Academic research shows that certain investors look at single stock call options as lottery tickets. They are aware they can lose money but nurture the hope of very big gains. To some extent, the share price behaviour in recent days of certain US small cap stocks illustrates this thinking. The combination of herd-type momentum buying and a short squeeze has caused huge share price swings. Should this become a recurrent phenomenon, it might reduce the informational efficiency of equity prices, increase the required equity risk premium and influence the cost of capital of companies.
The economic pulse for Germany highlights the dichotomy that characterises the economy at the moment. The lockdown announced in early November and drastically tightened in mid-December is heavily weighing on the household sector and services.
2020 closed with a quarter-on-quarter (q/q) fall in GDP of 1.3%, according to the first estimate of the Q4 national accounts published on Friday 29 January. This was a much smaller fall than expected (we had estimated -4% q/q, in line with INSEE and Banque de France estimates). The full year contraction in GDP was 8.3%. This good surprise came mainly from business and households’ investment and exports, which rose instead of falling as expected.
Italy is one of the rare European countries whose propagation of the epidemic is still under control at the end of January, although the situation is still very delicate. On top of these health uncertainties, political risk is also on the rise again.
Spain’s health situation is still alarming. The pandemic continues to spread, forcing the public authorities to tighten restrictive measures, notably in the Madrid and Valencia regions. Yet the most recent confidence indicators have shown a certain resilience in January, notably the European Commission economic sentiment index.
The biggest world-wide vaccination campaign in history began in 2020 Q4. According to the latest figures, released by Our World in Data on 27 January, more than 80 million doses have been given in 66 countries.
