1. S&P 500 Drops the Most Since October; Dollar Jumps

U.S. equities dropped alongside European stocks as a risk-off mood descended on markets. The dollar jumped the most since June and Treasury yields fell. The S&P 500 Index headed to its biggest decline in three months, losing about 2%, with small-cap stocks faring even worse. 

The Stoxx Europe 600 Index declined the most in five weeks as the European Union and AstraZeneca disagreed over vaccine delivery delays. The euro fell after a European Central Bank official said it has the necessary tools to avoid further strengthening of the currency. Officials in the U.K. announced new rules to try to curb the spread of Covid-19 and Germany cut its 2021 economic growth forecast to 3% from 4.4%.

The S&P 500 Index fell 2% as of 9:49 a.m. New York time.

The Stoxx Europe 600 Index declined 1.9%.

The MSCI Asia Pacific Index fell 0.7%.

The MSCI Emerging Market Index dipped 1.3%.

2. GameStop Skeptics Citron, Melvin Succumb to Short Squeeze

Melvin Capital and Citron Capital closed out of their short positions on GameStop as the firms succumbed to the stock’s meteoric ascent. Melvin Capital closed its position after repositioning its portfolio. The gaming retailer surged even higher in U.S. premarket trading after an Elon Musk tweet fanned the flames of the stock’s rally that has sent the company’s market value beyond $10 billion. Short sellers have come under ferocious attack as crowds of retail investors pile into the least-loved names on Wall Street. The 50 most-shorted companies on the Russell 3000 Index have surged 33% so far this year, with the Goldman Sachs basket set for its best month since at least 2008.

3. Oil Steady With Market Structure Pointing to Tight Global Supply

Oil steadied near $53 a barrel as signs of tightening supplies around the world offset concerns over the pandemic’s latest hit to demand. U.S industry data pointed to a sharp drop in the nation’s crude stockpiles last week. Saudi Arabia and Iraq are throttling back supplies next month as the OPEC+ coalition seeks to shore up prices against resurgent virus infections and new lockdowns. Russia is reducing seaborne exports and Libya has seen shipments interrupted by internal turmoil. As a result, the overall market structure is reflecting a much stronger picture. 

4. Wall Street’s Eyes on Riyadh Just as Wealth Fund Pivots Home

Saudi Arabia’s $400 billion sovereign wealth fund will find it tough to repeat its success of recent years when it made its mark globally as a source of cash for asset managers, tech entrepreneurs and tycoons. Ahead of the kingdom’s flagship investment conference this week, Saudi Crown Prince Mohammed bin Salman laid out the fund’s strategy through 2025. It’ll spend at least $40 billion a year at home, creating new cities and industries, along with 1.8 million jobs. It plans to more than double assets it controls to over 4 trillion riyals ($1.1 trillion), putting it on par with the current size of Norway’s sovereign fund, the world’s biggest.

5. The World’s Best Stock Rally Is in Sri Lanka

Sri Lanka stocks have returned a world-beating 30% so far in 2021 as domestic investors get more active. Local traders have bought a gross 155 billion rupees ($802 million) worth of equities this month through Tuesday — already 45% of the total domestic purchases last year, according to data from the Colombo Stock Exchange. That’s as overseas investors continue to exit the market, dumping a net $25 million of shares in January on top of the $273 million sold in 2020. 

6. China’s Insatiable Corn Demand Paves Way for Highest Prices

Corn’s surge to a seven-year high on the back on unrelenting Chinese demand looks like it could have a lot further to go. Prices posted one of the biggest gains in recent years on Tuesday after China made its largest one-day purchase from the U.S. since July. China is scooping up record amounts of U.S. corn to feed a pig herd recovering from a deadly virus. That’s helped grain markets hit multi-year highs, stoking worries over global food inflation at a time when hunger is surging around the world due to the Covid-19 pandemic. Money managers are also betting on a continued rally, with bullish wagers on corn near the highest in a decade.

7. ECB Officials Agree to Counter Investor Rate-Cut Skepticism

European Central Bank policymakers are uncomfortable that investors appear to be largely ruling out more interest-rate cuts, and have agreed to stress that such stimulus remains a viable option. The Governing Council last week discussed how market pricing foresees little chance of a reduction further below zero and concurred on the need to highlight that possibility. The euro extended its decline on the news, falling 0.8%, while the yield on 10-year German debt slid three basis points to -0.57%. Money markets brought forward bets on a five-basis-point rate cut to July, from September earlier.

8. UBS Wealth: It’s Time to Bet Big on Emerging Markets Shares

Emerging-market stocks, particularly those in Russia and Latin America, will be the hottest items for equity investors this year. That’s the view of the wealth management arm of UBS Group, which oversees more than $4 trillion for its clients. A reviving global economy helped by vaccine rollouts, reduced uncertainty around U.S. foreign policy, a weaker dollar, stronger commodities and stimulus in major markets should all align behind this theme. In response, UBS Wealth Management has shifted its preference in equities to developing countries, which are more sensitive to global growth and are cheaper than developed markets. MSCI’s emerging-market index trades at 16 times expected earnings in the next 12 months, well below a P/E ratio of 22 times for the S&P 500 and less than the 17 times for the Stoxx Europe 600.

9. Frozen Fish Pileup in China Threatens Global Supply Chains

A huge pile-up of fish cargoes at a Chinese port risks impacting shipments of frozen food across the country and beyond. Hundreds of containers are being held up in Dalian, a major port for seafood imports, as local authorities test the fish for the coronavirus before allowing them to clear customs. That’s leading to scant availability of electric outlets to keep refrigerated containers, known as reefers, cold. The shortage of plug points and dwindling space at the port have prompted shipping liners to cancel new reefer bookings, and the congestion is now spreading to other refrigerated items like fruit and dumplings. It also means frozen containers are being diverted to other ports in China, leading to bottlenecks in Shanghai and Qingdao too.

10. Putin Warns of Global Tensions Similar to 1930s in Davos Speech

Russian President Vladimir Putin said the world risks sliding into an “all against all” conflict amid tensions caused by the Covid-19 pandemic and growing economic inequality. Addressing the World Economic Forum on Wednesday for the first time in 12 years, Putin drew parallels with the 1930s when he said a failure to resolve international problems sparked World War II. “Today, such a global hot conflict is, I hope, in principle impossible,” Putin said in his online speech to The Davos Agenda. “But, I repeat, the situation can develop unpredictably and uncontrollably,” Putin spoke a day after Russia and the U.S. exchanged diplomatic notes agreeing to a five-year extension of the 2010 New START treaty limiting strategic nuclear weapons that were due to expire Feb. 5. Russia’s parliament voted unanimously to back the extension on Wednesday.

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