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The Start of the Fightback?

Stock markets are enjoying some reprieve after a rocky start to the week and investors will be hoping earnings season provides more cause for optimism in the weeks ahead.

The January blues are alive and well and with markets now eyeing up the possibility of four rate hikes this year, we may be approaching peak fear just in time for earnings season. We’ve quickly pivoted from the transitory inflation narrative to aggressive tightening including a combination of accelerated tapering, multiple rate hikes, and impending balance sheet reduction. That’s quite the shift.

I’m not sure the inflation data tomorrow is going to put investors’ minds at ease, with CPI seen hitting a multi-decade high above 7%. A higher reading could spook investors once again just as equity markets appear to be stabilizing.

We saw a strong recovery in the final hours of trading on Wall Street on Monday, which is carrying over into today’s session. But that could prove fragile if price pressures intensify more than expected; although I do wonder just how much more hawkish the markets can realistically be.

Which may make the timing of earnings season all the more welcome. We’ve had the scare of omicron, the relief rally, and now interest rate anxiety. That’s a lot of uncertainty for investors to contend with. Earnings season should be a timely reminder that the economy remains in a strong position despite all of this.

Oil eyes Autumn highs

Oil prices are rebounding higher again on Tuesday, up more than 1%, and with sights seemingly set on the late Autumn highs. We saw some heat come out of the market over the last couple of days but pullbacks were always likely to be limited given the broader dynamics.

Of course, omicron offers some demand uncertainty over the coming months but the market is tight as OPEC+ slowly turns the taps back on. And OPEC struggling to deliver on targets doesn’t help alleviate any of that tightness in the market. Prices could remain elevated for some time yet.

Can gold mount a rally as yields rise?

Gold has shown remarkable resilience in the current environment of rising rate expectations and higher yields, to such an extent that it makes me really question whether it can in fact rally in the short-term. There doesn’t appear much rationale behind the move unless we see weakness in the dollar but it’s impossible to ignore price action.

And the yellow metal is continuing to force the move higher, pushing strongly against the $1,800 barrier to the upside with some short-term success before being pushed back. Today it’s rallied as high as $1,810 and has once again been driven back but it’s holding above $1,800. A close above here could be a bullish signal, albeit a confusing one.

Can Bitcoin hold $40,000?

We’re seeing a battle emerge in the bitcoin market after it dipped briefly below $40,000 on Monday. The cryptocurrency fought back to defend key support before peaking back above $42,500. It’s since settled back around $41,500, leaving us none the wiser about where the next move will come. Clearly, there’s plenty of support at $40,000 but if bitcoin is as sensitive to monetary tightening as it appears, how long can it hold?

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