Tuesday May 14 2024 11:31
7 min
GameStop shares soared over 100% and was halted several times due to volatility as Keith Gill, better known as “Roaring Kitty”, resurfaced on Twitter — all he posted was a picture of a guy leaning forward in a chair. But this first tweet in three years was all it took for the meme stock community to jump back in, in feet first.
GME was already starting to rally before Monday, but yesterday’s trading was wild and reminiscent of the original meme stock craze — remember WallStreetBets and Melvin Capital? In the end, GameStop shares finished up 74% for the session.
Short interest in GME stood at 24% before the fireworks, so we can assume a fair chunk of the move is short-covering action chasing the initial move up, plus some hedgies will have had calls on their shorts.
Trend following and momentum strategies may have helped. And it looks like retail investors are becoming more bullish again and willing to take on more risk. There is no fundamental reason for the move as such — GameStop’s last earnings report was abysmal. As of May 14, GameStop shares are up 73% year-to-date — all due to the recent rally.
Worth taking a scan around for some other meme stocks. AMC and some other meme names caught some tailwinds from the GME fun to rally. AMC shares jumped 78%! Meme mania also appeared to be good for Robinhood stock – shares rose 4%.
YOLO and FOMO? I think it’s way too easy to read too much into this move but it’s not stopping just yet – GameStop shares are up 43% in premarket hours on Tuesday.
It’s already producing a lot of memes. Roaring Kitty has posted a bunch more clips from films.
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Anglo American doesn’t need BHP to break up – it's rejected an improved BHP takeover bid and announced it will spin off De Beers, Anglo Platinum and its coking coal business. And Anglo says it’s exploring options for its nickel business.
That leaves a core of copper and iron core plus a rather reduced Woodsmith. Spending on this will fall from $1bn a year to just $200mn next year. A lot of the same challenges remain. And we probably need a bit more detail on an additional $800mn in cost cuts. Anglo may find breaking up is hard to do, but it didn’t need BHP to do it.
Here is UK investment bank Liberum for additional context:
“A spin-out of Anglo Platinum will take at least 12 months and have the same regulatory and tax challenges as per BHP's plan. De Beers needs capital for marketing and expansion and looking to divest at the bottom of the cycle with significant rough diamond price uncertainty.
Slowing down Woodsmith has the potential to be significantly NPV negative, and while capex might be zero, running costs will not and cashflows will be pushed further out.
Anglo American can rip costs out of this business and the units will be more closely aligned in terms of processing and geography (Anglo American is on track to achieve the previously announced run rate of US$1 billion annual savings in operating expenditure in 2024. Additionally, a further $0.8 billion of cost out from the end of 2025 is targeted.).
“We do not think this will ultimately result in a multiple re-rating, it will still be a diversified miner and trade on a similar multiple it does today.”
Elsewhere, stocks were flat in London on Monday but remain very close to the record high. It’s a pretty timid flat open for Europe on Monday, though Germany’s DAX index diverged a bit as it fell a quarter of a per cent early doors.
It was flat for Wall Street on Monday as the Dow notched its first slight down day in nine. Everyone is hanging on the CPI inflation print tomorrow. Today we get a feel for things with the US PPI and a speech by Fed chair Jay Powell. PPI is seen around +2.2% YoY and core at +2.4%.
Elevated inflation expectations are a concern for markets. A New York Fed survey showed median one-year inflation expectations in the US rose to 3.3% from 3.0%. Just to underline the difficulty in going ‘the last mile’ once the inflation genie is out of the toothpaste tube.
A note by BofA read:
“...squeeze risks for rate-sensitive laggards on a CPI miss outweigh downside risks on a CPI beat... With further hikes ruled out, we think equities may be able to tolerate higher inflation. An in-line print should also be net positive, removing the inflation overhang at least in the near term.”
Meanwhile, following a rally above 1.25 on Monday against a broadly softer dollar, the GBP to USD pair was trading a bit weaker this morning after new data showed UK unemployment rose to 4.3%, though wage growth remains solid at 6% excluding bonuses.
All else equal this should be great for the consumer with real wages continuing to run at levels we have not seen in years. We should caution though that the UK data right now cannot be relied upon.
The wage growth data may be flattered by the minimum wage increase in April and the rise in unemployment points to a general cooling in the labour market that ought to be supportive of rate cuts. However, I point to one shocking statistic to show that wage growth and inflation can remain very stubborn without an increase in output: The UK economic inactivity rate for people aged 16 to 64 years was estimated at 22.1% — almost one in four adults. An eyebrow-raising figure.
GBPUSD – bullish MACD still in charge. A move clear of the 200-day line 1.2540 needs to be held.
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