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Equity markets rally in respite from recent rout

·4-min read
Activity in China's economy showed signs of slowing in January as a spike in virus cases forced authorities to reimpose containment measures in parts of the country

Asian and European stock markets bounced Monday following last week's blood-letting as bargain-buyers moved in, but dealers remain on edge as surging infections and a stuttering vaccination rollout offset long-term hopes for the economic recovery.

Worries about online retail investors' attack on Wall Street short traders was also causing angst on trading floors, with fears they are being forced to sell some equities to cover their backs while silver rallied as it became the new target of buying.

Global markets were a sea of red last week owing to a combination of issues including rising virus cases, problems with countries' immunisation programmes and worries about high valuations following a months-long rally.

New York's three main indexes all ended Friday with steep losses and there is talk that equities will see a correction.

Still, the new week started on a positive note, with Hong Kong and Seoul up more than two percent, while Tokyo and Taipei jumped more than one percent. Manila and Jakarta piled on more than three percent and there were also big gains in Shanghai, Sydney and Bangkok. Singapore and Wellington both fell.

Mumbai soared more than four percent as traders welcomed the announcement of a big-spending Covid-19 budget that will see billions splurged on a range of measures including infrastructure and healthcare.

London, Paris and Frankfurt opened on a positive note while US futures all rose.

"Despite lockdown and mobility restrictions tightening, leading to a first-quarter slowdown, the global economy will register the most vigorous global growth explosion in decades in 2021," said Axi strategist Stephen Innes.

"And when combined with the continued policy support, it should ultimately outweigh any risk parity-driven sell-off in stocks."

He added that while the vaccine rollouts were having teething problems, they "will ultimately be the linchpin for the global recovery".

But he warned there was a growing fear that the spread of more highly infectious variants of the virus could slow the easing of containment measures, which would affect the global recovery and could lead to some nations seeing a double dip recession.

- Bad news is good news -

Data out of China at the weekend showed growth in economic activity appeared to have slowed in January as officials imposed fresh containment measures to counter new clusters of the virus in parts of the country.

But economist Lu Ting said: "Bad news on PMIs could be good for sentiment on policies.

"Markets have in the past week been worried about a potentially sharp shift in Beijing's policy stance, but (the) relatively poor news... could convince Beijing that now is not the time to make such a sharp shift in its policies and may also assuage those market concerns."

The spotlight was also still on Washington with lawmakers urged to push through a new stimulus for the struggling US economy.

There is a feeling that Joe Biden's $1.9 trillion plan will be willowed down as Republicans look to lower the cost, while a group of 10 senators from the party have proposed an alternative package, which they say could win the bipartisan support Biden has said he wants.

Senator Susan Collins, a moderate, said the group would release details of their plan Monday.

Traders have also been rattled by the soaring price of some companies that have been targeted by amateur investors who have organised over Reddit and other online forums.

Their huge buying spree of firms led by video-game store GameStop and cinema chain AMC has hammered short selling hedge funds who have bet their price would fall.

"Markets remain nervous that hedge funds that are short will be forced to sell other assets to cover losses, while the wave of retail money is also prompting debate around equity valuations," said National Australia Bank's Tapas Strickland.

"Importantly the SEC (Securities and Exchange Commission) does not appear to be stepping in the way of this wave of money chasing shorted stocks, suggesting in the near-term this phenomenon is set to continue."

Observers said silver appeared to be the next target, with the commodity up more than 10 percent since Thursday.

"The herd mentality of the retail players ruffled the feathers of the old guard. It highlighted how much disruption could be caused when individuals band together," said CMC Markets analyst David Madden.

- Key figures around 0900 GMT -

Tokyo - Nikkei 225: UP 1.6 percent at 28,091.05 (close)

Hong Kong - Hang Seng: UP 2.2 percent at 28,892.86 (close)

Shanghai - Composite: UP 0.6 percent at 3,505.28 (close)

London - FTSE 100: UP 0.6 percent at 6448.22

Euro/dollar: DOWN at $1.2098 from $1.2132 at 2150 GMT Friday

Dollar/yen: UP at 104.87 yen from 104.72 yen

Pound/dollar: UP at $1.3724 from $1.3695

Euro/pound: DOWN at 88.13 pence from 88.57 pence

West Texas Intermediate: UP 0.9 percent at $52.68 per barrel

Brent North Sea crude: UP 1.2 percent at $55.68 per barrel

New York - Dow: DOWN 2.0 percent at 29,982.62 (close)

dan/jfx