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The share market looks set to extend yesterday’s rebound after volatility dropped on Wall Street as speculative retail buying mania moved on to silver.

US stocks closed sharply higher. Silver soared more than 9 per cent, boosting mining stocks. Gold and oil advanced. Iron ore declined.

Australian futures rallied 52 points or 0.8 per cent, signalling a positive start following a volatile reversal session yesterday. Stocks dived to two-month lows, then swung through a 158-point trading range to a final gain of 55.6 points or 0.84 per cent.

Wall Street

US stocks rebounded from their worst week since October as attention swung from “meme stocks” – GameStop, AMC Entertainment, etc – back to the more familiar themes of corporate earnings and stimulus negotiations.

The S&P 500 surged 60 points or 1.61 per cent as tech giants Amazon and Alphabet rallied ahead of earning updates tonight. The tech-heavy Nasdaq Composite charged 333 points or 2.55 per cent. The Dow Jones Industrial Average gained 229 points or 0.76 per cent.

Volatility indicators fell from three-month highs in a sign investors were less concerned about disruption last week from chatroom-organised retail buying raids on heavily-shorted companies. The VIX, Wall Street’s “fear gauge”, dropped 10.6 per cent.

Wall Street’s three major indices slumped between 3.3 and 3.5 per cent last week as an army of retail traders organising on chatroom forums forced hedge funds out of short positions in so-called “meme stocks“. The new phenomenon triggered sharp dislocations in share prices.  

“Many institutions have been adjusting their books to account for the risks to short positions arising from recent coordinated buying by retail investors,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote. “But given the speed and magnitude of flows in recent days, we think most of the pressure is now behind us.”

The most popular of the short-squeeze targets, GameStop, dropped 30.8 per cent overnight as chatroom attention swung to silver. Silver surged as much as 11 per cent (more below). Most of the “meme stocks” declined. Koss skidded 45.3 per cent, Bed Bath & Beyond 14.4 per cent and Express Inc 16.7 per cent. AMC gained 0.8 per cent and Blackberry 3.7 per cent.  

Around a fifth of the S&P 500 have still to report earnings this week. Amazon and Google-parent company Alphabet rallied 4.3 and 3.6 per cent, respectively, ahead of updates tonight.

Stimulus negotiations resumed in Washington. A group of  Republican senators pitched a scaled-back coronavirus relief package with a much smaller price tag. House Democrats were reportedly working on an alternative route for legislation that would allow them to pass a bill without Republican support.

Australian outlook

The outlook this morning is the brightest for a few sessions. Yesterday delivered one of those volatile swing sessions that often draw a line under major down-moves and mark reversals in direction. Today will be a test of investor confidence. Did last night’s US action signal a true reversal, or just another wild swing in an increasingly volatile environment?

Silver miners were big winners here yesterday at the speculative end of the market, tracking a Reddit-fuelled short squeeze on silver. The metal briefly broke above US$30 an ounce overnight, rising to its highest level since 2013.

“Above that, there’s not a great deal of resistance until $US37/oz,” ThinkMarkets analyst Carl Capolingua wrote. “There are a few ways to get exposure on the local market. The obvious one is the Physical Silver ETF (ETPMAG). And then there are a few small miners/explorers like Adriatic (ADT), Boab Metals (BML), Investigator Resources (IVR), and Mithril Resources (MTH).

“What most probably don’t realise, is that South32 (S32) has the world’s largest and lowest cost silver mine in Cannington in North West Queensland. Silver is a relatively small part of their overall earnings though, so you might not see the pop in S32 that you might see in the smaller plays.”

While silver miners got the spotlight in the US, it was Big Tech that fuelled the rally. The technology sector rose 2.5 per cent. Two other sectors with tech heavyweights – consumer discretionary and communication service – rallied at least 1.9 per cent. The materials sector gained 1.2 per cent and financials 1.1 per cent. Bond proxies trailled the broader market.

Half-year earnings reports have started to trickle in. Today brings updates from Temple & Webster and Credit Corp.

The Reserve Bank meets today, but is not expected to announce any policy changes. Analysts will study the Rate Statement at 2.30pm AEDT for any change in wording that might telegraph the central bank’s intentions.

The dollar was broadly steady at 76.22 US cents.

Commodities

Silver settled at its highest level in almost eight years. March silver rose as high as US$30.35 an ounce before settling $2.50 or 9.3 per cent ahead at US$29.418. The surge came as short-sellers caved in to a Reddit-organised short-squeeze.

“Fear… is pushing many of the traders who have shorts on silver to start covering their positions,” Carlo Alberto De Casa, chief analyst at ActivTrades, wrote. “Sellers of the physical metal are also rushing to cover their short positions, to avoid finding themselves at a loss in the face of the startling increases.”

Gold was dragged along by the rally. Gold for February delivery settled $13.60 or 0.7 per cent higher at US$1,863.90 an ounce. The NYSE Arca Gold Bugs Index added 3.2 per cent.

Oil was boosted by reports major producers were adhering to production quotas. Brent crude settled $1.31 or 2.4 per cent ahead at US$56.35 a barrel.

Mining giants BHP and Rio Tinto rallied in overseas trade. BHP’s US-listed stock gained 2.4 per cent and its UK-listed 1.81 stock per cent. Rio Tinto put on 2.7 per cent in the US and 1.49 per cent in the UK. The spot price for iron ore landed in China declined $2 or 1.3 per cent to US$156.05 a tonne.

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