US Market Open: Stimulus and retail trading investigation in focus
Joshua Warner February 4, 2021 12:55 PM
US markets are expected to open mixed today, as investors prepare for the latest jobs data, progress with the latest stimulus bill and an investigation into the retail trading frenzy over recent weeks.
- European markets are trading lower today, as fears grow over new variants of the coronavirus derailing plans for an economic recovery this year.
- The Bank of England left interest rates unchanged and said banks need at least six months to prepare for negative interest rates.
- In forex, the euro sinks against both sterling and the dollar.
- In commodities, oil pushes slightly higher as OPEC+ agrees to extend output cuts.
US markets to open mixed
The S&P 500 is called to open 0.2% lower today at 3834.5 from 3840.1 at the close yesterday.
The Dow Jones is set to open 0.3% lower at 30738.0 from 30815.0 at the end of play yesterday.
The Nasdaq 100 is set to open 0.2% higher at 13449.1 after closing at 13428.6 on Wednesday.
US Treasury secretary and financial regulators to discuss retail trading frenzy
Treasury secretary Janet Yellen and a number of financial regulators from the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission will meet today to discuss the impact of social media-driven retail trading that has caused severe volatility for certain stocks and markets in recent weeks.
Spurred on by sites like Reddit and Twitter, thousands of retail traders have been causing wild price movements in a number of stocks in recent weeks, targeting companies like GameStop and AMC Entertainment that had been heavily shorted by fund managers. Silver has also experienced severe volatility after traders moved onto their next target.
Regulators are due to discuss the impact this is having on the market and whether it is fair for markets, reports suggest, but it is unclear how much appetite there is to introduce swift action as result.
Democrats continue push for new stimulus
Democrats have continued to push ahead with plans to approve president Joe Biden’s $1.9 trillion stimulus bill by giving the green light to a budget plan yesterday that would allow them to pass the stimulus package without the support of Republicans.
The Democrats are keen to gather Republican support for the bill but are refusing to budge on claims that the bill is too costly. The Republicans are far away from the Democrats considering the party has put forward an alternative bill worth just $600 billion.
The room for compromise was demonstrated yesterday, when Biden told Democrats that he could be willing to introduce tighter controls on who would qualify for a $1,400 cheque that, at present, would be sent to most Americans as part of his stimulus bill. However, he said he was unwilling to downsize the payments, which Republicans argue should be closer to $1,000.
Still, Republicans have little leverage to use right now. The House of Representatives approved a budget plan yesterday that would allow the $1.9 trillion stimulus bill to pass without the support of a single Republican. Typically, any resolution would need the support of 60 members of the 100-seat Senate, but the manoeuvre means it could pass by a simple majority. The Senate is still to vote on the proposal. The Senate is currently 50:50 split between both parties, but vice president Kamala Harris has the deciding vote to give Democrats control.
Speaker of the House Nancy Pelosi, a Democrat, said ‘we must use every option at our disposal’ to get the stimulus through.
NVIDIA’s acquisition of Arm comes under scrutiny
The EU and the UK are preparing to launch an in-depth competition investigation into NVIDIA’s $40 billion acquisition of UK chipmaker Arm.
The deal was unveiled last September as NVIDIA aims to purchase the company, which designs chips used in practically all smartphone processors, from its existing owner Softbank. The pair were expecting the deal to take some time, up to 18 months, because of the regulatory scrutiny.
The Financial Tomes said the UK investigation was at an early stage, with the Competition & Markets Authority inviting opinions from market players before launching an official probe, while paperwork is yet to be filed in the EU.
The investigations are thought to have been prompted by complaints from competitors, who worry NVIDIA will get rid of Arm’s neutrality that sees it sell chips under the same terms to customers and use the company to put its competitors, which rely on Arm’s chips, at a disadvantage.
European markets trading lower
The Euro STOXX Index traded down 0.2% in early afternoon trade at 3613.5 from 3621.9 at the end of play yesterday.
France’s CAC 40 was broadly flat at 5573.0 from 5571.0 when markets closed yesterday.
Germany’s DAX was down 0.1% at 13972.0 from 13986.3 at the last close.
Meanwhile, over the Channel, the FTSE 100 was down 0.9% at 6484.3 from 6540.5 at the close of play on Wednesday. City Index analyst Fiona Cincotta has a technical look at the FTSE 100 as the BoE and a slew of blue-chip earnings reports drive movements today.
In today’s Top UK Stocks to Watch, Unilever says emerging markets will help drive future growth, Shell sinks to an almighty loss, JD Sports raises money to fund acquisitions, Barratt builds a record number of houses, BT Group remains on course for the full year, and Cranswick says it will beat expectations.
Bank of England: Banks needs six months to prepare for negative rates
The Bank of England left interest rates unchanged today and said it would maintain the size of its asset purchase programme at £895 billion.
That was expected. The main focus today was on the bank’s willingness to introduce negative interest rates. The BoE said UK banks would need at least six months to prepare for any cuts in interest rates into negative territory, suggesting it is not considering introducing them anytime soon.
‘The Prudential Regulation Authority's engagement with regulated firms had indicated that implementation of a negative Bank Rate over a shorter timeframe than six months would attract increased operational risks,’ the BoE said in a statement.
The bank said it did not want to send a signal that negative rates were on the way but that it ‘would be appropriate to start the preparations to provide the capability to do so if necessary in the future.’
The BoE also revealed that the UK economy is expected to contract by 4% in the first quarter of 2021 but that hopes of a economic recovery in 2021 was still on the cards.
UK to trial effectiveness of combining vaccines
The UK is today launching a trial to examine whether people could receive different coronavirus vaccines when they get their two doses of the jabs. It will assess the response in people having one jab of the vaccine developed by Pfizer and another by AstraZeneca.
If successful, it could provide some major flexibility as countries roll-out vaccines by allowing them to mix-and-match the two vaccines rather than committing people to have two doses of just one vaccine.
Recruitment for the trial will begin today and will involve around 800 participants and initial data is expected sometime in June. That trial is being launched as the UK vaccinated its 10 millionth person yesterday.
UK estimates thousands of coronavirus variants already in play
Nadhim Zahawi, the UK minister in charge of the country’s vaccination programme, said there was ‘about 4,000 variants around the world’ right now, posing a problem for the effectiveness of vaccines.
‘It’s very unlikely that the current vaccine won’t be effective on the variants whether in Kent or other variants especially when it comes to severe illness and hospitalisation,’ the minister said. ‘All manufacturers, Pfizer-BioNTech, Moderna, Oxford-AstraZeneca and others, are looking at how they can improve their vaccine to make sure that we are ready for any variant - there are about 4,000 variants around the world of COVID now.’
Forex: Euro sinks
EUR/USD was down 0.4% in early afternoon trade at 1.19867 – its lowest level in over two months - from 1.20357 when markets closed yesterday.
EUR/GBP was down 0.4% at 0.87866 – its lowest level since May 2020 - from 0.88193 at the last close.
Meanwhile, GBP/USD was broadly flat at 1.36424 after ending yesterday at 1.36434.
Commodities: Oil pushes higher
Brent traded at $58.75 a barrel today, slightly higher from $58.63 yesterday, while WTI had followed higher to $56.04 from $55.90. Brent is now trading at a new 11-month high while WTI sits at its highest level in over a year.
OPEC+ said it would stick to its output policy at a meeting on Wednesday, signalling that producers are satisfied with the supply cuts agreed earlier this year. That, combined with the fact inventories are dwindling, has supported oil prices.
That means supplies will hold steady this month and that Saudi Arabia, by far the biggest producer in the group, will cut 1 million barrels a day from its output this month to build on the cuts it made in January. Reuters reported it had seen one document that suggests the group will keep the oil market in deficit throughout the whole of 2021.
‘While economic prospects and oil demand would remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand’ OPEC said in a statement.
Gold was trading at $1816 today, down from $1843 when markets closed yesterday.
Silver was down 1.6% at $26.47 an ounce from $26.91 at the end of play yesterday.
Market-moving events in the economic calendar
Today is all about jobs. US initial and continuing jobless claims will be published at 1330 GMT, alongside non-farm productivity and unit labor costs. US factory orders comes out at 1500 GMT.
Eyes then turn to the Reserve Bank of Australia as governor Philip Lowe is due to speak at 2230 GMT. Japan’s overall household spending figures come out at 2330 GMT.
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