Pass the popcorn: Reddit, Robinhood, Melvin and Citadel go to Washington, Bitcoin marks new high at $52k

Get the popcorn ready: The bosses of Robinhood, Melvin Capital, Reddit and Citadel walk up the hill to Congress today, ready to testify in front of the House Financial Services Committee. We also get to hear from Roaring Kitty – aka Keith Gill – the day trader who has been at the centre of the recent pump and dump in GameStop shares, which yesterday declined another 7% to $44. Gill ends his prepared remarks: “I like the stock. And what’s stunning is that, as far as I can tell, the market remains oblivious to GameStop’s unique opportunity within the gaming industry.” 

Aside from the likely grandstanding by certain Democrats, the hearing will be fascinating, and is likely to focus on Melvin’s shorting, Robinhood’s relationship with Citadel – paying for order flow and the possibility it is front running trades – and the decision by brokers like Robinhood to restrict trading on GME and other volatile stocks. It all relates to the incredible short squeeze on GME shares (Something strange is happening on Wall Street) which jumped to $483 at the highs, before losing 90% of their value. 

Armed with $600 stimulus cheques, American consumers were out in force last month. US retail sales soared 5.3% in January. Excluding autos, sales were +5.9%, well ahead of the +1% expected by economists. It came a month after Congress approved a $900 billion stimulus package, which came on top of the $2.2 trillion that was approved earlier in 2020. Capital Economics said this “smashed our own and the consensus expectation … and highlights how quickly reopenings and the $600 stimulus cheques have translated into stronger spending. Q1 GDP could be stronger than the already above-consensus 6% annualised we have pencilled in.” 

Inflation also rose – the US producer price index jumped 1.3% in January, the biggest month-on-month gain since the price series started in 2009. Imagine what is going to happen when $1400 cheques arrive, perhaps as early as mid-March, at a time when the US economy is already recovering thanks to vaccines. 

Why does this matter for stock markets? Higher nominal yields are usually a headwind for growth and tech (think of the last 10 years of monetary policy being like a blank cheque) and should be positive for cyclicals, financials and energy. For the broad market it maybe matters less what the absolute yield is as it does the rate of movement and the flows: any rotation out of equities back into bonds would be a headwind for prices. Nomura analysts say: “We would expect only a mild downward adjustment in US equities if the 10yr yield stays between 1.3% and 1.4%, but in a risk scenario in which the yield tops 1.5%, US equities could correct downward more sharply – by 8% or more.” 

Minutes from the last Federal Reserve meeting showed policymakers are willing to look past higher inflation prints this year. A number of participants expect imminent price increases for goods “whose production has been subject to supply chain constraints, or soon could be; others anticipated that a possibly abrupt return to normal levels of activity could result in one-time increases in certain prices,” the minutes read.  

Bitcoin continues on its merry way and broke above$52,000. More support came in the shape of Rick Rieder, the chief investment officer of fixed income at BlackRock, who said the firm has “started to dabble [in Bitcoin]”. To paraphrase Ron Burgundy, this is kind of a big deal. Number two cryptocurrency Ethereum also rose to a fresh all-time high.  

Oil prices rose to fresh 13-month highs as traders bet shut-ins in Texas will affect oil producers and refiners for a while longer. It’s estimated that US crude output is down by as much as 3.5m bpd as freezing temperatures and power outages have hit the Permian Basin. The Texas governor has halted natural gas exports from the state. API figures showed a draw in crude oil inventories of 5.8 million barrels last week, vs about 2.4m expected. EIA figures are due today, a day later than usual thanks to the Presidents’ Day holiday. Meanwhile sources indicated Saudi Arabia is ready to reverse its unilateral output cut, a flash that weighed on prices after they’d jumped again as the weather in Texas shut in production. OPEC+ meet March 4th to decide on quotas for April.  

The Dow Jones rose 0.2% to record another all-time closing high, boosted by gains for Chevron and Verizon after Warren Buffett’s Berkshire Hathaway revealed sizeable stakes in the companies. Apple dropped almost 2%  as Buffet cut his stake in the company. Berkshire also upped stakes in AbbVie, Bristol-Myers Squibb and Merck. The S&P 500 was flat, paring losses after the Fed minutes. Treasury yields retreated a touch, with 10s dropping a shade under 1.3%. Shares in Wells Fargo jumped 5% even after Buffet revealed he’d cut his stake on reports the Fed is ready to approve the bank’s turnaround plan overhauling risk management governance.

Moonpig shares rose to 444p as the company delivered its first trading update since its IPO. The online greetings card and gift retailer said the significant increase in demand seen in the first half of the year continued through the third quarter. It also reported its strongest ever trading week ahead of Valentine’s Day.  Purchase frequency, say management, remains “unusually elevated” due to Covid-19 related restrictions. The company expects revenues to be “approximately double” the £173 million reported last year. Margins won’t lift however due to increased costs, which include a higher marketing spend and the partial shifting of production to the UK following the Guernsey lockdown. Whilst people are buying cards more often and adding on margin-enhancing gifts more regularly thanks to lockdowns, management expect both to decline as restrictions ease. 

Barclays beat expectations and announced a £700m share buyback programme and said it will restart dividends. However, shares fell 3% as provisions for bad loans offset a strong performance in the investment banking division. Profits slipped 68%, but this was not as bad as feared. Meanwhile provisions for credit losses were also lower than the previous quarter. Corporate and Investment Bank (CIB) income rose 22% to £12.5bn due to strong trading revenues. Consumer, Cards and Payments (CC&P) income dropped 22% to £3.4bn. 

In FX, the dollar index has tested resistance at 91 but is offered at the start of European session, retreating to 90.70. GBPUSD put in a solid defence in the 1.3840-60 channel and has this morning recovered 1.39.