European stocks were a little higher in early trade

Small cap stocks led the way higher on Wall Street yesterday as indices rose for a fourth day in a row and hit fresh record highs. The S&P 500 and Nasdaq both climbed over 1%, whilst the Russell 2000 advanced 2%. European stocks were a little higher in early trade on Friday and headed for a solid weekly gain to start February after January ended dismally. US markets had a c5% drawdown from their highs before hitting fresh peaks yesterday – we need to wait and see if this was the correction I'd expected in Q1, or whether we now face some fresh downside risks from these peaks. The yield curve is steepening – reflation-rotation is well and truly back on – with the 10-year and 30-year Treasury yields at their highest in a year and the 5s30s spread has steepened to almost 150bps, the widest since 2015.

Shares in Clover Health Investments (NASDAQ: CLOV) fell 12% after Hindenburg Research published a scathing attack on the company, which is backed by SPAC-specialist Chamath Palihapitiya, one of the vocal /wallstreetbets cheerleaders. Hindenburg says it has no position despite 4 months of due diligence for the report. This might be for a couple of reason, First, it doesn't fancy taking on a short squeeze in the current climate (maybe it changed its mind but published anyway to help beat the short selling drum), and two, it has a vested longer-term interest in taking a position defending the practice of short selling. (Three, it could still have a short position, but I'm not that cynical). In the report, Hindenburg alleges that "Clover Health and its Wall Street celebrity promoter, Chamath Palihapitiya, misled investors about critical aspects of Clover's business in the run-up to the company's SPAC go-public transaction last month", adding that Clover's business model and software offering, Clover Assistant, are under "active investigation" by the Department of Justice (DOJ) that poses an "potential existential risk" to the firm. Question: does the /wallstreetbets crowd seek to take this on and bid up CLOV? Perhaps not, for the Redditors must be nursing some hefty losses. The ‘memestocks' unwind continues – shares in GameStop (NYSE: GME) dropped 42% and are now down 88% from last week's high. I hate to say I told you so when lots of people have lost money.

Sterling has rallied, gilt yields rose and bank shares are up in the wake of the Bank of England's decision, in which it sought so hard to push back on negative rates that it actually delivered a rather hawkish message. As noted yesterday, not only did the BoE say that it does not intend to signal that negative rates are coming, but it also – from my reading of the Monetary Policy Report – suggest that the next move on rates will be to hike. Specifically, it said in its forecast that "spare capacity in the economy is eliminated as activity picks up during 2021". Governor Bailey has a chance to speak again later today. GBPUSD pushed up to 1.37 where it turned over against the horizontal and trend resistance but is firmer again this morning and ready for another push. Failure to break through suggests the near-term downtrend remains dominant and will call for return to 1.3520 region. UK banks rallied firmly and are up again as the yield curve steepened and risk of negative rates appears to be diminishing.

NFP on tap later today. Yesterday's weekly claims were not as bad as feared, which bodes a little better for the outlook. Seasonally adjusted initial claims hit 779,000 for the week ended Jan 30th, down from 812,000 in the prior week. Goldman Sachs said: "Following the better-than-expected jobless claims, ADP, and ISM employment component data, we boosted our nonfarm payroll forecast by 75k to +200k ahead of tomorrow's release (vs. cons +100k, mom sa)."

Gold slipped, breaking down at the 200-day EMA to trade under $1,800. This morning it is a little firmer but the breakdown at this key MA is a blow to the bulls.