Markets Seesaw on r/WSB Volatility – GDP Ahead

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Risk off flows resume
US GDP on tap
Nikkei -1.53% DAX -1.40%
UST 10Y 1.0%
Oil $52.8
Gold $1842/oz.
BTCUSD $3468/oz.

Asia and the EU
EUR Con. Confidence -15.5

North America
USD GDP 8:30
USD Weekly Jobless 8:30

Equity markets went on a wild ride in Asian and early European trade today with Nasdaq futures seesawing by more than 1% as traders became concerned about structural stability and possibly regulatory attention over the massive volatility incurred in stocks such as Game Stop.

Game Stop was down more than 67 dollar in post market trade after Reddit announced that it will now close off the wallstreetbets subreddit to further members citing volume concerns. The r/wsb channel has been instrumental in orchestrating massie short squeeze raids on some of the fundamentally weakest, most shorted names in the stock market creating unheard of volatility. GME was up 600% as a result with option action adding fuel to the meteoric rise. The stock traded 40M shares yesterday with option contracts representing another 100M shares in open interest.

GME is just the most visible of the names that have wreaked havoc on hedge funds that shorted it while attracting unprecedented attention from retail speculators. The concern now is that the recent volatility which is unsustainable and will end once the shorts are fully squeezed out will result in many micro crashes of the targeted stocks and will create market instability and perhaps unwanted oversight that will ultimately impact liquidity.

Ironically the actual fundamental data from the well established names such as MSFT, AAPL and FB has been quite good beating earnings expectations this week. However, investor attention has been fully consumed with these side issues and the reaction to the earnings data has been muted at best.

On the macro front the market will also get a look at the US GDP numbers for Q4 which are expected to come in considerably weaker than the period prior. The forecast is for 2.4% growth vs. 3.7% in Q3 and if the number prints even weaker it will argue for President Biden’s stimulus bill in full. So bad news may actually be good news for stocks if traders anticipate the prospect of full stimulus spending.

The macro data however may be quickly swept aside for the focus back on the internal plays in the smaller name stocks especially is massive volatility continues for fifth day in a row.

Boris Schlossberg
Managing Director

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