A turbulent end to the week with widespread selling as underlying anxiety in the markets once again takes hold.
The hope going into earnings season was that companies were going to settle the nerves. That we were about to get a reminder of the strength of the economy and the resilience we’ve seen over the last couple of years. Instead, the results have been rather disappointing.
The banks didn’t give us much to cheer about and if the Netflix results are anything to go by, big tech may also underwhelm. The subscriber numbers were a real blow and investors are being forced to adjust to the reality that there is nowhere near the momentum that the last couple of years was expected to generate. Immense competition in the space and higher costs are also major headwinds.
And that negativity, on top of everything else, is taking its toll across the broader markets as investors are starting to realise that earnings season may not be the game-changer they hoped it would be. From the perspective of Netflix, I do wonder whether the response is overblown with the 20% decline in premarket trade taking the price back to pre-pandemic levels. But that is a reflection of the mood in the markets right now.
And it could get much worse. The Nasdaq has broken through some key technical support levels including the 200-day moving average for the first time since April 2020. The party isn’t over for big tech but unless they give us something to cheer about next week, they could be in for a rough ride in the coming weeks.
Retail Sales don’t change the outlook for UK interest rates
UK retail sales fell 3.7% in December, well below forecasts, as consumers likely pulled forward festive shopping in anticipation of supply shortages. While the number was well short of expectations, no one was falling off their chair in shock at the release. It was expected that spending in December would disappoint as a result of omicron and earlier Christmas shopping so traders were always going to allow for a large margin for error.
The fact remains that the data changes nothing with regards to how the BoE will act this year and a rate hike next month still looks a near cert. The pound is a little lower today but that is no reflection on interest rate expectations. Four hikes are still heavily priced in this year.
How long until oil bulls jump back in?
Oil prices are slipping more than 1% at the end of the week, pulling back a little further from the highs just short of $90. The decline came shortly after the EIA inventory data on Thursday, which showed a surprising rise against expectations of a 2.1 million barrel decline. The White House also looking to apply further pressure in response to higher prices may be contributing to the pullback, although as we’ve seen before, their power appears quite limited.
Obviously, that’s no game-changer but it came at a good time when crude was running into resistance at $90 and losing momentum. It’s a big psychological barrier as once that goes, people are just counting down the days until we have triple-figure oil. It’s a big deal, but one we’ll have to wait a little longer for. The question is how long until traders jump back in. Given the fundamentals, I don’t think we’ll be waiting too long.
Can gold propel higher after the breakout?
Gold is marginally lower on Friday but finding support around $1,830 where it experienced significant resistance in recent weeks. The break above this level was big for the yellow metal and could propel it higher in the coming weeks. That starts though with holding above $1,830, as confirmation of the breakout will be a big confidence boost for gold bulls.
The move suggests gold is once again playing the role of the inflation hedge and a safe haven in these unstable markets. A lot of tightening is priced into the markets but inflation is running hot and there doesn’t appear to be much confidence that it will be enough. It’s no wonder there’s so much anxiety out there.
Bitcoin slips below key psychological support
Bitcoin is getting pummelled, hit by another wave of risk aversion in the markets that’s pushed the price below $40,000 and probably exacerbated the move in the process. The price is more than 6% lower on the day but more than 10% from yesterday’s highs. It doesn’t look good for cryptocurrency.
And it comes at a time when Russia has proposed banning the use and creation of cryptocurrencies which will come as a blow as it’s currently the world’s third-largest crypto miner. It had little impact on price though as we’ve seen how quickly the industry can adapt to these blanket bans in the past.
