Global stock markets slide as GameStop surge raises concern in Washington – business live

Turning to the other highlight in the US today, the first estimate for GDP growth in the fourth quarter…

Michael Hewson, chief market economist at CMC Markets UK, says:

Today’s Q4 GDP numbers are likely to be much weaker. Personal consumption accounts for over two thirds of US GDP and the slowdown in November and December is likely to reflect a rather weak end to 2020. Expectations are for annualised Q4 GDP to come in at 4.3%, a sharp slowdown from the 33.4% seen in Q3.

Daiwa America chief economist Mike Moran expects the national accounts to reveal a further 3.0% annualised rate lift in GDP, building on the 33.4% rebound in Q3, but strikes a more upbeat note.

Robust business, housing and inventory investment, together with moderate growth in consumer spending, should readily more than offset downward contributions from net exports and public spending.

This afternoon, we’ll also be getting US trade data, new home sales and the Conference Board leading indicator (all for December), as well as the weekly jobless claims report.

The GameStop share price is yo-yoing, after the recent dizzying rises prompted the US regulator and the White House to say that they would “monitor” developments.

GameStop and other shares fell 20% after the Reddit WallStreetBets online discussion forum was closed for about an hour last night, but then rose again. The stock surged as high as $377 in pre-market trading. Last night, the shares had closed 134.84% higher at $347.51 –- an extraordinary rise from $3.25 in April.

The share price surge has been fuelled by an army of small investors who have been pitted against hedge funds on Wall Street.

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Prudential shares are are the biggest faller on the FTSE 100, down 7.7%.

The British insurance and savings firm said it would spin off its US business Jackson to focus more on its fast-growing Asian and African businesses, and is also mulling plans to raise $2.5bn to $3bn in new equity.

Prudential now plans to demerge Jackson, after initially planning to float a minority share in the business. It has come under pressure from the activist investor Third Point, and said today that a demerger would be quicker than a minority IPO and future sell-downs.

Shares in Jackson will be handed to Prudential shareholders after the demerger, which is expected in the April to June quarter. The Pru will retain a 19.9% interest in Jackson.

Chief executive Mike Wells said the demerger would “significantly accelerate Prudential’s transformation into a business purely focused on profitable growth in Asia and Africa.”

And we’re off! European stock markets have recorded chunky losses at the open. The UK’s FTSE 100 index, Germany’s Dax and Italy’s FTSE MiB all lost about 1% in the first few minutes of trading.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The extraordinary surge in the share price of the ailing US video games retail GameStop and other companies has drawn the attention of the White House and the US regulator, the Securities and Exchange Commission, which both said they were “monitoring” the situation.

There has been a surge of bets by small investors, who are discussing their investments in online forums such as Reddit. GameStop’s shares have soared this year, from $3.25 in April, to $347.51 last night. The three largest shareholders in GameStop have made more than $2bn from the company’s astronomic recent share rise.

It has turned into a David-and-Goliath style battle between small investors and Wall Street firms. Yesterday, a US hedge fund that had invested heavily betting on the failure of the struggling video game store – a practice called ‘shorting’ – pulled out. Melvin Capital Management, one of a number of Wall Street firms that stood to make money for investors if GameStop’s shares plummet, told CNBC it had closed out its short position after taking a huge loss.

Michael Hewson, chief market analyst at CMC Markets UK, says:

While few people are shedding many tears about large scale hedge fund losses, after all if you play with fire, be prepared to get burned, the market turmoil is highlighting a number of areas within the market, that might prompt regulatory scrutiny in the future, namely the monitoring of retail trade chat forums and message boards, and how they drive markets.

With large numbers of small investors swarming over heavily shorted stocks in what looked like a coordinated move, the frenzy raises all sorts of questions with respect to possible market manipulation.

It is already illegal for institutions to coordinate in the manner currently being seen in moving prices on these stocks, raising questions about the legality of what is currently taking place right now on these forums. Regulators have already said that they are monitoring what is going on, raising the possibility of further action if it causes further market instability.

Global stock markets took a bit of a battering yesterday, with the Dow Jones posting its biggest one day fall since October, and European markets are set to open lower this morning. Asian shares were also in the red, with Japan’s Nikkei closing 1.53% lower and Hong Kong’s Hang Seng losing 2.36% and the Australian market shedding 2.02%.

The US Federal Reserve issued a slightly more downbeat assessment when it left its policy stance unchanged last night, with interest rates near zero, and monthly bond purchases of $120bn.

The Fed acknowledged in its post-meeting statement that the economic recovery weakened in the final two months of last year, but balanced that near-term pessimism with greater optimism that vaccines had reduced the medium-term risks to the outlook.

Paul Ashworth, chief North America economist at Capital Economics, said:

We don’t expect the Fed to begin tapering its asset purchases until early next year and think the first interest rate hike could be delayed until 2024.

Economists at ING said:

If the vaccination program gains momentum and consumer spending rebounds sharply on re-opening, QE tapering will increasingly become a theme for markets.

In the press conference [Fed chair Jerome] Powell again argued that the economy is a long way from being healed and by implication that withdrawing the stimulus too early outweighs the risks from withdrawing it later.

Apple and Facebook announced better-than-expected results after the market close while Tesla’s figures were mixed. Apple had its most profitable quarter ever.

Tesla sold 35% more electric cars in 2020 and revenues rose 37%, faster-than-expected, but earnings missed forecasts due to an increase in cheaper model sales and the massive $267m pay award to its founder and chief executive Elon Musk. Tesla shares fell 5% in the after-market.

In the UK, car production slumped to its lowest level since 1984 last year as the coronavirus pandemic wreaked havoc on the industry, and Nissan overtook Jaguar Land Rover as the biggest carmaker in Britain.

The Agenda

• 9am GMT: Italy Business and consumer confidence for January
• 10am GMT: Eurozone Consumer confidence final for January (forecast: -15.5)
• 1pm GMT: Germany inflation for January (forecast: 0.7%)
• 1.30pm GMT: US GDP advance for fourth quarter (forecast: 4%), trade for December, weekly jobless claims
• 3pm GMT: US New Home sales for December