Shares rally, retail surge drives silver to 8-year high

Global shares bounced and silver markets surged on Monday as retail investors expanded their social media-fuelled battle with Wall Street to drive the precious metal to an eight-year high.

Stock markets were roiled last week after a spike in retail demand to buy the stocks most bet against by hedge funds drove huge gains in companies such as GameStop Corp, and prompted fresh concern that COVID-19 monetary and fiscal support measures were fuelling a market bubble.

With chatrooms abuzz with talk that silver was the new target, silver-exposed stocks, funds and coins jumped, helping push spot silver up more than 11%, before gains were trimmed and it last traded up around 9%.

The bullish spirit helped London-listed miners post strong gains, including one of more than 19% for Fresnillo

After falling 3.6% last week - its biggest weekly fall in three months - the MSCI All-Country World Index rose 0.5% by midday, tracking overnight gains in Asia .

Wall Street looked set for an even stronger bounce-back, with futures for the S&P 500 and NASDAQ both up around 1.2%. The VIX ‘fear gauge’ was down 7%.

While the retail battle versus Wall Street, coordinated over online forums such as Reddit, created some systemic risks, the bigger danger was in the tech sector, where some stocks had “eye watering valuations”, Deutsche Bank analyst Jim Reid said.

“Retail has in many parts driven such valuations in the last 10 months. If this pops the wider market will have bigger issues than last week.”

However, with corporate earnings still beating expectations - around 82% of S&P 500 delivering a positive surprise - Kristina Hooper, Chief Global Market Strategist at Invesco, said investors should look through the recent volatility.

“We have to keep in mind that in general, stock market fundamentals are solid.”

Gold followed silver higher, up 0.8% to $1,859 an ounce , while oil also tracked the gains in other commodities, with both Brent crude and its U.S. peer up around 1%.

While the stock market tussle continued to grab the headlines, analysts cautioned that the bigger concern was economic momentum as coronavirus lockdowns bite.

Data overnight showed Chinese factory activity slowed in January as restrictions took a toll in some regions. In the euro zone, manufacturing growth remained resilient at the start of the year but the pace waned from December.

British data showed an even greater struggle, with manufacturers facing the twin headwinds of COVID-19 and Britain’s exit from the European Union.

While the coronavirus vaccine rollout globally remains slow, with concern about whether they will work on new COVID strains, Europe was also bolstered by news that it would receive a further 9 million doses from AstraZeneca in the first quarter.

The safe-haven dollar edged higher during the morning session in Europe, with the dollar index last at 90.876, having bounced from a trough of 89.206 hit early in January.

The euro, meanwhile, extended earlier losses against the dollar, down 0.5% to $1.2075, well off its recent peak at $1.2349, while the pound gave up some of its early gains to trade up 0.1% on the day at $1.3705..

With riskier markets bouncing, Italian government bond yields fell 2-3 basis points across the curve.

German Bund yields, meanwhile, the benchmark for the euro zone, remained anchored around -0.51% on Monday, tracking U.S. Treasury yields that also remained unchanged..

Copper slipped on Monday as manufacturing data from top consumer China raised the prospect of slowing demand growth and a higher dollar prompted funds to cut bets on higher prices, but losses were capped by historically low stocks.

Benchmark copper on the London Metal Exchange was down 0.7% at $7,798 a tonne at 1117 GMT. Prices of the industrial metal have fallen more than 5% since hitting an eight-year high of $8,238 last month.

“There was a fair amount of profit taking on long positions earlier, the dollar is going up and doubts about Chinese demand are creeping in,” a metals trader said.

China’s factory activity grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections.

Data next week on Chinese imports and exports will be closely watched for clues to demand prospects for base metals.