 Hello and welcome to CMC Markets on Friday the 24th of July and this quick look at the week ahead beginning the 27th of July and it's been a fairly, it's been a bit of a mixed week if I'm totally honest with respect to equity markets. We got off to a fairly positive start in the wake of the passing of the pandemic recovery programme on the part of the EU leaders the pandemic recovery fund 750 billion euros that was positive but the gains that we saw proved to be somewhat short-lived shall we say because as we've as we've as the week has progressed despite the fact that we've made new highs five months highs for European equity markets and new record highs for the NASDAQ sentiment has soured somewhat as well as as well as we've seen some dollar weakness as well so not only have we seen souring equity market sentiment but we've also seen some significant dollar weakness over the course of the past few days and I think the catalyst for the weakness that we've seen thus far I think has been for a couple of reasons obviously there's concern about rising infection rates in the US particularly in the Sun Belt States coronavirus the virus appears to be multiplying exponentially across the board but we also saw a slight uptick in US weekly jobless claims and I think that is now starting the the the lockdowns in various US states is now starting to manifest itself in some of the more current economic data namely weekly jobless claims which went up from 1.3 million to 1.4 so I think there's a concern that the recovery that we've seen in the last couple of months with respect to US economic data maybe starting a plateau and roll over also seen a souring of sentiment with respect to the US and China the US announced that they wanted the Chinese to close the consulate in Houston obviously that has prompted a counter response from the Chinese asking the US to close their consulate in Chengdu and we've had a number of comments from Secretary of State US Secretary of State Mike Pompeo being less than complimentary about the Chinese administration so that's not really helping and so what we've got here is in the first part of the week we saw a little bit of a push higher on the Tuesday in the wake of that passing of the recovery fund since then we've rolled over and we we are starting to potentially see this 13,000 level start to come under a bit of pressure and there's a potential roll over there so that candle there in particular looks like a gravestone doji and that suggests to me that momentum is starting to starting to be becoming a little bit stretched and as such we could see a little bit of a roll over as we go as we look ahead to August we can sort of see that here as well on the weekly chart whereby we've made new highs since February but we haven't really been able to follow through on them so I'll be paying particular attention to that and I'll also be paying strong attention to how the S&P 500 is behaving given the candle that we saw on the daily chart here we can see it very clearly here key reversal day also a bearish engulfing day it's made a new high and actually closed below the lows of the previous two days that typically is a very bearish signal and could suggest that we could see a little bit of a test of this this line here all these lows just above 3,100 key support I think is 3,200 look at these series of candle lows there four days we held that line if we break below 3,200 could see a little bit of a correction going forward I'm looking at on the weekly chart it's probably less obvious but on the daily chart there does appear to be some sort of bearish there is a little bit of a bearish look and feel well we've also seen it's a NASDAQ and that appears to have had two attempts to try and get through this 11,000 level it has failed thus far what we really need to see now is whether or not this break below this trend line low here is confirmed and whether or not we see further weakness going forward I think the tech sector is going to be very very important and we've got a number of key tech earnings coming up this week in the form of Apple and Facebook so I think investor reaction to them could be crucial in terms of whether or not we see further further weakness from the weakness that we've seen over the course of the past three or four days after the initial push higher that we saw on the Monday I'm looking at the weekly chart doesn't really tell us too much apart from the fact that momentum does appear to be starting to taper off a little bit as we look ahead so that's that's really sort of this week and there's a number of key factors that have prompted the weakness the latter part of this week concerns about plateauing in the rebound in the US economy because of the rise in coronavirus cases as well as rising geopolitical tensions between China and the US which is only likely to ratchet up further as we head closer to the presidential election in November there has been some talk of another US fiscal stimulus that could well happen by the end of the month at the moment it doesn't look likely so it could again get pushed out into the beginning of August that's likely to concern Federal Reserve they have a meeting coming up on the 29th of July not expecting any changes in policy but I think what we could say is whether or not Fed policy makers are concerned about the rising the big rises that we're seeing in coronavirus cases the re lockdowns that we're seeing in the Sunbelt States in particular where the virus appears to be running out control concerns about business defaults obviously we've seen US bank earnings come out they've been pretty much as expected fairly good on the investment banking side pretty poor on the retail side and a much bigger than expected provision a non-performing loan set aside in a recall in Q1 we saw $25 billion set aside from US banks in Q1 they've set aside a much larger number in Q2 and that's likely to be a pattern that's set to be replicated not only in European bank earnings but also UK bank earnings which are coming up in the week ahead so what am I looking out for this week well there's two strands that I'm looking at one is the macro which is the Fed meeting and second quarter GDP numbers from the US and the EU but also some unemployment numbers out of Germany in the EU they're probably of lesser importance simply because we expect them to go up it's really just a question of by how much but more broadly we've got UK bank earnings we've also got Apple earnings we've got Facebook earnings and we've got big oil ExxonMobil second quarter earnings Royal Dutch Shell second quarter earnings so let's get started I think with the Fed meeting now Fed meeting is during the 29th we've seen a significant amount of dollar weakness over the course of the past week or so the big question is will that continue to manifest itself as we look ahead CMC dollar index has broken below that trend line support from the lows that we saw back in March could well look to retest the or have another have a look at the 1000 level we've seen euro dollar move above 116 how euro dollar behaves above 116 116.25 will be crucial in terms of where the dollar goes from here on in but it does appear to be some evidence that potentially we could see a break higher in the dollar break lower in the dollar and a break higher in the euro big level on the euro dollar is 116 between 116 and 116.25 it's a 50% retracement of the down move from 125 50 to the lows that we saw earlier this year around about 106 we're struggling I think to really break through that level if we are able to break above 116.20 then it stands to reason on a technical basis we could go quite a bit higher to 118.20 and the 61.8 for the natural retracement level of that move as we can see from this weekly chart here so seeing a big move higher in euro dollar this week big question is can that be sustained then can it take us ever higher still at the moment the jury seems to be out because whatever you may feel about how European leaders have dealt with the pandemic recovery fund the fact is the money is not likely to be dished out anytime soon which means that the wrangling and the arguing is likely to continue for some time yet and the recovery fund still needs to be ratified by the various member state parliament so it's unlikely the money will get bit dispersed much before march of next year that suggests there's still scope for an awful lot to go wrong looking at cable still struggling at this 61.8 for the natural retracement level around about 127.70 127.80 we did touch 128 in June but it's interesting to note that we really struggled to get back above this 127.70 level over the course of the past two or three days you'd like to think that without much in the way of a dip we'll probably get through it but at the moment you've got concerns about brexit talks EU UK brexit talks not really much progress there there isn't likely to be any but we could see a move higher if the dollar is if the dollar weakens markedly what could cause dollar weakness well a couple of things could cause dollar weakness the main thing i think for me is the Fed meeting and the narrative that comes from that i think a willingness on the part of Fed policymakers to be more relaxed about its long-term goals regarding its inflation guidance that could be the type of monetary policy change which will send an even stronger signal that likes to rates are likely to remain lower for longer because the Fed has a dual mandate if they basically say they're prepared to look through any inflationary concerns and focus much more on the employment component that could actually be construed as particularly that could be that could be particularly dovish and prompt a little bit of weakness in the dollar the downside to that is obviously that any deterioration in the macro outlook generally tends to attract safe haven flows for the US dollar so there's a little bit of push-pull on that that's sort of helped i think in terms of the gold price which is now looking to retest its all-time highs at 1920 we're just knocking on the door in 1900 at the moment we're able to get through that and we could well close in on the record highs that we saw posted back in February 2011 the dollar is the only g8 g10 currency that the dollar the gold hasn't made a record high against against all other currencies gold is at record highs so that will be the missing piece of the puzzle in terms of where record highs are concerned the dollar is the last domino to fall in that regard on the 30th of July we have second quarter GDP from the United States just a reminder then the first quarter there was a contraction of five percent um be the problem that we've got at the moment is that we've seen a decent rebound in retail sales seen a decent rebound in the labor market that is not likely to be reflected in the gt the gdp numbers expectations are for anything between 25 and a 35 percent drop in output in q2 but i mean trying to pick a number for q2 is a bit like throwing a dart at a dartboard it could be anywhere between 20 and 40 percent in terms of the drop in output so we're expecting a big drop there it's really just a matter of degree and the big question is is how much in q3 will be will that be reversed given the slowdown that we're seeing in in respect to the u.s economy and the rising cases of coronavirus cases that rebound may not be as sharp as markets are currently pricing in we've also got second quarter gdp numbers from the european union on the 31st of july on friday um again first quarter was a 3.6 percent decline um in the second quarter again get your dartboard out between 25 and 40 percent middle is around about minus 30 for april may and june so not really telling us anything that we don't already know in that regard there so we also have european union and german unemployment numbers due out on the 30th these numbers really aren't worth the paper they're written on because unemployment numbers in the EU don't really include people that stop looking for work because they don't think they're going to get a job so they don't even bother they're not included in the figures that was at 7.4 percent in may um for the european union in germany we've seen jobless claims rise quite sharply since march up to 6.4 percent in june from five percent in may so the july numbers could well be similar could could also see a similar increase there though having said that with the with the relaxing of lockdowns there could actually be a slowdown in those particular numbers so keep keeping keeping a particular eye on those numbers there okay so that's the macro let's look at the micro so let's start with uk banks um we've already seen from us banks european banks that impairment charges have been um i think the key takeaway from an awful lot of these banks numbers and those banks that have investment banking divisions have generally performed better than those who don't and that really explains i think why loyds bank and rbs share price has significantly underperformed relative to say for example barclays for example um which does have an investment banking division and which is finally after numerous years of underperforming starting to show signs of an improvement so if we look at loyds bank share price not really expecting to see much in the way to excite me i think from loyds banks numbers one thing i will be particularly interested in in the first quarter loyds set aside 1.4 billion pounds in respect of impairments and at the time they said they expected total losses to come in around about 4.9 billion pounds they'll be interested to see whether or not they revise that figure upwards when they report their q2 numbers so um in terms of the lows in this loyds share price 28p is the really is i think is a line in the sand when it comes to a support level similar sort of story when it comes to natwest group as it's called now after the name change from rbs i mean personally i think it doesn't really change too much one thing i will say about natwest group as it is now natwest markets should show an improvement if the performance of other investment banks are any guide but natwest markets is an awful lot smaller now than it was say 10 or 12 years ago when it was an absolute leviathan now it's an awful lot smaller and likely to make up a much proportion lower proportion of overall revenues so again provisions for non-performing loans are going to be a key metric for their barkleys on the other hand um did see a big pick up in profits or sorry in revenues in q1 i saw a saw a 20 rise in revenues in q1 to 6.3 billion pounds and that was largely is the result of an outperformance in investment banking division so i think if barkleys numbers are any good i think there is potential for a little bit of a retest of those highs these highs here that we saw back in june if they come in short then obviously it's the case of watch out below and we could see a little bit of a slide lower as we look ahead as i say the the numbers for the uk banks they come out on the 29th 30th and the 31st of july so wednesday thursday friday um if you're if you're not minded to sort of put all your eggs in one basket so to speak no pun intended then you could actually you could actually choose to maybe take a look at our uk bank share basket which allows you to basically diversify your risk um into a much broader cross section of um assets so if i just change the fund on that so you can actually see what we're supposed to be looking at here you can see that the uk bank share basket really doesn't look that different to the Lloyd's and rbs share price movement albeit we do have um the similar sort of high that we saw on the eighth of june but you know the bank the baskets they're a fairly nifty feature um that allow you to spread your risk across the entire sector and you can find them very very easily from the products drop down menu and then select share baskets okay moving on let's um have a quick look at the big oil um particularly royal dutch shell um because i think with respect to royal dutch shell um it's not going to be pretty but i think the one thing we can say about royal dutch shells numbers is i think an awful lot of the bad news is probably already priced in just as a quick recap um at the end of june shall announce it will be taking up to 22 billion dollars in write downs as a result of the recent slide in oil and gas prices now we've obviously seen a bit of a rebound in oil and gas prices since then so hopefully um things should could look a lot better but it's really not about that shell has already cut its dividend they announced that at the beginning of the year it's the first cut in the dividend since 1945 and unlike bp i think for me it shows a willingness on the part of shell management to actually address the issues that the oil and gas sector is going to have to face as we look towards the next 10 to 20 years there was always going to be a shift towards renewables we knew that even before the coronavirus pandemic basically cut the legs out from global demand um i think it's not going to be a surprise that margins in demand are going to have fallen quite sharply in the second quarter i think the key thing for me is how much of the money that they saved by cutting the dividend are they going to divert into its renewables budget because at the end of last year and at the end of november last year shell bought french floating wind turbine company eolfi and they said at the time they would devote 10 percent of their yearly spending to new energy projects by 2025 i would expect to see at some point shell ceo ben van broden give an indication as to how much more that they are going to start devoting to renewables over the next course of over the course of the next five to 10 years because ultimately it's going to need to be more than 10 or 15 percent of yearly spend it's going to be it's going to have to be something 25 30 percent um so the key level for me i think is 11 30 are these lows here and obviously we have the 50 day moving average here so those shell numbers are out on the 30th and then that's followed by exxon mobile which is on the 31st both second quarter earnings numbers so going to be very very key bellwether of the oil and gas sector which has been absolutely hammered this year now apple one of my favorite stocks not just because i use apple products that i can't stand the iphone i do have an ipad but i think in terms of the outlook for apple i think the way the share price has been moving suggests that markets have high expectations for q3 q1 they blew the doors off but obviously that was pre coronavirus q2 disappointing um you know a little a little bit of a disappointment but nonetheless apple was still able to match its q2 revenues from the year before which is no small feat given the fact that q2 um saw pretty much all of the coronavirus pandemic from china and china is obviously one of apple's biggest markets so as we look ahead to q3 i think i have a number of key questions that i want to be looking at in terms of apple how well is its services revenue doing because that did fairly well in q2 and how much of an impact on iphone sales have we seen as a result of the lockdowns in q2 and q3 um fortunately apple has a very good online delivery mechanism so i don't think there should be a particular hit there the big question i think for me is how much of an increase in services revenue will we have seen as a result of the launch of apple tv because apple tv launched here in the uk quite recently and um it'll be interesting to see how much of a pickup there was um alongside obviously disney which also launched here in the uk so they also launched the new cheaper iphone se um deviation away from the higher end of the market still don't have a 5g model apple i don't think that's going to hurt them in the short term because i don't think the many people are going to be upgrading their expensive phones but certainly if i look at this weekly chart here it does appear to be some evidence of a little bit of a parabolic move higher and i think we are a little bit overdue for a move lower and certainly the price action that we've seen over the course of the past few days does suggest to me that potentially investors are getting a little bit nervous ahead of the earnings announcement that is due out which is due out on the 30th of july we also have facebook's q2 numbers now as we saw from twitter's numbers um in the last couple of days there's a big big impact and advertising and when when facebook reported in q1 there was some concern that the pandemic would hit facebook's advertising revenues the fact that it didn't suggests to me that um investors might be a little bit complacent about q2 the thing with q2 is that pretty much the whole of q2 is affected by the pandemic whereas facebook in q1 we only got the sort of the the last three weeks of march so it's a big difference so despite those decent q1 numbers facebook pulled its guidance not really a surprise most companies pulled their guidance at their previous numbers they also lowered the capital expenditure estimates to around about 14 billion pounds and they were around about sorry 14 billion dollars they were around about 17 billion dollars now surge in online gaming messaging and video calling did see active users rise 11 in q1 and you're likely to see a similar rise in active users in q2 the downside is that you're likely to see a big drop in advertising revenues as businesses cut back on unnecessary expenditure and advertising is one such expense um you're not going to spend an awful lot of money on advertising businesses if an awful lot of your target audience is locked up and looking to save money it's just the waste so the big the big concern as we head towards these numbers is that investor expectations of what facebook is going to do going to do in q2 aren't probably aligned with what they are likely to do um and what the numbers are likely to say so i think in terms of q2 what are the revenue numbers going to look like and more importantly what are their expectations for q3 or q4 do they offer any at the at the moment expectations as numbers are guesswork so i'm minded to think that facebook will probably be deliberately opaque about their expectations for the rest of the year but certainly in terms of expectations for q2 i think the market could be getting slightly ahead of itself we shall see um but that pretty much concludes my summary of what's coming up over the week ahead what i will say is apart from that with there are a couple of other items to keep an eye out for as we look ahead to the upcoming week those particular numbers are as follows we have bt group on the 31st of july um we've also got next q2 numbers so that should give us a good insight into the retail sector in view of the recent relaxations of lockdown and and next does have a fairly decent online presence and astrazeneca q1 sorry h1 first half numbers and that's obviously astrazeneca has been in the news a lot because of its involvement in the latest coronavirus vaccine project with oxford university and the share prices at record highs so its first half numbers should be also instructive in terms of how much money it's sinking into getting a coronavirus vaccine so so that's it for this week thanks very much for listening this is michael houston talking to you from cmc markets and i hope you all have a great weekend and speak to you same time same place next week