An interesting start to the year, with Europe once again posting large gains on Tuesday as the US indices have mixed fortunes.
I always feel too much is read into late December and early January trading, with Santa rallies being overly celebrated and the doom and gloom of the opening month of the year way overdone. The start of the year hasn’t offered the doom and gloom yet, although US tech stocks getting whacked today may make some a little nervous.
As many return to their desks following another unusual holiday season, investors are left to contend with what the coming months have to offer and whether the new abnormal will cause any major disruptions to the global economy. Thankfully omicron appears less aggressive than its predecessors which should enable many countries to continue the transition to living with the virus and away from hiding from it.
But sentiment remains fragile in the markets as Covid is not the only risk to the economy this year. The early days of omicron were a wake-up call to how complacent investors had become to the virus, but it came at a time when the greatest risks to the outlook were the knock-on effects of the previous waves and they have not subsided.
That’s not to say stocks are suddenly about to head south. But inflation is high and will remain so for a while yet, interest rates are going to increase this year, and both of these could be exacerbated if restrictions continue to lead to supply disruptions.
Oil well supported after OPEC+ assessment
Oil prices are extending gains after the OPEC+ meeting today, at which producers agreed to continue to increase output by 400,000 barrels per day, next month. At the last meeting, the group agreed to continue with planned increases in January but made clear it could make adjustments at any point if omicron proves to be a significant drag on demand.
It’s clear based on today’s meeting that downside risks to demand from the new variant never materialized and the group is far more comfortable with the outlook based on the data they’ve seen. This will be encouraging for investors and could keep oil prices elevated around $80.
Gold bulls easily scared
Gold remains an interesting one to follow early in the new year, with traders seemingly bullish but easily scared. The bullishness is interesting given we’re in a monetary tightening environment, the dollar remains king and economic optimism remains strong. Perhaps this is a red flag, a sign that under the surface investors aren’t as confident as they would otherwise appear.
The yellow metal is holding above $1,800 and is up more than half a percent today. But it does appear momentum is starting to wane, with $1,833 seemingly still remaining key to the upside despite the yellow metal finally overcoming the unusually specific resistance level in mid-November.
Bitcoin remains range-bound
Bitcoin remains in a consolidation phase at the start of the year, with $45,500 providing strong support below but $52,000 a step too far above. The last week has seen that range tighten, with $48,000 providing significant resistance which hasn’t made for the most exciting period for bitcoin trade, something that I’m sure won’t last long.