THE BIG SQUEEZE

In just a week, the ‘Reddit crowd’ trade which squeezed out seasoned hedge funds from GameStop has gone global.

Herding on the other side of bearish bets proved so profitable in GameStop and other shorted American stocks that it didn’t take long for copycats to emerge across the globe.

On Jan. 26, a seemingly random buying frenzy lifted a handful of stocks across Europe. Soon enough, traders spotted what UK publisher Pearson, German drugmaker Evotec and property firm Unibail-Rodamco had in common: they were among Europe’s most shorted stocks.

The moves then spread to Asia; on Jan. 28 heavily shorted Australian stocks Webjet, Tassal and InvoCare climbed while Malaysian retail investors debated buying into medical glove makers to squeeze out short-sellers.

The ‘Reddit crowd’ has impacted mainstream markets by forcing hedge funds to sell favoured stocks to cover losses. With short bets outstanding against some 5,000 U.S. companies, the action may continue.

OLYMPICS RIDING ON VACCINES

Japan has a lot riding on a mass vaccine rollout, above all its aim to bring thousands of athletes and fans to Tokyo in July for the Summer Olympic games postponed from 2020.

The organising committee says there are no doubts or objections from partners, including the IOC and sporting federations. The government has decided to procure COVID-19 vaccines locally to avoid delays in inoculating its population.

A news conference on Tuesday will provide an update of its plans.

Insurers and local sponsors such as Dentsu Group and Asics Corp have billions riding on the Games. They can only hold their breath until the Olympic torch relay begins in March.

BORROWING BIG

U.S. national debt ballooned 40% under Donald Trump, and President Joe Biden is expected to keep the debtpile growing.

On Monday, the Treasury announces its quarterly refunding plan, followed on Wednesday with details of anticipated auction sizes for each maturity.

It is seen keeping auction sizes steady; even after the enactment of a $900 billion stimulus package, the Treasury should be able to meet 2021 financing needs, Wells Fargo reckons.

Some worry so much borrowing could tarnish the appeal of U.S. debt. Even if Biden doesn’t push through his entire $1.9 trillion spending plan, stimulus expectations were among factors that recently pushed Treasury yields to 10-month highs.

BAD BANKS?

Some of Europe’s biggest banks – Santander , Deutsche Bank and Intesa – soon report results for 2020, a difficult year when lockdowns stalled the economy and put millions of borrowers in financial peril.

The view from Refinitiv I/B/E/S data is for earnings to have contracted more than 50% last year and then to rebound 63% in 2021.

Yet, Europe’s slow vaccine rollout pace is a worry; continued lockdowns would raise uncertainty over whether heavily indebted Europeans can ever repay their loans.

So pay attention in banks’ statements to the number of borrowers still taking payment holidays for car loans or mortgages. And also watch the volume of loans the lenders are reclassifying as at a higher risk of not being repaid.

DEALMAKING, ITALIAN STYLE

A key dealmaking week lies ahead for Italy. The fate of the world’s oldest bank, Monte dei Paschi, is in the hands of Andrea Orcel, the new man in charge at bigger rival UniCredit.

Italy’s Treasury has been studying a sale of struggling state-owned MPS to UniCredit, with hopes for talks to kick off this month. So Orcel, a renowed dealmaker could well be steering the future of not one but possibly two Italian banks.

In Rome meanwhile, ruling parties are having to forge a new deal with Italian Viva, which quit the government and forced the resignation of Prime Minister Giuseppe Conte. The pandemic and the steepest recession since the end of World War 2 add a sense of urgency to the dealmaking.

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