A Mixed Start To A Big Week

Stock markets off to a mixed start ahead of a fascinating week, with major tech earnings and the Fed meeting the highlights.

And it’s tech that’s leading the way this morning, with earnings to come from a number of heavyweights including Apple, Facebook, Tesla, and Microsoft. Perhaps it’s the anticipation of more bumper results that are driving this early week optimism after Netflix got the season off to a strong start for the sector. A number of these names have thrived in the current environment and the expectation seems to be that we’re going to see more of the same.

Monday has little to offer on this front but with almost a quarter of the S&P 500 due to report this week, it’s a theme that’s likely to be a key sentiment driver in the coming days. Investors were a little more risk-averse late last week but this week could get them back on track.

The risk for these markets is that after a bumper couple of months, investors may start to wonder whether they’re looking a little frothy. Especially against the backdrop of lockdowns in multiple countries and restrictions that are unlikely to be lifted in any considerable way for months, as the vaccine continues to be rolled out.

Of course, we’ve seen lockdowns being imposed for months now, and let’s face it, it’s done little damage to investor sentiment. The unwavering belief in the Fed and other central banks to solve all is very powerful indeed.

And the Fed is going to be key once again this week. All of this talk of tapering and rate hikes is nonsense, especially given the tweaks to its targeting that ensures we won’t be facing tightening any time soon, until long after the pandemic.

But fear of the unknown is one thing that can shake investors, as the Fed is all-too-aware. Policymakers have been on the PR offensive in recent weeks to avoid a needless taper tantrum repeat and reassure investors they have nothing to worry about. Perhaps this in itself is a sign of investors being uncomfortable with what they perceive to be lofty valuations.

I expect the Fed meeting this week will pass without any problems, investors suitably assured that the central bank isn’t about to spoil the party. Whether that or earnings, is enough to get them back aboard the FOMO train, we’ll have to see.

Oil consolidation continues

Oil prices are a little higher at the start of the week after slipping on Friday. We’re seeing a little consolidation after a strong run since early November. This may even lead to a minor correction but the outlook remains positive for crude prices, with OPEC+ backstopping any temporary demand disruptions caused by the pandemic.

One downside risk for oil is US shale, something Russia, in particular, is all-too-aware of. Should the industry ramp up production at these much more favorable levels, it could be problematic for the group and there’s only so much Saudi Arabia can do alone. It made a big sacrifice at the last meeting in order to get an agreement over the line, but that’s not sustainable in the long run.

Gold edges higher ahead of Fed

Gold prices are up a little after a rough ride on Friday. The yellow metal has faced challenges from a resurgence in the dollar. We’re now seeing it consolidate a little around $1,850, something that may continue unless we see a breakout in the dollar index. It is currently in a tight range between 90 and 91 and a breakout in either direction could be the catalyst for a similar move in gold. It could be an interesting week.

Bitcoin continues to look vulnerable

Bitcoin is seeing some consolidation itself after surviving another run at $30,000. It has rebounded back towards $33,000 but we haven’t yet seen anything that suggests this support level won’t come under threat again. Another run at it could start to make speculators nervous and may see it buckle. A move back above $35,000 may start to change the conversation but the trend is against it these last few weeks and a move lower still looks more likely.

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