Daily Market Commentary 3rd February 2021

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US equities surged for a second day, wiping out losses suffered by stocks, following the retail buying shock. Market reaction to the ‘reddit buyers’ squeezing short sellers was to ban buying of targeted stocks and only  allow selling. This combined with increased margin requirements seem to have done the job after markets were surprised by the power of the combined retail moves. The restriction of trade was the only option, as a majority of the shares were owned by institutions who could not sell, as they were ‘owned but loaned’ (for a fee).

The RBA surprised markets with a massive expansion of the debt monitisation program. The RBA left rates unchanged but added a further $100 Billion to the QE program, on top of the original $100 Billion. This will be used to monitise State and Federal Debt and fund the banks. The AUD plunged after the surprise news, falling as low as 0.7570, while the NZD dropped to 0.7140. The RBA also indicated historically record rates would continue to 2024, to ensure employment and wage growth returns to a severely damaged economy.

EU GDP contracted 0.7% for the quarter and 5.1% p.a., in line with expectations and understandable considering the extent of the lockdowns politicians have imposed on their peoples. The EUR fell back to 1.2030, while the GBP dropped to 1.3640, assisted by a resilient reserve. The damage being inflicted on global economies is immense and unprecedented and will not be reversed for many years.

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