Weekly Market Wrap 01-February to 05-February 2021

Marius Paun | London, UK | Senior dealer | Friday 05th February 2021

In response to the recent spike in volatility regarding the retail trading, the Chicago Mercantile Exchange has increased margin requirements for silver futures by 18% from $14,000 to $16,500. Silver was supposed to be the next target for the so-called ‘Reddit traders’. Its price soared 10% on Monday but following the CME announcement it gave back those gains in the next session.

It was nevertheless a big talking point this week with US Treasury Secretary Janet Yellen calling for a meeting with regulators to discuss the volatility. Despite that, we saw record closes for the S&P, Nasdaq and Russel 2000 during mid-week. Meanwhile, the US Senate voted in favour of President Joe Biden’s $1.9 trillion Covid relief package.

We also had the US nonfarm payrolls data released on Friday showing the economy added 49,000 jobs vs 50,000 expected. The unemployment rate dropped from 6.7% to 6.3% which was surprising as markets were anticipating it to remain unchanged. However, the figure for December was revised down by 227,000. Leisure and hospitality jobs decreased by 61,000 in January adding to more than 500,000 jobs lost at the end of last year. The sector has shed 4 million jobs since before the pandemic.

China’s Caixin PMI Services numbers have been released showing a reading of 52 for January. On another note, Beijing has called for a reset of relations with the US ‘to be put back on a predictable and constructive track of no conflict, no confrontation, mutual respect and win-win cooperation’. The statement added that ‘no force can hold back China’s development and hopes Washington can rise above the outdated mentality of ‘zero-sum major power rivalry’.

The Eurozone’s Q4 GDP came in at -0.7% vs -0.9% consensus quarter on quarter which amounts to a drop of 5.1% for the year. It shows the economy shrank amid tighter covid restrictions. In the present first quarter, there are ongoing expectations for a similar tough outlook and authorities cannot disregard the likely prospect of a double-dip recession to follow.

In the UK, Bank of England left the benchmark interest rate unchanged at 0.1% with all 9 members voting in favour. The asset-buying program was also left unchanged at £895 billion. The central bank commented the financial markets are resilient, GDP is projected to recover to pre-covid levels over 2021, vaccine rollout should help ease restrictions but the outlook for the economy remains uncertain. Interestingly the inflation is anticipated to rise towards the 2% target sometime in spring.

Gold prices dipped below $1800 for the first time since last December. It seems the deficit worries and inflation concerns are not hot enough to spur precious metals renewed buying yet. It might have been that the big push from retail trading on Monday run its course rather quickly and the disappointment spilt over into gold as well, now trading around $1812.

Bitcoin has continued to recover this week. After dropping below 30,000 in the last two weeks, the cryptocurrency leader pushed back towards 38,000. The momentum looks solid and a retest of 40,000 could be on the cards.