The return of interest rate anxiety

A late sell-off in the US on Thursday is weighing heavily on sentiment around the globe with Asia ending the week on a negative note and Europe heading for a similar finish.

Tech was once again hit the hardest as interest rate anxiety kicked in. The rebound looked premature and yesterday showed investors don't have the stomach for a sustainable rebound yet. I have no doubt the dip buyers will be tempted back in soon enough but we could see a little more pain before that happens.

The Nasdaq is looking a little vulnerable, to put it mildly. The failure at 16,000 followed by the severity of the sell-off is an awful combination and it suddenly looks very weak on approach to a big support level.

A test of 15,000 looks very likely at this stage and not only would this represent a 10% correction from the highs, most of which has come in the last 10 days, but a break would take the index below the 200-day simple moving average for the first time since the start of the pandemic. That would be quite the negative signal.

Of course, earnings season may have arrived just in time and some knockout tech earnings may be enough to tempt the dip buyers back in. Not that they typically require much. But given the level of interest rate anxiety in the markets right now and the sensitivity of tech stocks to it, it wouldn't hurt.

UK GDP surpasses pre-pandemic peak

Growth in the UK was much stronger than expected in November, taking GDP above the January 2020 level for the first time since the pandemic hit. Consumer-facing services were a big driver of the outperformance, which is encouraging given the relative restrain we've seen during the recovery. However, behaviour is likely to have been more restrained in December as a result of omicron, not to mention earlier than normal Christmas spending, which should drag at the end of the year and early this. Still, a very promising report, even if the bump in the pound was relatively short-lived.

Investors seemingly not concerned by weak US Retail Sales report

The US retail sales report was rather disappointing in December, perhaps a sign of consumers being more restrained as a result of omicron, not to mention early Christmas prep in anticipation of supply issues. Markets seem a little directionless after the release, which could be a sign that investors don't know how to take the data. A strong report would have been positive for the economy but also feed into the argument for faster tightening, which is not being particularly well received at the moment. A few weak reports may, on the other hand, encourage caution from policymakers.

European energy crisis deepens, while oil continues higher

Oil prices are higher again on Friday, continuing to trade around the highest levels seen in more than seven years. We could potentially be seeing some signs of exhaustion in the rally, with momentum indicators easing despite price continuing higher, but we're not seeing it to any significant degree. Perhaps we'll see more signs in the coming sessions but it's hard to say with any conviction that prices won't just continue to rally in the near term.

The energy crisis is also deepening in Europe, raising the possibility of outages this winter as already depleted reserves continue to be drawn upon. Friction with Russia over Ukraine, not to mention the Nord Stream 2 pipeline, make the prospect of emergency supplies unlikely any time soon. And further outages at nuclear reactors in France are just compounding the problem. European leaders will be praying for warmer weather over the coming months.

Gold showing incredible resilience

Gold is a little lower at the end of the week, once again running low on momentum as it approaches what has become a major technical resistance level around $1,833. Higher yields are at least partially responsible for the wind coming out of gold's sails, although once again it's showing considerable resilience given the reaction we've seen elsewhere.

If it can break $1,833, it will be a very bullish signal for gold, especially coming at a time when investors are pricing in more aggressive tightening from central banks. It seems to be relatively immune to higher yields, perhaps generating favour from its inflation hedge reputation. Are traders sending a signal that four hikes and balance sheet reduction this year won't be enough to get to grips with inflation? Or shielding against potential declines in stock markets?  

Bitcoin not feeling the love

Bitcoin isn't feeling the love that's coming gold's way at the moment, despite the claim of it being gold 2.0. The cryptocurrency looks to be far more aligned with high-risk assets and is coming under pressure once more as interest rate fear spreads throughout the market. Bitcoin ran into resistance a little shy of the December support zone and could see $40,000 come under pressure once more. This level is likely to be heavily protected so it will take a big push to break that support. If we do see a close below, it could get a lot more painful for cryptos.