 Good morning. Welcome to CMC markets on Friday the 2nd of February and this quick look at the week ahead beginning the 5th of February with me, Michael Houston. It's been pretty choppy last few days. Obviously, the main focus of market attention has been on central banks and essentially whether or not we get an early rate cut from those very same central banks. And ultimately what we've had this week is a slight reset of expectations around that. Having had a high degree of confidence the rate cuts were coming before the end of Q1 in the first few weeks of this year. We've seen a bit of a reset in that. Obviously, we had the Federal Reserve on Wednesday. We had the Bank of England on Thursday. And while we have seen a resetting of the guidance when it comes to further rate hikes. What we haven't seen is a cast iron commitment to signal for an early rate cut. And it's not really hard or that hard in my opinion to see why. But what effect has had it as it had on equity markets? Well, if you look at the FTSE 100, not been great. Had a pretty poor January. Slipped back towards the lows of the last couple of months around about 7400 since then. We've seen a bit of a rebound since mid January. We're consolidating a little bit of that rebound, which is a little bit of a worry. But ultimately I think what we're seeing at the moment is a continued range trading of the kinds that we've pretty much seen over the course of the past few weeks. So really no change there. Not an awful lot to get inspired by on the part of the FTSE 100. The DAX is still finding it tricky to get through 17,000. Yeah, we did see a record high back in January, a very marginal one. And we're pretty much trading very close to that as I speak to you now. So again, the rebound that we've seen over the course of the past day or so pretty much keeps further gains in sight. I think it was very interesting to see the fact that we managed to rebound off the 50 day moving average. And we're now retesting the peaks of earlier this month. I think the key question now as we look to gain further momentum is whether or not we can consolidate the gains that we've seen over the course of the past couple of days and continue to move higher. S&P 500. Well, we had five of the magnificent seven reports this week. Bit of a mixed bag, fold told. More a case of the magnificent two now really strong numbers from Facebook and Meta platforms last night. Amazon also fairly decent numbers. I think it was rather instructive that of all of the magnificent seven, Amazon is probably the only one that hasn't made new record highs since its previous high set back in November 2021. So it'll be very interesting to see whether or not Amazon continues to play catch up on the rest of the market. Apple disappointed on the face of it. The numbers fairly decent. Certainly revenues came in much better than expected. But sales in China saw a big drop off when it came to revenue growth. So again here, big question is, can we continue to kick on? Certainly there's no reason to suppose that we can't. Again, here, we're getting higher highs and higher lows. And we're looking for a very positive US open later today ahead of today's non-farm payrolls report. So earnings from the magnificent seven have by and large and been fairly decent, albeit it was a very, very high bar. Alphabet was disappointing or the market thought it was disappointing. I actually thought they were quite good. Certainly they beat expectations, but the market reaction was a little bit underwhelming. But again, it's all about expectations. And I think when you set the bar so very, very high, as has been the case with the gains that we've seen so far this month, then it's going to be very tricky to actually not only clear those expectations, but also deliver guidance that's strong enough to carry the momentum forward. So now maybe we get a little bit of consolidation over the course of the next few days. But certainly if we look at the NASDAQ, again here, seen a nice little test of this trend line from the lows back in October. So again, very much in the uptrend that we've been in for quite some time. So certainly I can't see any evidence that we're going to see a slowdown in the up performance that we've seen from US markets. One fly in the ointment, however, could be that the volatility that we're seeing in the US regional banking sector in a replication essentially of what we saw in March last year. The real estate concerns New York Community Bank earlier this week, seeing some really big declines. Regional banks are starting to come under pressure. Does that translate into further weakness across the rest of the sectors within the US economy? So I think there is that there are starting to we are starting to see rumblings about concern about the US real estate sector. Okay, so let's go back to what we saw from J. Powell earlier this week. So as far as the statement was concerned, reference to possible additional rate hikes was removed. Again, the Bank of England was pretty much moving out the prospect of further rate hikes. And so is the ECB. So basically central banks are pretty much singing from the same hymn sheet. Fed statement accompanying statement maintain job gains have remained strong, despite having slowed and inflation remains elevated. So I think the reference to inflation remain elevated is a warning that the Fed is concerned about second round effects maybe because of disruption in the Red Sea. Obviously the GDP numbers in Q1 were very, very strong, much stronger than expected. And we are starting to see evidence of a pickup in inflationary pressures in manufacturing from the manufacturing ISM earlier this week prices paid went back about 52.5. So I think there is this expectation that the declines or the slowdown inflation is not linear and won't be. I mean, I think that's a big question. And I think if we are looking for evidence of a pickup inflation this week or this coming weeks China CPI China PPI numbers due out on the 8th of February for January will be I think a key I think there'll be a key benchmark in terms of whether or not China is about to come out of deflation China very much in deflation. Headline CPI in December was minus 0.3 that improved from minus 0.5. Chinese central bank is relaxing reserve requirement ratio starting from Monday the 5th of February. However, it's likely it will probably need to do more in the coming weeks probably after Chinese New Year, which starts on the 10th of February. So not expecting any significant pickup from Chinese inflation. And certainly I think if you look at PPI PPI has been very firmly stuck in negative territory since October 2022. So there's there's that cumulative goods inflation lag that is likely to take quite some time to pick up. But obviously shipping rates have shifted quite markedly higher in the past three or four weeks. And at some point that will start to filter down into the headline numbers for companies for goods inflation over the course of the next few months. And one of the things that Powell did do on Wednesday was pretty much rule out the prospect of a March rate cut, which disappointed markets to a certain extent, but ultimately hasn't really had that much of an effect on the two year yield. So no rate cut in March. We'll have to wait and see. Very much data dependent, seen a little bit of a rebound in two year yields, but not that you notice. So expectations have now shifted out to May. And really this is I think what key takeaway for this week has been. It's really about not about when rates are going to be cut. It's more about the timing. As I pretty much said last week, I always thought March was a bit of a tall order. Powell has pretty much confirmed that, that there are concerns about sticky inflation. And that was no better born out by this week's Bank of England rate meeting where we saw a divergence of opinions. You know, and people have sort of said, well, what shambles, you know, they can't decide one way or the other. I actually welcome that. It's nice to see a divergence of opinions. It's nice not to see root think. I can see both sides of the equation. I can see why Swatidingra has asked for a rate cut and is pushing for a rate cut. But I can also understand why Jonathan Haskell and Katherine Mann have argued for a 25 basis point rate hike. Doesn't mean I believe them, but at least they're having the discussion and they're looking at a broad range of views. And ultimately, given the fact that the UK is a price taker when it comes to inflation, I think the more they can do to underpin the value of the pound is very much a good thing. Because ultimately, if you look at the headline rate for CPI, it's a 4%, but good inflation, while very, very weak, services to inflation is at 6.4%, wages is around about 6.9%. And food inflation for December was 8% and did come down to around about 6.97%. It's still very, very high. So it's that sticky nature of inflation on the services side that's giving them cause. And I think they're right to do so. I still think we will see rate cuts this year. The market is pricing rate cuts this year. And that is certainly manifesting itself in the guilt market. And certainly if we look at the way UK Guilts have traded over the course of the past few months, you can see that born out in this UK guilt yield chart here. We are starting to wedge higher. We're off the lows around about 4.3%, around about 4%. So essentially what's happened is that 25 basis points of loosening has been taken out of the pricing since the end of last year. And essentially all that means is that the first rate cut instead of coming in the first quarter is likely to come at the end of Q2. Certainly I think we can probably see three rate cuts this year, the markets pricing four, first of which could well come in June. And certainly I think that's always been my base case when it comes to the Bank of England. We'll probably see a rate cut in June. We'll probably see a rate cut from the ECB in April. Might even see one in March and we'll probably see one from the Fed in May. So that's been pretty much my base case. The ECB will move first, closely followed by the Federal Reserve and Bank of England. So that sort of brings us forward to what's coming up in the next few days. As I said, we've had a choppy week. Certainly as far as currencies are concerned. We've it's pretty much been much of a much as if we look at cable, fairly decent support around about 12590. That 50 day moving average is sort of confusing things a little bit. But ultimately, I think as long as we hold above the 200 day moving average for cable, we should start to push through 128 and head towards 130. I've still been minded to think that there's potentially more upside in cable than there is downside. And certainly, I think as long as the pound can remain resilient, that will act as a drag in helping call inflation lower. Euro dollar slightly more complicated. Certainly looking at the price action here, there is slightly less momentum when it comes to further Euro dollar gains, fairly decent support in and around 10780 108. We could see that here and here and here. But ultimately, fairly decent resistance around about 10920 10930. So again, it's very much a bit of a range trade when it comes to Euro dollar. What does that mean for Euro sterling? Again, pretty much the same. But with a slight downward bias. But again, if we look at the candles here in the wick, we can see that there's fairly decent support anywhere between 8510 and 8520. 20 is a low there. And then we've got 13 here. We've got 16 here. You know, we've got 17 there. So there's really solid support anywhere between 8510 and 8520. But on the flip side, fairly decent resistance to 75, 8570 8580. So again, very much a range trade when it comes to an awful lot of these currency pairs. Dollar yen on the other hand could be interesting. At the moment, finding fairly decent support around cloud support. Around these sorts vary around these sorts of loads around about 146. We did see a little bit of a drift down to 14590. So 14580 14590, fairly decent support. While this level holds through here, then we could we'll see a revisit of 148. But again, I think much will depend on whether or not the federal is the data, the US data continues to support the idea that the Fed won't move in March. March isn't completely off the table. Certainly, I think if we look if we get any sort of weakness in the data, the markets will start to price that in. But I still think it's unlikely that the Fed will move in March, having seen how pretty much rule that prospect out on Wednesday. So an early rate cap from the Fed, the data doesn't support that idea. And ultimately, I think it's very unlikely unless we see a meltdown in the regional banking sector in the US or a significant deterioration in the economic numbers. Okay, so on the earnings front, we have got a whole variety. We're seeing a little bit of a slow down, I would say in terms of the number of companies that are reporting after the after the big, big announcements of this week. But one thing before we move off currencies that is noteworthy is we've got the RBA and the RBA. Again, I think it's highly unlikely that we'll see a move on rates from the RBA. One of the things that Governor Bullock has been keen to do, I think in recent decisions is that there are significant uncertainties around the outlook. They've given very little steer that a policy change in either direction is imminent. But I think it will be interesting to determine, given what we've seen from the ECB, the Bank of England and the Federal Reserve, whether or not they'll rule out the likelihood of further rate hikes. I would argue that there's no downside to them in doing that. And a large part of the reason why the Australian dollar is as weak as it is at the moment, even though it's off the lows in October, is because of concerns about the economic outlook in China. But if we do get a pickup in economic activity, that should benefit the Australian dollar. Maybe, maybe, when it's, it's very big maybe. The fact that the US has deferred the prospect of a rate hike will delay any prospect of a rebound in the Aussie dollar. But again, here, if we look at where the lows are, we've got fairly decent support in and around 65, 20, and fairly decent resistance around about 66, 20. So you've got a bit of a hundred point range going on there as well. So currency, currency markets aren't providing a great deal of what I would call excitement. So on the earnings front, well, this week, we heard from Shell, and we saw some fairly decent numbers from the UK's biggest oil company, as well as another, another buyback, $50 billion buyback. And this week, we're going to hear from BP. And BP's share price has been a serial underperformer over the course of the past few weeks since those peaks back in October. And once again, it's on a downward path. Now, obviously, BP has challenges unique to itself. Obviously, it's still playing the legacy of Deepwater Horizon. Also, just, just seeing a new CEO confirmed earlier this month. Actually, no, it was last month, because we're in February now. But yeah, Murray, Murray, Auckland loss, I think that's how you pronounce it was confirmed as Looney's replacement early this year. But there appears to be growing disquiet at the current performing while transforming policy, which was part of the thrust of previous CEO Bernard Looney. So while Shell have abandoned the green all cost policy of the previous CEO, and that has started to reap dividends, we certainly saw it in the fourth quarter numbers that were published earlier this week. There is starting to be there is starting to appear growing disquiet from BP shareholders about the current policy. I think BP has been a lot slow in recognizing that while the current policy may tick a lot of ESG boxes, the policy itself isn't that practical, given that global demand for oil and gas remains strong. And it's a point that's been made by active investor Bluebell Capital, who called the current policy irrational. They aren't wrong. It is completely irrational. So last month, the shares hit the lowest levels since October. So it's very interesting to see that 2022, in fact, because it bit below the levels that we saw in in the middle of the summer, and Q3 profits were disappointing, they came in well below expectations of $4 billion, they fell to $3.3 billion, with the under performance coming from its low, low carbon and energy and gas division. So the big question I think is whether or not the CEO comes under further pressure from shareholders to start focusing more on what Sahwa and the CEO of Shell called policies, or not policies, but basically strategies that actually work. So it'll be interesting to see that BP is still the outlier when it comes to Shell, Exxon and Chevron, who haven't committed similar pledges. And let's just let's just outline what that pledge is. It's pledged to reduce oil and gas production versus 2019 levels by 25%. So when demand is growing, so Q4 expectations for this part of the business, the oil and gas business have been lowered due to the sliding gas prices, while the disruption in the Red Sea is expected to add to BP's costs after it suspended its transit through the sewer's canal in December last year. In its guidance, BP said, if I can get my words out, BP said it expects upstream production to be broadly flat compared to Q3, while also saying it expects to see lower volumes as well as pressure on refining margins. So it'll be interesting to see what the messaging is from BP if they once again deliver a disappointing Q4 update. So that's BP, fairly decent support in and around the lows that we saw earlier this month. Also, it's here from Vodafone. Vodafone, perennial disappointment on that particular share has does appear to have carved out a little bit of a base around about the December lows. And we've seen a modest rebound since those back in December after it's reported that the Iliad bid for its Italian business was back on the cards almost two years after Vodafone rejected a similar bid from the same company. At the time, two years ago, they argued that the bid was too low. The latest bid was for 10 and a half billion euros with an option that Vodafone would get 50% of the share capital in the new company, along with a six and a half billion euro cash payment. And yet again, Vodafone has once again decided to reject the software, making one wonder what their strategy actually is when it comes to this underperforming Italian business, because ultimately, its acting is a wider drag on this UK and German operations, which are seeing signs of an improvement. Now, Vodafone has already secured a deal to sell its Spanish business to Zagona for five billion euros and has announced a 10 year deal with Microsoft to integrate generative AI into its services to 300 million customers over the next 10 years. So, one, I want to know if I was a shareholder, what Vodafone intends to do with its Italian business, because at the moment, they say they are looking at other options without saying what those other options are. And the only company to actually put in a bid for the business has been Ali Iliad, and they've rejected that twice. So, you know, not to put too far in a point on it, they need to stop procrastinating about what to do with the Italian business, or do something about it to make it more profitable. One or the other, there is a rather crude metaphor that I could use with respect to about, you know, getting off the pot. But ultimately, they need to decide what to do with the business. Q3 total revenue is expected to come in around about 11.1 billion euros, which is 500 million euro decline from last year. And most of that weakness is coming from the Spanish and Italian businesses. UK and German businesses are expected to see a modest improvement from last year, 1.8 billion euros and 3.35 billion euros, respectively. So that's Vodafone. Interesting to see how those Q3 numbers pan out, and whether or not they expand on any plans for the Italian business. We've also got numbers from Disney, seeing a fairly decent rebound in the shares there over the course of the past few months. Given that Netflix saw some big jumps in subscriber numbers, we particularly interested to see what Disney has done to stop the hemorrhaging in that particular business. They did manage to stop the bleeding when it came to subscribers in Q4, adding 3.5 million, pushing the total back above 150 million, and revenues up to $5 billion. But that hasn't done anywhere near enough to offset the 15.7 million subscribers they lost in Q2 and Q3. So they have been some fairly notable additions to the catalogue. Q4 revenues came in at 21.24 billion, and profits came in at 82 cents a share. So for Q1, and this will be Disney's Q1, revenues are expected to come in at $23.8 billion, profits of a dollar a share, with net as for subscribers, forecasts to see only a very modest increase of $310,000. So there could be some disappointment around the Disney numbers, and seeing as we're approaching $100 a share, that could act as a bit of a natural barrier when it comes to when it comes to the current progress of the share price. Last but not least, arm holdings. Seeing a fairly decent rally off the IPO price, the shares closed at $63 on the first day of trading, slipping back below to $50 a share, and the lead up to the Q2 results back in November, made some fairly decent gains since then. Obviously, the development of AI chips is going to help arm holdings, given the fact that the likes of Alphabet and Nvidia are using ARM intellectual property to develop their AI chips. So a decent set of Q3 numbers for ARM, even though their guidance was disappointing, they've injected sales of between $720 million and $800 million, and earnings of between $21 and $28 a share. So since that guidance came out, the shares did drop sharply in the aftermath of that, but since they've made some fairly decent gains. So again, I would suggest that anything close to beating those expectations and some decent Q4 guidance should maintain the momentum for arm holdings shares. So that's pretty much it for this week, ladies and gentlemen. As I said, it's fairly low key week from a macro point of view. We do have services PMIs on the 5th of January on the Monday, RBA rate decision on the Tuesday, China PPI, CPI at the end of the week, and a whole host of earnings announcements. But for me, I think the main focus will be once again on the earnings and less about the macro. So that's it for this week. Thanks very much for listening. This is Michael Houston talking to you from CMC Markets. Thank you.