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Silver shines bright, fears fade

Stocks are set to finish higher as the fear that dominated the markets last week has faded. 

The swarm of retail investors that descended upon Gamestop recently has turned its attention to silver. Similar tactics were applied, whereby it was discussed on Reddit that the hoard would snap up the metal in a bid to squeeze the price higher. It is remarkable that a band of retail players can help lift an enormous market like silver by such a large extent, at one point it was up over 10%. The wider markets are in good shape, probably because a high single digit percentage move in silver poses less of a threat to certain hedge funds than a colossal short squeeze on selected stocks. It was reported that Melvin Capital took a $7 billion hit due to the Gamestop saga. In the midst of Melvin’s suffering, other investment groups started to cut and run. Although the Reddit-retail investor-fuelled silver rally is a big deal, there have been no obvious losers from the move, which has helped keep a lid on stability fears.         

Fresnillo shares have surged today on account of the short squeeze that has been applied to the underlying silver market. “#silversqueeze” was being touted on Reddit since last week but the intensity of the chatter ramped up over the weekend. The army of retail traders have turned their attention to the metal, hence the upward move. Silver’s rally assisted Fresnillo – one of the largest silver miners in the world. Glencore and Anglo American are higher on the session too.

JD Sports continues to make inroads to the US as it will acquire DTLR Villa, headquartered in Baltimore, for $495 million. In December, JD announced that it acquired the US west coast focused group Shoe Palace. The fact the London-listed group is expanding at a time when most high street retailers are suffering makes the expansion story all the more impressive. JD posted a solid trading update at the start of the year in which it said that full year earnings will be at least £400 million, while equity analysts were expecting approximately £295 million. Seeing as the group sells sportswear it has a relatively young target market, who are more tech savvy, and pivoted to shopping online amid the lockdowns.   

Ryanair warned its full year loss will be €850-€950 million which would be five times bigger than its largest loss – which was posted in the wake of the banking crisis. In the third quarter, passenger numbers tumbled by 78%. The three month loss was €306 million. Travel restrictions combined with lockdowns have hammered the airline industry, recently easyJet and Wizz Air confirmed that quarterly passenger figures fell by 88% and 77% respectively.  In light of the current environment, Ryanair predicts that capacity of 20-25% between April and June, but the July-September period is tipped to be 50-70%. Before the pandemic Ryanair saw a decent increase in ancillary revenue as it made a concerted effort to extract more money from its passengers. The airlines anticipate duty free sales on UK-EU flights should help ancillary revenue. Ryanair is banking on a busy summer season but that will depend heavily on the level of vaccinations being rolled out across the EU, which is currently way behind Britain.      

BP has sold a 20% stake in Oman’s gas unit for $2.6 billion. The oil titan is keen to cut its exposure to fossil fuels and the sale is a part of the wider drive to focus on renewable energy. BP will post its full year numbers tomorrow.   

It was confirmed that ASOS acquired Top Shop, Top Man, HIIT and Miss Selfridge from Arcadia Group for £265 million. The talks were announced last week.   

Hargreaves Lansdown is one of the largest fallers on the FTSE 100. The stock traded higher on the open but it has drifted lower throughout the session. First half net profit increased by 10% to £188 million, activate clients rose to 1.496 million – a record level. Last week the stock hit a five month high so today’s move could be down to profit taking.

Last week Pearson shares rallied and there was speculation that a short squeeze was behind the move. The stock is down 4% today.  

US

Modest gains are being witnessed on Wall Street as some confidence is returning to the stock market. Traders are cautiously buying up relatively cheap stocks following the declines seen last week. Nerves are still in existence due to the power wielded by the group of retail traders that boosted Gamestop, Blackberry and Bed Bath & Beyond last week, all those stocks are lower today.

The ISM manufacturing reading for January was 58.7, down from 60.5 in December. The finer details show that new orders dropped from 67.5 to 61.1 and that impacted the overall update. The prices paid metric increased to 82.1, which could be a sign that inflation is on the horizon.      

Tesla shares were given a hand by Piper Sander who raised its price target for the electric vehicle (EV) manufacturer from $515 to $1,200 – which is roughly 50% above the current trading price. 

Sticking with the EV theme, Nio delivered 7,225 vehicles in January, up 352% on the year.

Hecla Mining, Wheaton Precious Metals and Pan Am Silver are in high demand today due to the lift in the silver market. 

Last year Exxon held preliminary merger talks with Chevron but nothing came of the discussions. It seems the two energy giants considered teaming up amid the pandemic, when the oil prices took a knock as the outlook for global demand was bleak.  There is talk the two groups might restart negotiations but even if that were the case, it would attract scrutiny from the regulator given their size. The new Biden administration is not overly fond of fossil fuels so no doubt the US president would have something to say on the matter.        

FX

The CMC USD Index is testing its 50-day moving average again. For almost one month, the greenback has been pushing higher. According to Reuters, short positions on the dollar dropped last week, it was the first fall in six weeks. The dollar seems to be at a crucial point, whereby a move higher could spark a mini short squeeze, but if the recent gains are given up, it could fall back into the wider bearish trend. EUR/USD and GBP/USD have been hurt by the bullish dollar move. The final reading of manufacturing PMI reports from Italy, France and Germany all showed growth on the month, while the Spanish reading unexpectedly contracted. The UK manufacturing reading for last month was 54.1, up from 52.9 in December.       

Commodities

Silver surged to its highest level since February 2013 as a herd of retail investors has snapped up the metal. The commodity has retreated a little in the past few hours but the bulk of the gains have been maintained. If the past few days have taught us anything it is that the Reddit mob can be very influential when it comes to certain markets. If silver has a sizeable break above $30.00 it should put $35.38 on the radar. Gold has been dragged a little higher by silver’s impressive rally. It’s upward move is far smaller than that of silver but while it holds above the its 200-day moving average at $1,850, its recent uptrend should continue.

WTI and Brent crude oil are higher this afternoon as OPEC’s production increase in January was lower than expected. Saudi Arabia’s 1 million barrels per day production will be in place for the next two months – the move was signalled in early January. Oil has experienced small trading ranges lately and supply concerns could act as a floor under the market.        


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