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- US stocks were set to open sharply lower, with the GameStop frenzy hitting market confidence.
- GameStop was up as much as 96% in pre-market as Robinhood said some trading could resume.
- Analysts said the hit to hedge funds had caused a change in ‘market structure’.
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US stocks were set to fall sharply at the opening bell on Friday as the GameStop saga combined with worries over coronavirus and the global recovery to dent market confidence.
S&P 500 futures were down 0.89%, Nasdaq futures were off by 1.18% and Dow Jones futures fell 0.8%. The dollar rose as investors moved towards safer assets.
Stocks fell again in Asia overnight to cement some of the biggest weekly losses since September as a rise in Chinese borrowing costs and coronavirus cases unnerved investors. China’s CSI 300 slipped 0.47%, Hong Kong’s Hang Seng fell 0.94% and Japan’s Nikkei 225 slid 1.89%.
European shares opened deep in the red, with the continent-wide Stoxx 600 falling 1% and the UK’s FTSE 100 slipping 0.86%.
The attention of markets this week has been focused on GameStop, a US video-game store and small-cap stock.
Its shares have rocketed more than 300% over the last 5 days after members of the Reddit forum Wall Street Bets decided to pile into the stock. This has caused massive losses to hedge funds such as Melvin Capital who were shorting - that is, betting against - the company's shares.
Yesterday, the day traders' go-to app Robinhood curbed trading in GameStop and other popular companies such as AMC, Bed Bath & Beyond and BlackBerry, saying it was too volatile. The move prompted outrage from amateur investors and a rare show of bi-partisanship as US politicians decried an intervention they said was designed to help Wall Street firms who were being hammered.
GameStop shares ended the day 44.29% lower at $193.60 after trading was curbed. But they were up as much as 96% in volatile pre-market trading after Robinhood and others said they would let some trading resume.
Jim Reid of Deutsche Bank said the phenomenon was one of the most "crazy" things he had seen in 25 years in finance. "It's shaken up the system and there will be some permanent changes to the ways investors, especially hedge funds and retail, act."
US stocks finished in the green yesterday as investors bet on more fiscal stimulus after weak economic figures, but analysts said Wall Street had taken notice.
Mike Wilson, chief US equity strategist at Morgan Stanley, told CNBC on Wednesday that there had been a "change in the market structure".
"A lot of these heavily shorted stocks running up, interesting moves that are creating some pain for certain investors, and that always leads to some de-grossing, and we're seeing that now."
Richard Hunter, chief market analyst at trading platform Interactive Investor, said he thought the Reddit saga "may not be enough to move markets per se, but it nonetheless adds to the current feeling of market malaise".
The dollar index rose 0.21% on Friday to 90.66 as investors bought up the safe-haven asset as stock futures fell.
Oil prices rose despite the wider gloom, with Brent crude up 0.31% to $55.27 a barrel although WTI was flat at $52.34 a barrel.
US bonds fell slightly, with the yield on the 10-year Treasury note rising 1.1 basis points to 1.065%. Yields move inversely to price.
Worries about vaccines and the economy have also hit stocks and helped the dollar over the last week. Joe Biden's administration has pledged to speed up the vaccination drive as states complain of shortages. In Europe a spat between the EU and AstraZeneca has broken out over vaccine delivery.
Meanwhile, figures showed the US economy shrank at its fastest pace since World War II in 2020, and many countries are still under tight lockdowns.