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Markets

Stocks rise as Reddit 'tumult' comes under US scrutiny

  • World shares inch closer to record peak, up 0.3%.
  • Yellen calls regulator meeting on GameStop volatility.
  • Italian assets shine on prospect Draghi becoming PM.
  • Silver rebounds, Brent crude prices at 11-month high.
Published February 3, 2021
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MILAN: World shares rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about US fiscal stimulus also supported sentiment.

The prospect of former ECB chief Mario Draghi becoming prime minister in Italy added to the cheer, along with record sales at Google parent Alphabet which offset a tepid reception to news that Amazon founder Jeff Bezos will step down as CEO.

The MSCI world equity index was up 0.3% by 1119 GMT, inching closer to its record peak following gains in Asia overnight and a positive open in Europe.

World shares recovered from wild swings last week when a Reddit-driven trading fever boosted heavily shorted stocks like GameStop, forcing hedge funds to reduce their equity books.

Investors were bracing for tougher US markets regulation after Treasury Secretary Janet Yellen asked to discuss whether trade had been consistent with fair and efficient markets. Officials were set to meet as soon as Thursday.

"Regulators have acknowledged the tumult," Deutsche Bank strategists led by Jim Reid said in a note.

Mass buying by amateur investors had lifted GameStop, the US videogame retailer at the core of the frenzy, tenfold before the shares started deflating. In pre-market trade on Wednesday they were down 81% from their peak.

Markets also had renewed hopes for US President Joe Biden's proposed $1.9 trillion COVID-19 aid bill after the Senate took steps to allow Democrats to pass Biden's package without Republican support.

Nasdaq and S&P 500 futures were up 0.7 and 0.4% respectively.

Shares in Alphabet rose 7% in premarket trade after Google's parent topped quarterly sales expectations for its advertising and cloud businesses.

Amazon.com shares were however subdued premarket as the departure of Bezos raised questions about what's next for the group, overshadowing quarterly sales surging above $100 billion for the first time ever.

DRAGHI TO THE RESCUE?

Italian bonds and stocks outperformed on expectations former European Central Bank chief Draghi could become the country's next prime minister, ending weeks of political crisis.

Italy's 10-year bond yield fell more than 10 basis points to around 0.55%, its lowest in almost two weeks. It was set for its biggest one-day fall since mid-January. Italian stocks rose 2.7%, lifted by banks.

The gap between Italian and German 10-year yields narrowed to 101.7 bps from 113 bps late on Tuesday.

The head of state was set to receive Draghi at 1100 GMT and is expected to give him a mandate to put together a high-profile administration that he hopes will win the backing of a fractured parliament.

"A Draghi-led government with a clear mandate and a wider majority is likely to be seen by investors and European partners as the most credible option to face Italy's policy challenges," said UBS analysts and economist led by Giovanni Montalti.

"A technocratic government represents the upside case scenario," they added.

Elsewhere, spot silver, which briefly surged on Monday as small traders bought up the metal, rose 0.4% to $26.7 an ounce. That was a minor rebound from an 8% tumble on Tuesday, and analysts said the retail trader-driven rally to a near eight-year peak in the previous session had faded.

Spot gold fell 0.1% to $1,835.1 per ounce.

Oil prices continued their upswing, supported by an unexpected draw in US crude stockpiles and a producer estimate of a global oil market deficit this year.

Brent crude futures hit an 11-month high and were last up 0.8% at $57.94 a barrel, while US crude futures climbed 0.6% to $55.1 a barrel, just shy of a one-year high.

In foreign exchange markets, the euro hit a fresh 2-month low against the dollar, as investors looked to a widening disparity between the strength of US and European pandemic recoveries.

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