WATCH: European stocks on track for worst week since October
Stronger-than-expected GDP data failed to lift European stocks on Friday, as vaccine delays and concerns over the ‘short squeeze’ rattled markets.
Leading European indices fell sharply following declines in Asia overnight, with US stocks also opening lower as the GameStop (GME) fallout rumbled on.
Shares in the video game retailer soared more than 60% in early trade in the US on Friday. GameStop and other shorted stocks face continued volatility, after broker Robinhood lifted restrictions that had temporarily curbed retail investors’ co-ordinated attack on hedge funds’ short positions.
Analysts said concerns over this week’s drama had rattled wider markets, despite the far more limited squeezes and levels of short interest in European stocks versus the US. The VSTOXX volatility index for European leading stocks hit its highest level since November.
But concerns over vaccine delays and lockdown curbs in swathes of Europe appear a greater worry.
“The initial euphoria at the start of January has given way to concerns about extended lockdowns and tighter restrictions for longer across Europe,” said Michael Hewson, chief market analyst at CMC Markets UK. “An added concern is the prospect of a slower vaccine rollout, as well as disruption to vaccine supplies.”
Parts of Germany, Spain and France have seen stocks of coronavirus vaccines run out, as tensions continue to grow between the EU, AstraZeneca and the UK over shortfalls in EU supplies.
The market declines come in spite of GDP data on Friday proving more resilient than anticipated by analysts.
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The French economy shrank by 1.3% in the final quarter of 2020. It marked a stark reversal of the 18.5% growth in the previous quarter as COVID-19 and restrictions made a resurgence, but was much less damaging than the 4% decline predicted by economists.
Germany’s economy slid 2.9%, better than the 3.4% consensus estimate. Spain’s economy even eked out growth, expanding by 0.4%, when experts had predicted at 1.5% decline.
Meanwhile Hewson noted regulators “appear content to remain watchful for now” over the shockwaves triggered by amateur investors waging war on hedge fund short sellers.
Investors congregating on the Reddit forum WallStreetBets began by targeting retailer GameStop (GME) and cinema chain AMC (AMC) but have since focused on other stocks, prompting significant volatility.
Investor concerns have also grown over speculation of a shift to tighter monetary policy in China. The People’s Bank of China drained cash from the banking system this week despite high demand ahead of the Lunar New Year holiday.
Short-term money rates rose for a fifth day on Friday, with one key rate hitting its highest since 2015, according to Reuters.
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