Earnings dampening the mood

Equity markets are back in the red on Wednesday, as investors appear to prepare themselves for a disappointing earnings season for big tech.

The last few weeks may turn out to perfectly encapsulate how the year will be as a whole, fluctuating significantly and suddenly between optimism and pessimism as the data and headlines dictate.

We appear to have entered the latter phase now after starting the year in a very buoyant mood, with earnings painting a more realistic picture of the outlook for this year than investors appeared to be convincing themselves was the case. Layoffs, missed headline numbers and downbeat forecasts are quickly becoming the norm.

Results coming from big finance were not great and have probably set the tone for the season. Big tech is up next and if Microsoft is anything to go by, we're in for another bumpy ride. The cloud business has been a hugely important growth area of the business and the prospect of this slowing at a time when the company has announced plans to lay off 10,000 staff is a concern. And the share price is feeling the burn pre-market after initially jumping on better earnings.

Concerning inflation data

Inflation data from Australia and New Zealand overnight won't fill investors with optimism either. While every country has its own challenges, New Zealand in particular, they also have a lot in common and stubborn inflation will cast doubt on expectations for it to fall more aggressively this year allowing for lower terminal rates and even rate cuts.

Especially coming at a time when economies are displaying a little more resilience - the US could achieve a soft landing, the eurozone could avoid recession, the UK may not be in recession already, etc - meaning central banks may feel less pressured to ease up. It isn't ideal.

Case for a rebound?

Oil prices are marginally higher after paring gains on Tuesday. It's been on a good run lately, buoyed by the prospect of a softer landing, globally, and a stronger rebound in China. There is some technical resistance around $88-89 in Brent which, combined with weakening economic sentiment, may have triggered some profit-taking. Marginal gains so far don't fill me with confidence that a deeper correction isn't possible if sentiment continues to be hit by weaker earnings.

Preparing for correction?

The gold rally appears to have stalled, with any gains coming on softer momentum and the last eight days being equally split between winning and losing days. Coming after such a strong rebound and as data becomes slightly less favourable, it's no surprise to see the trend weakening. If we do see a correction, the first test will come around $1,900 followed by $1,880.

Holding on

Bitcoin is continuing to trade in a roughly $1,000 range between $22,300 and $23,300 and is down a little over 1% so far on the day. Under the circumstances, we're seeing decent resilience with sentiment elsewhere turning more negative. Considering the gains that preceded it as well, the longer it can hold onto them, the more confident the crypto community will feel in its sustainability and be tempted back in. Of course, that's all headline-dependent, which has been less of a headwind recently.