply and demand weakened, dragged by subdued overseas demand,” Wang Zhe, Senior Economist at Caixin cautioned. “The gauge for future output expectations was the lowest since May though it remained in positive territory, showing manufacturing entrepreneurs were still worried about the sustainability of the economic recovery. In addition, the weakening job market and the sharp increase in inflationary pressure should not be ignored.”
“There’s a risk that the yuan could see some long unwinding if coronavirus infections continue and result in lingering social restrictions, which in turn affects what is already a subdued consumption dynamic,” one FX strategist said Monday.
“I don’t think the PBoC has any intention of driving up borrowing costs further or causing more volatility in money markets,” AxiCorp’s Stephen Innes remarked. “The central bank’s moves late last week suggest to me that it’s becoming cautious about the market’s overreaction to liquidity tightness.” The PBoC injected 98 billion yuan Monday. Overnight rates dropped for the first time in six sessions.
Meanwhile, in the world’s fourth-largest economy, retail sales fell 9.6% MoM in December, as lockdowns in Germany crimped buying. That was far worse than even the most pessimistic estimate from nearly two-dozen economists. The YoY rise (1.5%) was also a big downside miss. The market was looking for a 4.7% gain.
Also on traders’ radar to start the week will be talks between the Biden administration and GOP lawmakers who ludicrously believe the White House might be inclined to accept a “compromise” stimulus package worth $600 billion. They (the GOP) are pitching it as a “targeted” bill and hoping to capitalize on Biden’s almost desperate desire for bipartisanship. But last I checked, $600 billion is not half of $1.9 trillion, although admittedly, recent price action in the Reddit favorites does make one question the viability of traditional math.