A mixed day as earnings season continues

It's turned into a mixed session across Europe with indices giving up earlier gains initially before reversing course once more to tread water as we near the open on Wall Street.

It appeared we could have been heading for a second consecutive positive session when Europe got things underway this morning, something we haven't been treated to much so far this year. But it wasn't long until we were back in the red; a further sign of the angst in the markets right now that is proving hard to shake off. Perhaps there's still hope yet but given what we've seen, it won't be cause for optimism.

The Nasdaq dropping into correction territory won't be helping lift the mood, and that will turn more downbeat again if it breaks below the 200-day simple moving average for the first time since April 2020 when the unbelievable tech rally started. It would also take it below 15,000 for the first time since the middle of October. Not a great signal for the markets just as Netflix kicks off earnings season for big tech.

The flipside of that is that earnings could be what helps tech find some form again. There'll no doubt be some interest around these levels and we're already seeing futures pointing more than half a percentage point higher ahead of the open. A strong report from Netflix could see dip buyers flood back in.

The key question on investors' minds though will be whether the tech rout is already behind us after a 10% drop. That will depend on more than just a few stellar earnings reports. The key thing will be whether we see a pause in market interest rate expectations after weeks of aggressively pricing in more hikes and balance sheet reduction.

While there are calls for more than four hikes this year, even a kickstart 50 basis point increase from the Fed in March for the first time in more than 20 years, is that going to be priced in this early? Or could we see a period of relief that could benefit stock markets if earnings season takes a turn for the better? We'll soon see as big tech dominates the next week on the earnings calendar.  

ECB remains in camp transitory

Christine Lagarde launched a strong defence of the ECB's response to higher inflation on Thursday, warning that markets should not expect a similar approach to that taken by the Fed as the situation doesn't warrant it. Lagarde pointed to lower inflation, which was confirmed today at 5% in December, and a weaker recovery. While that may be true, markets have been pricing in the possibility of a similar u-turn to that we've seen in the US and UK, with a 10 basis point increase expected in October.

The minutes reflected Lagarde's comments, as we would expect, but that's unlikely to change investors' minds. Central banks have repeatedly pushed back against market expectations over the last six months before eventually aligning with them. With the German 10-year moving into positive territory for the first time since mid-2019 on Wednesday, it seems a familiar pattern may be unfolding.

New year, new CBRT?

The CBRT appears to be turning over a new leaf in 2022 after resisting the urge to cut interest rates for a fifth consecutive meeting. The central bank has cut rates from 19% to 14% in that time which has come at great expense in terms of the currency, reserves, and inflation. But it would appear that the easing cycle has run its course, for now.

That said, the explanation for current levels of high inflation and the disregard for it, and in effect its impact on households and businesses, don't offer much assurance that the CBRT won't at some point revert back to the damaging approach of recent months. But it may wait until inflation does ease again after reaching 36% last month.

Oil rally finally losing momentum

Oil has been on a remarkable run in recent weeks driven by very bullish fundamentals as disrupted supply struggled to keep up with strong demand. OPEC and the IEA have referenced the resilience of demand since the emergence of omicron in recent weeks and the inability of OPEC+ to hit their production targets, or even come close, has led to the kind of one way price action we've been witnessing.

While the fundamentals haven't changed, it does appear that we're finally starting to see momentum wane after a more than 30% rally from the omicron lows. That's coming around $90 where oil has peaked at a seven-year high, seemingly triggering some profit-taking. While I don't think it's done there, we could see a minor correction to take some of the frothiness out of the market. That said, I can't imagine it will be too large unless we see a shift, either in OPEC+ production or slowing demand from a major consumer like China as a result of its zero-Covid policy.

Gold breaks key resistance

Gold has been pushing for a breakout above $1,833 since the start of the year and it finally achieved it on Wednesday, which could potentially help propel it higher in the coming weeks. The move has been building despite yields rising, which may be a sign that traders don't believe enough is being priced in to counter soaring inflation.

The yellow metal has recovered earlier losses to trade higher today, just as the dollar has lost earlier gains to trade flat. It started to struggle a little shy of $1,850 which may be the next area of resistance, with the November highs around $1,875 above here being the next test. A move lower will see $1,833 tested as support after putting up such a barrier of resistance in recent months.

A big move coming in Bitcoin?

Bitcoin remains in consolidation on Thursday, with ranges tighening as the cryptocurrency struggles for any direction. It doesn't feel like we'll have to wait long for an aggressive breakout one way or another but at this point, it's hard to say in which direction that will come. If interest rates are its kryptonite then it could still be in for a rough ride as anxiety around monetary tightening remains heightened. But I'm not convinced that will remain the case and it may just be a case of the cryptocurrency biding its time. I'm sure we'll soon see which way that will come but once it breaks out of that tight range, the move could be quite substantial.