Short Squeezes, J&J, Microsoft and AMD Earnings, API - What's up in Markets

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Short Squeezes, J&J, Microsoft and AMD Earnings, API - What's up in Markets
Credit: © Reuters.

By Geoffrey Smith -- The stock market pauses for breath after an explosive tug of war between retail investors and professional short-sellers. There are earnings galore, including from Microsoft, General Electric , 3M (NYSE: MMM ) and AMD. President Joe Biden indicates he’s willing to give ground on his stimulus plans, and oil prices regain momentum before the API inventory release. Here’s what you need to know in financial markets on Tuesday, January 26th.

1. Fun and Gamestop

The long-running war between retail traders and Wall Street short sellers exploded on Monday, as GameStop (NYSE: GME ), Blackberry (TSX: BB ) and Express – all heavily shorted stocks – were squeezed higher, ostensibly at the urging of a Reddit users’ board named r/wallstreetbets.

GameStop (NYSE: GME ) stock finished the day with an 18% gain after rising as much as 141% earlier in the day, but it remains a heavily shorted stock: the bounce has encouraged more professional investors to pit their resources against the retail trading army that has come to dominate the market over the last year.

According to Bloomberg, hedge fund giants Ken Griffin of Citadel and Steve Cohen of Point72 have ridden to the rescue of Gabe Plotkin’s Melvin Capital, one of a number of short-sellers wrong-footed by the short squeeze. They’ve injected a total of $2.75 billion into Melvin after it lost about 30% this year.

GameStop stock was up 16% in premarket trade. Blackberry stock was indicated up 18% but Express was down 8.4%.

2. IMF to update growth forecasts; World trade tops pre-pandemic levels

The International Monetary Fund will update its growth forecasts for the world this year at 8 AM ET (1300 GMT). It’s expected to revise down its estimates due to the spread of new strains of the Covid-19 virus that have prompted governments around the world to extend and tighten the lockdowns that they put in place at the end of last year.

However, other data suggest that at least part of the world economy is thriving. The volume of goods traded rose by 2.1% in November according to data from the Netherlands Bureau for Economic Policy Analysis, leaving it above its December 2019 level for the first time since the pandemic exploded in February.

Global industrial production has also recovered to pre-pandemic levels, thanks to consumers diverting their spending away from services and toward goods over the last year.

3. Stocks set to open mixed; consumer confidence, house price data due

U.S. stock markets are set to open mixed, with investors showing signs of concern at the froth in certain individual stocks at the start of earnings season.

By 6:30 AM ET, Dow Jones futures were up 16 points, or less than 0.1%, while S&P 500 futures were down by a similar amount and NASDAQ Futures were down 0.2%.

Comments by President Joe Biden on Monday, saying that he would be willing to make some compromises on his $1.9 trillion stimulus plans, have put something of a dent in market confidence, putting investors on watch for any change in emphasis in Fed Chair Jerome Powell’s comments when he explains the Fed’s latest policy decisions at his press conference on Wednesday.

The data calendar is dominated by house price data at house price data at 9 AM ET and the Conference Board consumer confidence index at 10 AM. Regional surveys from the Richmond Fed (manufacturing) and Dallas Fed (services) are also due.

4. Microsoft, AMD, GE and J&J (NYSE: JNJ ) lead earnings parade

Earnings season gets into full swing with updates before the bell from a host of industrial giants, while Microsoft (NASDAQ: MSFT ) and chipmaker Advanced Micro Devices (NASDAQ: AMD ) update from Silicon Valley after the close.

General Electric (NYSE: GE ) has already reported earnings of 8 cents a share for the quarter, some 10% below consensus forecasts, although the key cash flow metric came out better than expected. The market may be more interested, however, in Johnson & Johnson (NYSE: JNJ )’s update, given that the company is reportedly close to announcing key trial results for its Covid-19 drug. Disappointing news from Merck (NS: PROR ) and the French Institut Pasteur regarding their experimental vaccines on Monday have raised the stakes for other vaccine candidates.

 Also reporting are NextEra Energy (NYSE: NEE ), Verizon (NYSE: VZ ), 3M and defense giants Lockheed Martin (NYSE: LMT ) and Raytheon (NYSE: RTN ), along with restaurant owner DR Horton (NYSE: DHI ).

The late lineup includes Starbucks (NASDAQ: SBUX ) and Texas Instruments (NASDAQ: TXN ).

5 Oil bounces;  API data due

Crude oil recovered some momentum after getting caught up in the general volatility in risk assets on Monday, as the Dutch data on global trade provided some reassurance about the health of global demand.

By 6:30 AM ET, U.S. crude prices were up 0.6% at $53.07 a barrel, while Brent crude was up 0.5% at $55.94 a barrel.

The American Petroleum Institute will report its weekly data on U.S. oil stockpiles at 4:30 PM ET, as usual.

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