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A new month faces a negative start after disappointing vaccine news and bubble fears helped seal Wall Street’s worst week since October.

US stocks fell around 2 per cent on Friday as speculative mania conjured memories of the dot.com boom and bust.

Australian futures fell 34 points or 0.5 per cent. The S&P/ASX 200 pre-empted some of Friday’s US weakness with  drop of 42 points, but looked likely to open this morning at its weakest level since early December.

Gold rose for the first time in seven sessions. Iron ore edged higher. Industrial metals fell. Oil continued its sideways drift. The dollar opened around 76.2 US cents.

Wall Street

US stocks added to falls earlier in the week as the ‘retail versus hedge fund’ war resumed and Johnson & Johnson reported underwhelming vaccine results.

The S&P 500 sank 73 points or 1.93 per cent. The Dow Jones Industrial Average shed 621 points or 2.03 per cent. The Nasdaq Composite lost 266 points or 2 per cent. The declines wrapped up weekly declines of between 3.3 and 3.5 per cent for the three major indices.

Reddit’s retail army resumed their pursuit of heavily-shorted stocks after popular trading platforms such as Robinhood backed down on restrictions imposed the previous session. GameStop soared 67.9 per cent and AMC Entertainment 53.7 per cent.

While the sight of retail traders vanquishing well-funded hedge funds has tickled the public imagination, the severing of valuations from fundamentals has raised bubble concerns. Regulators were reportedly poring over recent market action after trading volumes last week reached their highest level since 2014.

“There’s way too much leverage in the system, and we’re starting to see signs that this excess leverage is going to be unwound in a way that will create headwinds for the stock market and other risk assets for more than just a few days,” Matt Maley, chief market strategist at Miller Tabak, told CNBC.

Johnson & Johnson was the biggest drag on the Dow, falling almost 3.6 per cent after reporting a global efficacy rate of 66 per cent for its one-shot vaccine. The vaccine appeared to be less effective against recent mutations.

Australian outlook

The market seems destined to turn negative for the year shortly after 10 am AEDT as stocks drop toward a fourth straight loss. Friday’s reversal session here proved an accurate portent of what was to follow in the US.

Whether global markets have seen their rebound tops remains to be seen. What is obvious is that investors need a return to stability on Wall Street before the bleeding will stop.

The weekend brought disappointing Covid news. While restrictions have been wound back on the east coast in recent days as infection rates plummeted, Perth and other parts of WA entered a hard five-day lockdown last night after a quarantine security guard tested positive. On the international stage, vaccine access has become a contentious issue, with production hitches and competition for supplies raising tensions. Any threat to Australian access would dent confidence in the economic outlook.

Friday’s US action spared no sector. Falls ranged from 0.6 per cent for utilities up to 3.4 per cent for energy stocks. Financials and materials both declined 2 per cent.

Back home, the half-yearly reporting season gets underway this week and continues through February. Most of the big guns report later in the month, but updates are due this week from: Temple & Webster and Credit Corp (tomorrow); Amcor and BWP Trust (Wednesday); Nick Scali (Thursday); and REA Group (Friday). 

The Reserve Bank swings back into action this week. The board holds its first meeting of the year tomorrow. Governor Philip Lowe addresses the National Press Club on Wednesday, then testifies before the House economics committee on Friday. The central bank releases a quarterly statement on monetary policy on Friday. 

The US quarterly season is mostly behind, but this week brings reports from Amazon, Exxon Mobil, Pfizer and Spotify. Manufacturing and jobs reports later in the week will also have an impact.

The dollar eased 0.18 per cent to 76.24 US cents.

Commodities

Silver outperformed gold amid a Reddit-inspired short squeeze. Silver for March delivery settled 99 cents or 3.8 per cent higher at US$26.914 an ounce, extending Thursday’s 2.1 per cent advance. The metal gained 5.3 per cent last week after posters on the WallStreetBets forum suggested the metal was ripe for the collective approach that lifted GameStop to extraordinary heights.

Gold for February delivery settled $9.10 or 0.5 per cent ahead at US$1,850.30 an ounce. The NYSE Arca Gold Bugs Index eased 0.37 per cent.

A slim rebound in iron ore proved no protection for BHP and Rio Tinto. BHP’s US-listed stock sank 3.65 per cent and its UK-listed stock 2.47 per cent. Rio Tinto shed 2.66 per cent in the US and 1.69 per cent in the UK. The spot price for iron ore landed in China edged up $1.85 or 1.2 per cent to US$158.05 a tonne.

Copper hit its lowest level of the month as the US dollar firmed and equities fell. Benchmark copper on the London Metal Exchange dropped 0.2 per cent to US$7,862.40 a tonne. Aluminium gave up 0.1 per cent, nickel 0.6 per cent, lead 0.3 per cent, zinc 0.5 per cent and tin 0.5 per cent.

Oil lost momentum at the end of a strong month. Brent crude settled six cents or 0.1 per cent weaker at US$55.04 a barrel. The most active Brent contract gained 7.6 per cent in January after Saudi Arabia committed to production cuts.

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