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Europe suffers amid restriction worries, GameStop booms

Stock markets had a lacklustre start to the session but the selling pressure picked up throughout the day. 

Europe

Concerns that additional and stricter restrictions will hamper the economic rebound in the wake of the pandemic are weighing on market confidence. It is believed that Britain will tighten rules in relation to people flying into the country. France already has a countrywide curfew in place and there is growing talk a third national lockdown will be introduced. The latest services data from France underlined the impact of the existing measures, so another lockdown would add to the economic suffering. The EU’s distribution of the coronavirus vaccine has been slow, so that is also playing on dealers’ minds as it doesn’t seem that restrictions will be lifted anytime soon. The UK’s rolling out of the vaccine has been quick when compared with its continental neighbours, hence why the FTSE 100 and the FTSE 250 haven’t fallen as much as eurozone indices.      

Airlines are in the firing line today as dealers are turning their backs on the sector after Matt Hancock, the British Health Secretary, warned that tougher measures with respect to people arriving from overseas will be introduced. It is understood that restrictions will relate to quarantines. There will probably be a decision made at tomorrow’s cabinet meeting. Any additional constraints are likely to dissuade some people from flying to the UK, hence the falls seen in the sector. International Consolidated Airlines Group has dropped 7%, Wizz Air, Ryanair and easyJet are lower too.    

Boohoo shares are shaking off the wider bearish trend. The online fashion house paid £55 million for the intellectual property assets of Debenhams – who went out of business at the back end of last year. The lockdowns clobbered high street retailers but by the same token, e-commerce groups saw demand skyrocket. Debenhams were too slow to adapt to the changing nature of the industry, while Boohoo was well positioned to take advantage of the online shopping boom that was seen across the board in 2020 as a result of lockdowns. Arcadia Group owns popular brands like Top Shop and Top Man, the firm went into administration in November. This morning it was reported that ASOS is contemplating bidding for some of their assets.

Ocado, the online grocery, is also in demand as it seems the wider worries about tight restrictions have benefitted the stock.              

US

The mood is a little downbeat in the US as the Dow Jones and the S&P 500 are in negative territory. US lawmakers are debating the $1.9 trillion stimulus plan put forward by President Biden so that is counteracting the lockdown-related news in Europe. A number of major companies, such as Apple, Tesla and Facebook, will post their latest quarterly updates this week, so those reports will be in focus.    

GameStop shares are building on Friday’s massive rally as there is talk the stock is undergoing a huge short squeeze. Volatility soared today – a new record high was set. The stock’s recent bullish run began in the middle of this month when it was announced that Ryan Cohen of Chewy, an activist investor group, was appointed to the board of directors in a bid to help turnaround the troubled company. The stock fell to an all-time low in April as confidence in the group plummeted amid the pandemic. It is understood that a sizeable portion of the company’s stock has been shorted, so when the Ryan Cohen story broke, it triggered a painful short squeeze.       

AMC shares have jumped too after Adam Aron, the president of the beleaguered cinema chain, declared that any bankruptcy talk was completely off the table because the group raised an extra $917 million in funding from an equity and debt issue. The cash will give the group some valuable breathing space. AMC should be able to continue operating for the rest of 2021 when you take into consideration the new financing. Survival will also depend on if they receive further concessions from landlords as well as an increase in attendance levels.

Moderna shares are up over 5% as it was announced their Covid-19 vaccine is effective against the ‘UK strain’ of the virus, which has a high transmission rate.    

FX

The US dollar index is up 0.3% as risk-off sentiment prevails. The greenback has proved to be popular lately when assets that as deemed to be riskier, such as stocks, are lower. GBP/USD and EUR/USD have been hit by the positive move in the US dollar. It has been a quiet day for economic announcements. The German Ifo business climate index for January was 90.1, undershooting the 91.8 that economists were expecting, and it was a drop from the 92.2 posted in December. The new orders expectation fell to 91.1 – the lowest reading since May 2020.  

Ethereum has set a new record high as cryptocurrencies have seen a jump in volatility recently.          

Commodities

Gold has traded in a small range today as it seems the metal doesn’t know which way to turn as it is being influenced by the risk-off mood as well as the dollar. Historically, the commodity has gained ground when stocks suffered but the upward move in the greenback appears to be capping any potential gains.

Oil is holding up alright amid the wider bearish sentiment. Fears that demand for the energy will slip because of extra and tougher restrictions are being balanced out by supply issues. The authorities in Indonesia have seized oil exports from Iran, while in Libya, the oil guards stopped exports due to a pay dispute. WTI and Brent crude are a touch higher this afternoon.         


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