Cautious trading as investors eye earnings, BoJ considering rate hike

Stock markets are trading a little in the red on Tuesday, with investors eyeing earnings results - including Netflix - after the close and the result from the Republican presidential primary.

Equities are trading at record highs again and now it's down to the numbers to justify them. The focus in the opening weeks of the year has been on economic figures, most notably those that will influence when central banks can start cutting rates and how fast, and now corporate results are coming under the microscope. So far, investors seem pretty content.

BoJ signals a rate hike may not be far away

The Bank of Japan opted to leave interest rates and its yield curve control policy unchanged today, indicating a decision on negative rates may come at one of the upcoming meetings.

It was always likely that no decision would be taken today as the central bank awaits the outcome of the spring wage negotiations due to take place in the coming months. For this reason, March, even April, may also come too soon and the central bank did suggest that the first move won't necessarily come alongside new economic forecasts.

Wage negotiations will ultimately be the driving force as they will give the clearest indication of whether price pressures are filtering through to the economy in a sustainable way that will deliver 2% inflation over the medium term. After that, it becomes a question of to what extent that is occurring and how much action the BoJ will need to take in response. After decades of low to negative inflation, we probably shouldn't expect this to be a quick process.

With the yen now rapidly falling again, does this open the door to further FX interventions from the Japanese Ministry of Finance or will it tolerate the moves on the basis that the wage negotiations may enable a more organic correction in the currency? That may well depend on just how much pain it must endure in the interim.

Choppy oil trading amid uncertainty

Oil prices are relatively flat after trading lower earlier in the session. Crude remains in consolidation with the picture still quite unclear on the economy, interest rates, OPEC+, and the Middle East. We may continue to see choppy trading, as we have in recent weeks until we get more clarity.

Traders still bullish on interest rates

Gold continues to trade above $2,000 despite traders paring back expectations for interest rate cuts this year. We're still seeing quite bullish positioning from the markets but we've certainly seen it soften a little. A break of this key pyschological zone could suggest investors have become fearful about rates and how slowly they'll come back down.

Bitcoin extends losses below $40,000

Bitcoin is trading around 2% lower on Tuesday, adding to losses at the start of the week and taking the price below $40,000.The move takes the decline since peaking shortly after the SEC approved spot bitcoin ETFs to more than 20% in what appears to be another case of the rumor being heavily bought and the fact sold. 

That's not particularly important in the longer term and we're used to this kind of volatility in the space. What matters now is what's coming next that could generate excitement around cryptos and deliver further gains. The halving event in a few months could be that but it may take something more and skeptics could argue that's already been priced in at this stage.