Wall Street rises despite weak GDP data; GameStop frenzy continues - as it happened

Julia Kollewe

from Economics | The Guardian on 2021-01-28 15:22 (#5DDYY)

3.22pm GMT

Most major European markets have turned positive, following in Wall Street's footsteps, with the exception of the UK's FTSE 100 index.

3.07pm GMT

New home sales in the US increased 1.6% month-on-month to 842,000 in December, below forecasts.

Adam Button, chief currency analyst at Forex Live, says:

This is a hiccup in a hot market. It's not the home-buying season and home builders, including DR Horton this week have talked about high interest and offering almost no incentives to buyers.

#UnitedStates New Home Sales at 0.842M https://t.co/Wg3ediAKM7 pic.twitter.com/CqAHzpb5po

2.53pm GMT

GameStop shares have risen more than 13% to $394 in early trading, after surging 40% in pre-market trading -- despite restrictions by online trading platforms. The ailing video games company is now worth $27.5bn.

However, Blackberry shares -- another stock that had soared -- fell 22.3%.

2.43pm GMT

The online trading platforms Robinhood and Interactive Brokers said today that they had restricted trading in shares of GameStop, BlackBerry and other companies that have skyrocketed this week amid a social media-driven trading frenzy, according to Reuters.

2.39pm GMT

Shares have risen on Wall Street, despite the slowdown in fourth-quarter GDP to 4% from 33.4% in the third quarter. 2020 was the worst year for the American economy since the end of the second world war, with GDP declining by 3.5%. But the figures were in line with forecasts and economists expect the economy to pick this year.

The more modest 4.0% annualised gain in fourth-quarter GDP was mainly due to some temporary weakness in consumption, which was dragged down by the resurgence in coronavirus infections. With coronavirus cases now falling and Congress agreeing on a new $900bn stimulus late last year, we expect consumption growth to accelerate again in the first half of this year. First-quarter GDP growth should be 5% and second-quarter growth could be nearer 10%, particularly if Congress agrees on more stimulus.

2.26pm GMT

Other data released today showed the number of Americans filling for first-time jobless benefits fell slightly to 847,000 but remained high.

BREAKING: U.S. weekly jobless claims drop to a still-high 847,000 as coronavirus virus continues to strain economy, labor market. https://t.co/5zl2fSD6S2

JUST IN: Number of Americans filing for first-time unemployment claims fell slightly to 847,000 last week.

The weekly figure is still 5 times higher than its pre-pandemic average. https://t.co/AhjuQnc9qo

2.23pm GMT

James Knightley, chief international economist at ING, has looked at the US fourth-quarter GDP data in more detail. The economy grew by 4% in the October to December quarter, down sharply from the 33.4% surge in the third quarter, which came after big declines in the first half of the year when the economy ground to a halt because of the Covid-19 pandemic.

There was undoubtedly a loss of momentum as Covid restrictions tightened, but early signs suggest 2021 is starting well with the latest $600 fiscal stimulus payment boosting spending, California starting to re-open and the vaccination program gaining momentum. 5%+ growth looks achievable this year.

The details show consumer spending grew 2.5% with reintroduced Covid containment measures in several areas clearly having an impact on consumers' willingness and ability to spend.

2.12pm GMT

Back to the GameStop share frenzy. A spokesperson for the Financial Conduct Authority, Britain's financial regulator, has told us:

The FCA is aware of the situation and continues to closely monitor trading in UK markets. UK investors should take care when trading shares in highly volatile market conditions that they fully understand the risks they are taking. This applies to UK investors trading both US and UK stocks.

Firms and individuals should also ensure they are familiar with, and abiding by, all regulations including the market abuse and short selling regimes in the jurisdiction they are trading in.

1.57pm GMT

The US Commerce Department says:

The increase in fourth quarter GDP reflected both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the Covid-19 pandemic, including new restrictions and closures that took effect in some areas of the United States.

1.51pm GMT

The US economy shrank by 3.5% last year, the figures show -- the worst year since 1946. It's the first annual contraction since 2009, the height of the financial crisis. when the economy declined by 2.5%.

US economy grew 4% QoQ (annualized) in Q4 driven by strong business and residential investments. Investments should power growth in 2021 as well. Private consumption continues to recover, but at slower pace. In Q4, US GDP was 2.5% lower YoY - much better than situation in Europe pic.twitter.com/BSpciJkFZx

2020 was the worst year for economy since 1946.

US GDP fell by -3.5%, @BEA_News reported this morning.
(The worst year of the Great Recession saw -2.5% GDP in 2009).https://t.co/mKbBq3E34T via @rachsieg @andrewvandam

1.36pm GMT

NEWSFLASH: The US economy grew at an annual rate of 4% in the fourth quarter, following 33.4% growth in the previous quarter, when the economy bounced back after sharp declines earlier in the year caused by the coronavirus pandemic, according to the advance estimate from the US Commerce Department.

1.27pm GMT

German inflation in January came in at 1.0% year-on-year, from -0.3% in December. The harmonised index, relevant for European Central Bank policymaking, surged to 1.6%.

OOPS! German #inflation jumps to 1% YoY in Jan vs 0.7% expected and after -0.3% in Dec. Surprising jump in inflation is largely attributed to the changes in VAT that came into effect in Jan. In July, Germany reduced VAT to 16% from 19% until the end of Dec due to coronavirus cris pic.twitter.com/9d6L0AeMpB

This was the largest monthly increase in a long time.

Before anyone gets too scared, this surge is mainly the result of the reversal of last year's VAT reduction, higher energy prices and the new carbon tax.

12.40pm GMT

The US video games retailer GameStop has reversed last night's after-hours losses, and jumped a further 40% in pre-market trading as the frenzy continues, with an army of small investors buying the shares. The shares are trading around $490, after briefly venturing above $500. The shares were worth $40 a week ago, and $3.25 in April.

The US Securities and Exchange Commission and the White House both said yesterday that they were monitoring" the moves.

A surge of retail stock trading over the last year lit the fuse that sent shares of GameStop rocketing higher without a clear business reason, market watchers say, squeezing hedge funds that had bet against the retailer and other companies that were out of favor on Wall Street pic.twitter.com/38jPCjXb0e

12.27pm GMT

Let's have a look at some of today's stories.

Lidl's British business fell 25m into the red last year after spending heavily on new stores, despite ringing up strong sales growth.

12.02pm GMT

Stock markets remain firmly in the red.

11.13am GMT

Turning to the other highlight in the US today, the first estimate for GDP growth in the fourth quarter...

Michael Hewson, chief market economist at CMC Markets UK, says:

Today's Q4 GDP numbers are likely to be much weaker. Personal consumption accounts for over two thirds of US GDP and the slowdown in November and December is likely to reflect a rather weak end to 2020. Expectations are for annualised Q4 GDP to come in at 4.3%, a sharp slowdown from the 33.4% seen in Q3.

Robust business, housing and inventory investment, together with moderate growth in consumer spending, should readily more than offset downward contributions from net exports and public spending.

11.07am GMT

The GameStop frenzy continues. It briefly went over $500 in pre-market trading. You can see the latest value in pre-market trading here.

10.44am GMT

The GameStop share price is yo-yoing, after the recent dizzying rises prompted the US regulator and the White House to say that they would monitor" developments.

GameStop and other shares fell 20% after the Reddit WallStreetBets online discussion forum was closed for about an hour last night, but then rose again. The stock surged as high as $377 in pre-market trading. Last night, the shares had closed 134.84% higher at $347.51 -- an extraordinary rise from $3.25 in April.

Omg. There's a WallStreetBets/sea shanty mash-up. And it it is *glorious*. pic.twitter.com/wwRF40KgRK

10.22am GMT

In the eurozone, the final reading for consumer confidence from Eurostat is -15.5, the same as the preliminary figure. Economic confidence came in at 91.5, better than the 89.6 expected.

Justin Low, currency analyst at Forex live, says:

Economic confidence beat estimates but eases slightly from the higher revision towards the end of last year. Tighter virus restrictions being prolonged are still tempering with optimism in the first quarter in general but the outlook for the rest of the year remains somewhat intact.

Eurozone January final consumer confidence -15.5 vs -15.5 prelim https://t.co/YIp6j32vNE

10.12am GMT

Ashik Musaddi, an analyst at JPMorgan Cazenove, says:

Given that Prudential is de-merging Jackson as opposed to IPOing Jackson, it now plans to raise around $2.5-3bn fresh equity, which we believe they would have got by IPOing Jackson.

On the one hand it looks like negative news, but on the other hand it is more or less the same strategy to get some cash flow flexibility for Asian operations following the disposal/spin-off of Jackson. In our view, this additional capital will help it reduce debt leverage at the holding company while maintaining liquidity for Asian inorganic growth prospects.

10.06am GMT

Prudential shares are are the biggest faller on the FTSE 100, down 7.7%.

The British insurance and savings firm said it would spin off its US business Jackson to focus more on its fast-growing Asian and African businesses, and is also mulling plans to raise $2.5bn to $3bn in new equity.

9.57am GMT

While stock markets are tumbling, Diageo is the biggest riser on the FTSE 100 this morning, up 3.6%. Strong sales of tequila and bourbon in the US, and a recovery in China, contributed to organic net sales growth of 1% in the six months to December.

Analysts had expected a 4.6% drop. In North America, its largest market, sales jumped 12.3% despite the pandemic.

Diageo has recorded organic sales growth in the second half of the year, which is no mean feat given the disruption coronavirus has inflicted on the hospitality industry. Unfavourable exchange rate movements mean this underlying growth didn't show up in the headline numbers, but it's the figure to focus on.

Almost all the growth was driven by North America, which posted a healthy 12% organic sales growth. A chunk of this was retailer and distributor restocking, but it's still a strong performance. Other markets have been weaker, but overall the group has done a good job pivoting towards new sales channels this year.

9.40am GMT

Consumer confidence in Italy worsened at the start of the year. The National Institute of Statistics' consumer confidence index slipped to 100.7 in January from a downwardly revised 101.1 in December.

The gauge measuring personal situation (106.5 vs 107 in December); economic climate (83.4 vs 83.5) and future climate (103.2 vs 105.3) all deteriorated. On the other hand, sentiment improved regarding current conditions (99 vs 98.3).

#Italy Consumer Confidence at 100.7 https://t.co/XJSY9k6oop pic.twitter.com/qNVQ5w5gmH

9.00am GMT

The BBC reported earlier this month that bookings at easyJet's holidays arm were up 250% on last year, after talking to its chief executive Johan Lundgren.

An easyJet spokesperson told me today:

Some customers are making plans for their summer holidays now, with easyJet holidays bookings for Summer 2021 currently significantly ahead of last year, although it is evident that many customers are looking for further certainty around quarantine rules prior to booking.

8.55am GMT

The share sell-off is gathering pace, as worries over extended coronavirus lockdowns and issues with the vaccine rollout in Europe come to the fore again.

8.32am GMT

Over here, easyJet had another grim quarter at the end of last year when revenues slumped almost 90%, but the budget carrier is still planning for a surge in travel later this year if Covid-19 restrictions are relaxed in the wake of mass vaccination.

Global air travel collapsed when the pandemic started just under a year ago and tough restrictions on travel were imposed, but airline executives are hopeful that vaccination programmes in the UK, US, Europe and other countries will allow governments to ease the current lockdowns.

Wizz Air's management continues to roll out an aggressive expansion plan. With historical roots in the Eastern European business, Wizz Air has announced a slew of new base openings in 2020 and aims to become the biggest carrier at Gatwick within five years.

The results today reflect that ambition as well as the airline's cost flexibility: While revenue numbers disappointed against expectations, with a 76.5% reduction year-on-year, Wizz beat expectations on profitability. EBITDA, a proxy for cash flow, hit negative 41m for the quarter.

8.12am GMT

The latest penny stock to jump in the rally fuelled by the online US discussion group Reddit is BB Liquidating Inc., the final remnant of the bankrupt video-rental company Blockbuster, as Bloomberg reported.

The share price surged as much as 302% yesterday and closed 120.88% higher, following Tuesday's whopping 774% spike.

Blockbuster stock up 774% this morning https://t.co/ExnZbfl3f6

8.05am GMT

And we're off! European stock markets have recorded chunky losses at the open. The UK's FTSE 100 index, Germany's Dax and Italy's FTSE MiB all lost about 1% in the first few minutes of trading.

7.47am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The extraordinary surge in the share price of the ailing US video games retail GameStop and other companies has drawn the attention of the White House and the US regulator, the Securities and Exchange Commission, which both said they were monitoring" the situation.

While few people are shedding many tears about large scale hedge fund losses, after all if you play with fire, be prepared to get burned, the market turmoil is highlighting a number of areas within the market, that might prompt regulatory scrutiny in the future, namely the monitoring of retail trade chat forums and message boards, and how they drive markets.

With large numbers of small investors swarming over heavily shorted stocks in what looked like a coordinated move, the frenzy raises all sorts of questions with respect to possible market manipulation.

We don't expect the Fed to begin tapering its asset purchases until early next year and think the first interest rate hike could be delayed until 2024.

If the vaccination program gains momentum and consumer spending rebounds sharply on re-opening, QE tapering will increasingly become a theme for markets.

In the press conference [Fed chair Jerome] Powell again argued that the economy is a long way from being healed and by implication that withdrawing the stimulus too early outweighs the risks from withdrawing it later.

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