UK factory growth slows as COVID and Brexit combine

By Simon Jessop

LONDON (Reuters) – Global shares bounced and silver markets surged on Monday as retail investors expanded their social-media fuelled battle against 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%, with London-listed miners up strongly, including Fresnillo, up 18%.

After falling 3.6% last week – its biggest weekly fall in three months – the MSCI All-Country World Index was up 0.5% in early deals, tracking overnight gains in Asia.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.9% while Japan’s Nikkei added 1.5% and Chinese blue chips rose 1.2% after the country’s central bank injected more cash into money markets.

Futures for the S&P 500 and NASDAQ, meanwhile, both pointed to a stronger open on Wall Street, up around 1%.

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.”

Gold followed silver higher, up 1% to $1,864 an ounce, while oil also tracked the gains in other commodities, with both Brent crude and its U.S. peer up around 1%. [O/R]

Graphic: Silver has outperformed gold in price terms and in ETF holdgings in recent months,

While the stock market tussle continued to grab the headlines, analysts cautioned the bigger concern was economic momentum in the United States and Europe as coronavirus lockdowns bite.

Indeed, two surveys from China showed 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. Data from Britain will be in focus later in the European session.

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.

“It is these considerations, not what is happening to a video game retailer day to day, that has weighed on risk assets,” said John Briggs, global head of strategy at NatWest Markets. “So much of the market’s valuations, risk in particular, is premised on the fact we can see a light at the end of the COVID tunnel.”

Higher yields combined with the more cautious market mood have seen the safe-haven dollar steady above its recent lows. The dollar index stood at 90.722, having bounced from a trough of 89.206 hit early in January.

The euro, meanwhile, fell 0.3% to $1.2100, well off its recent peak at $1.2349, while the pound was the biggest gainer in the G10 group of currencies, up 0.3% on the day at $1.3732..

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..

(Additional reporting by Abhinav Ramnarayan and Ritvik Carvalho; Editing by Toby Chopra, William Maclean)

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