The mother of all squeezes again?

Thoughts of the Day

The hero of all retail traders, known to his followers as Roaring Kitty, has managed to engineer another short squeeze in the GameStop (GME) stock price. He announced his first live stream on YouTube after disappearing from sight for 3 years yesterday and GME stock price went through the roof, rallying from $31.57 to more than $60. 

Conservatively, he would have made at least $500 million on the day due to this surge in price. He will be livestreaming in less than 12 hours from now at 12pm (EST) on 7 June. If he decides to exercise his call options (which gives him the right to buy 12 million shares at $20 and that right expires on 21 June 2024), he will be forcing sellers of the option to deliver to him more than 6% of the outstanding shares of GME. 

Expect more stomach-churning volatility as the countdown to the livestream continues. Get some popcorn and be prepared for the sequel to the Dumb Money (the movie made that was based on his story) unfold in real life!

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Tradertainment

Roaring Kitty, also known as Keith Gill – the man who started the meme stock craze in GameStop, is set to have a livestream later today. GameStop shares jumped 47% on the day from 31.57 to 46.55 after he scheduled the livestream. The rally continues in after-hours trading with the stock up another +31.62% at 61.27.

At close, the value of his positions are worth more than $555 million (his shares valued at $233 million and his options valued at $324 million). His options give him the right to buy 12 million shares at $20, and expire on 21 June 2024. His cost for buying both cash stocks and options was around $175 million, and that means his profits totaled $380 million at market close. 

The after-hours surge in price would have easily added more than $250 million to his profits!
The live stream is available here.

Day Ahead

  • US Nonfarm Payrolls (expected +180k vs +175k prev)
  • US Unemployment Rate (3.9% expected and prev)
  • US Average Hourly Earnings YoY (+3.9% expected and prev)
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What Happened Yesterday

Market Movements as of New York Close 6 Jun 24

The European Central Bank cut interest rates by 0.25% to 4.75% from 5.00% as expected. However, the ECB mentioned that they will remain data dependent in their approach. Some governors indicated that, given the recent data showing strong wage growth and persistent inflation in services, it was unlikely they would proceed with rate cuts next month. Hence, the EURUSD rose +0.20% in immediate reaction from 1.0868 to 1.0889.

US Initial Jobless Claims edged higher to +229k (vs +220k expected) from +221k (revised from 219k). This is the highest reading since early May. It seems that data continues to show that the growth of the labour market is slowing.

The US stock market opened almost unchanged from Wednesday. The market traded sideways through the bulk of the New York session. The S&P 500 edged -0.02% lower (high: +0.16%, low: -0.35%), the Dow Jones increased +0.20% (high: +0.51%, low: -0.18%) while the Nasdaq edged -0.07% lower (high: +0.19%, low: -0.30%).

The crypto market was subdued as well with Bitcoin down -0.22% and Ether down -1.38%.
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Headlines & Market Impact

Euro zone bond yields rise after European Central Bank delivers ‘hawkish’ cut

Notable Snippet:  Eurozone government bond yields extended gains Thursday afternoon, shortly after the European Central Bank announced its first interest rate cut in five years.

Germany’s 10-year bond yield, seen as the euro area benchmark, was up 6 basis points to 2.557% at 3:12 p.m. London time. The country’s 2-year bond yield was higher by 4 basis points to 3.025%.

Italy’s 10-year bond yield was up 7 basis points to 3.88%, while the yield of the Spanish bond of the same maturity added 6 basis points to 3.29%.

“The Governing Council emphasised a data-dependent, meeting-by-meeting approach, reducing the likelihood of a back-to-back rate cut in July due to insufficient European data before the next meeting. This decision can be termed a ‘hawkish cut’,” Gaël Fichan, head of fixed income at Bank Syz, said in a note.

“The euro zone economy is in a different place than the US, which is subject to a resurgence in inflation and a looser fiscal stance. The cost-of-living crisis left a larger dent on household real incomes in Europe, whereas in the U.S. domestic demand is strong,” Yael Selfin, chief economist at KPMG, said in a note.

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US productivity growth slowed in early 2024

Notable Snippet: U.S. worker productivity grew slightly less than previously estimated in the first quarter but exceeded market expectations, and unit labour costs rose by less than first thought, data from the Labor Department showed on Thursday, although the revision seems unlikely to allay Federal Reserve officials’ hesitance to turn to rate cuts in the near term.

Nonfarm productivity, which measures hourly output per worker, increased at a 0.2% annualised rate in the first quarter, revised down from an initial estimate of 0.3% one month ago. Economists polled by Reuters had estimated a revision down to 0.1%.

Unit labour costs, meanwhile, rose at a 4.0% annualised rate, down from the Bureau of Labor Statistics’ first estimate of 4.7%. Economists had projected labour costs to be revised up to 4.9%.

Productivity had accelerated and labour costs were subdued through much of 2023, finishing the year at 3.5% and unchanged, respectively, in the fourth quarter. At the time, that had been seen as one of the arguments favouring rate cuts from the Fed this year as improved worker efficiency was hoped to further dampen inflation.

The near stalling of productivity in the first quarter did not further that cause, though some economists had cautioned after the initial BLS estimate was published last month that the data had been influenced by a seasonal quirk and that the trend of improving productivity may still hold up.

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Japan consumer spending rises in April for first time in 14 months

Notable Snippet: Japanese household spending rose for the first time in 14 months in April from the year earlier, data showed on Friday, although the tepid growth showed consumers remained reluctant to loosen their purse-strings in the face of higher prices.

Consumer spending rose 0.5% in April from a year earlier, data from the internal affairs ministry showed. That was slightly below the median market forecast for a 0.6% uptick.

On a seasonally adjusted, month-on-month basis, spending fell 1.2%, versus an estimated 0.2% rise.

“Personal consumption, which has been stagnant for a long time, continues to be weak,” said Masato Koike, economist at Sompo Institute Plus. “High prices are weighing on household consumption.”

Sluggish private consumption is a source of concern for policymakers striving to achieve sustained economic growth underpinned by solid wages and durable inflation, which are prerequisites for normalising monetary policy.

While spending on education and clothing and footwear increased in April, expenditures in food, entertainment and utilities decreased, the government data showed.

The consumption data comes a day after a Bank of Japan board member Toyoaki Nakamura, one of the more dovish members, said domestic consumption has been sluggish recently, expressing concern that inflation may fall short of the central bank’s 2% target from fiscal 2025 onwards if such conditions persist.

Separate data released on Wednesday showed Japan’s regular pay in April rose at the fastest pace in nearly three decades but that inflation-adjusted wages remained weak, extending a record streak of 25 consecutive months of decline.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord