Choppy start to the week

It's been a choppy start to the week, with investors still clearly torn between wanting to capitalise on dips and unease over rising rates and risks.

I expect this kind of behaviour to continue into the end of the year as we continue to judge just how significant those downside risks turn out to be which should result in more two-way price action, in theory at least. Investors have an incredible ability to see the bullish case in most scenarios so I can't write off the possibility of them doing so once more.

The paring back of pandemic era stimulus and rate hikes at a time of sluggish growth and high inflation should make investors think twice - and arguably has over the last couple of months - but there's never a guarantee that will continue.

And the longer we go without any major correction in stock markets, the more I expect investors will succumb to their desire to scratch the itch and pile back in on stocks. Interest rates may be rising which perhaps offers some opportunity elsewhere but they won't rise significantly unless inflation gets completely out of control, which should keep the TINA trade alive and well in the long run.

It's interesting that in the UK, we already appear to be seeing signs that investors anticipate a policy mistake from the Bank of England, with rates seen rising to 1.2% by the end of next year before reversing course. This doesn't bode well for growth over the medium term and will probably correct itself as the central bank becomes more comfortable with the inflation outlook.

But it's the fear of this kind of outcome, or something worse, that may keep a lid on equity markets over the coming months. It will also keep plenty of focus on the inflation data and any indication that supply-side pressures will increase or current rises will become more ingrained, overriding current beliefs that it is largely transitory.

In the interim, earnings season will give investors an idea of how companies perceive the various risks when it comes to their earnings outlooks. Earnings season is off to a good start which probably supported sentiment into the end of last week but there's a long way to go and the outlooks, as ever, will be heavily in focus.

Oil flat, erasing earlier gains

Oil prices have turned flat on Tuesday after ending with small losses at the start of the week. That came after Brent hit $86 and WTI fell just short of $84, both interesting levels of support and resistance in years gone by. Of course, it's been some time since both traded at these levels so we should perhaps bear that in mind.

Ultimately, the medium-term outlook remains bullish for energy and while we may see short-term moves on the back of favourable weather reports, for example, corrective moves may continue to be quickly snapped up. The energy market remains tight and those able to ease those pressures are currently sitting on their hands and could do so for a while, yet.

Gold edges higher on softer dollar

Gold is creeping higher on the back of a slightly softer dollar which has fallen to a three week low. This comes as risk appetite continues to improve and yields across the board rise. This is supporting gold a little for now and continues the rising trend it's established in recent weeks but, it's been sluggish, to say the least.

The yellow metal rallying in a risk-on, rising rates environment would certainly be an interesting development. Higher inflation and a weaker dollar could be argued to be supportive factors but still, it doesn't strike me as being a relationship that can be sustained for too long. Perhaps that will depend on just how much the dollar falls out of favour with it clearly being a major driver for gold prices.

Bitcoin nears highs as ProShares ETF starts trading

Bitcoin is seeing some support after the launch of the ProShares ETF on the NYSE, hitting $63,000 shortly after the start and now within a whisker of new all-time highs. The question now is whether the event will be the catalyst for the next surge in prices or a profit-taking opportunity; a classic buy the rumour, sell the fact situation.

Either could be the trigger for some pretty wild price action in the cryptocurrency space, something everyone will be braced for in the coming hours. The launch coinciding with near-record highs is no coincidence but this is a market that has made extraordinary gains on the back of hype and this could be just that kind of event. A big move in either direction wouldn't surprise me at this point but either way, it should be an exciting watch over the coming session.