As another week of lockdown passed, leaving those parents battling on with home schooling to start the countdown to half term, it was retail investors that were forced to learn a harsh lesson as the euphoria of taking on Wall Street began to dissipate rapidly.
Coming off the back of heightened volatility, predominantly manufactured by retail investors armed with stimulus cheques and free trading platforms, the week that was started in ominous fashion. It was double science first up starting with Chemistry, as retail investors set their sights on the commodity markets, more specifically Silver. Alloy-ing with others from the Reddit chat forum, retail investors drove up mining stocks on both sides of the Atlantic, creating an element of panic amongst precious metals dealers, who were left scrambling for bars and coins to meet demand.
The iShares Silver Trust ETF, the largest silver-backed ETF available, jumped 7.1%. Data showed its holdings rose by a record 37 million shares in one day alone, in keeping with silver prices hitting an eight-year peak of just over $30 an ounce during the beginning of the week. The rally in silver prices however was also to the benefit of the mining heavy FTSE 100, with specialist silver producer Fresnillo climbing around 10%. Mining behemoths BHP, Glencore and Anglo American also compounded London’s gains, with the blue-chip index rising 0.9% on Monday.
As any physics scholar will tell you, Newton’s law of Universal Gravitation states that “what goes up must come down”, a lesson learned only too well by many of those who participated in the Gamestop rally of the previous week. Many of the stocks filling up notice boards across the internet notched sharp declines throughout the week, GameStop shares were down a further 37% on Thursday, resting at $58.39 versus a peak of $483 a week ago, whilst the cinema chain AMC saw its value more than halved in a few days. It seems the only winners from the whole ordeal were either those who got out early or the heads of the companies themselves, as news surfaced that the directors and executives at Koss Corp, another stock caught up in the trading madness, sold at least $44 million of their holdings this week.
By the end of the week it was back to pure economics as Thursday saw the Bank of England predict the domestic economy will contract during the first quarter after new restrictions to prevent the spread of the Coronavirus were introduced in January. The central bank however kept policy unchanged, including resisting introducing negative interest rates. On the back of this interest rate pause both UK government bond yields and sterling rose.
Global bourses approached record highs on Friday with the US dollar heading for its best weekly gain in three months as progress in vaccine distribution coupled with US stimulus hopes prompted investors to focus on the future and a return to normality. Also aiding positive sentiment was US non-Farm Payrolls, with data showing that the world’s largest economy added 49,000 new jobs this month, broadly in line with consensus forecasts. The data also showed average hourly earnings rising 0.2% with the overall unemployment rate falling from 6.7% to 6.3%.
After a busy start to year, the coming week should prove to be just as colourful as a raft of economic data is released across the globe.
Of course, February can be considered one of the more flamboyant months, summed up by its birth flower, the Iris, itself the Greek word for rainbow; it is indeed on the continent where our week starts as Sentix, the economic surveying firm, release their European Investor Confidence numbers. This acts as a leading indicator of economic health as investors and analysts are highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity. The data has a weighty impact on the market due to its comprehensive sample size. It’s a survey of approximately 2,800 investors and analysts which asks respondents to rate the relative six-month economic outlook for the Eurozone.
Tuesday sees the US Mortgage Delinquencies data come to the fore, detailing American mortgages which were at least one payment late during the previous quarter. As more consumers head into the red, due to economic slowdown brought about by the COVID-19 impact, we have seen an increase in those who are late on their mortgage payments double since March. Being unable to pay the mortgage has a larger impact on the overall economy, affecting more than just the property sector as the banks and lenders which financed these loans can also feel the strain on their balance sheets.
The week is rounded off with the UK’s GDP, an essential piece of data when evaluating how well the nation’s economy is performing. With the gauge having covered the whole spectrum, swinging firmly into the red and then the black as parts of the economy recovered from the initial COVID shock, it will be interesting to see how economy has fared through the early part of 2021. GDP is useful in that it is the broadest measure of economic activity and the primary gauge of the economy's health, measuring the annualised change in the inflation-adjusted value of all goods and services produced by the economy.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in February 2021.