Bassanese Bites: The Big Squeeze – February 01 2021

Global markets

It’s great to be back for another years of Bites! Since I last wrote on December 21, global equities have essentially moved sideways (consolidating after the big push higher in November), while bond yields have pushed modestly higher. The $US is trying to bottom out, while gold remains in retreat and oil prices are trying to push higher.

In terms of fundamentals, the global economy continues to recover despite COVID still raging in Europe and the United States. Indeed, the Q4 U.S. earnings reporting season is surprising to the upside and last week we learnt that the U.S. Markit service and manufacturing PMI indicators for January remained at levels indicating solid ongoing improvement. U.S. Q4 GDP rose by a solid 4% annualised, following a 33% post-lockdown surge in Q3. Inflation remains benign. The message from central banks is that policy will remain firmly accommodative.

The global highlight last week of course was a ‘revenge of the nerds’ retail investor squeeze on a few hedge fund favourite stock shorts, which on Thursday saw the S&P drop around 3% as both short and long positions were liquidated. Whether the retail vs. hedge fund fun and games continues will be a major focus globally this week, which could lead to further market volatility. Otherwise, markets will focus on the progress of Biden’s massive $US1.9 trillion stimulus package in the Senate. Following the total $US4 trillion in stimulus last year, many economists (myself included) feel the price tag on the latest package is excessive, and we may well see a smaller compromise package pass through Washington (albeit with support for lower income households hopefully preserved).

The U.S. earnings reporting season rolls on with Amazon and Alphabet (Google) unlikely to disappoint with their mid-week results. The week culminates with U.S. payrolls, which are expected to show a 50k bounce back in employment after a lockdowns-induced drop back of 140k in December. All up, fears of a double dip U.S. recession due to the lingering COVID problem so far remain unwarranted.

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