 Good morning and welcome to CMC markets on Friday the 13th of January and this quick look at the week ahead beginning 16th of January with me Michael Houston. It's been another positive week for European equity markets as well as US equity markets. And it's largely driven by a combination of factors really the strong start appears to be a result of a combination of falling prices, warmer weather and better than expected trading statements from a host of companies. After the widespread pessimism that characterised an awful lot of the narrative in the lead up to Christmas of course challenges still remain. Not least what happens to commodity prices as the Chinese economy reopens but at the moment we have the FTSE 100. Above 7800 for the first time since 2018 with the potential that we could well retest the all time highs at 7900. I'm certainly optimistic that the FTSE 100 can take out those highs and head towards 8000 in the coming weeks and months and certainly I think on a total return basis the FTSE 100 is already at record highs. The DAX on the other hand which is a total return index has also been doing very well over the course of the past few days. In fact since the start of the year it's up over 8% having broken above the November highs at the start of this year. So I mean there is certainly potential for us to go an awful lot higher if we look at the downtrend line from the highs from January last year. We've pretty much we haven't quite got too close to reversing all of them but we're certainly well on the way and we can certainly argue that perhaps some of this rebound is being driven by certainly a glasses half full rather than a glasses half empty approach to sentiment. Obviously the US CPI numbers this week came in in line with expectations with core CPI dropping below 6% for the first time since December 2021. And I think reinforcing an expectation perhaps that the Federal Reserve will go for another pairing down in the pace of its rate hiking cycle to 0.25%. But I can't help feeling that the market is getting a little bit ahead of itself because certainly yes in energy prices have fallen. The big the big drop in inflation this week was largely driven by energy prices but as we can see from UK CPI that is still in double digits and could well fall further next week when we get the latest UK CPI numbers. But more broadly, while we have seen a lower energy prices in a warmer winter Chinese demand is likely to keep a floor under those and could actually, if Goldman Sachs is right, see crude oil prices move back to $110 a barrel. So there's certainly an awful lot of good reasons to be optimistic. But there's certainly also an awful lot of good reasons to be cautious in the short to medium term. But certainly I think on the basis of what we've seen so far this year, I'm probably more optimistic about European markets than I am about US markets. Certainly I think there's an awful lot more scope for European and UK markets to move higher. So basically looking at it through that lens, when you've got interest rates which are at much more normalised levels, then ultimately you have to look at what generates a return for your money. And ultimately, while US markets have outperformed over the course of the past 10 and 15 years, that hasn't been the case for markets here in Europe or the UK. So that gives us the potential, I think, for slightly more upside perhaps than say there is in US markets, which still remain very much in the downtrend that they've been in for the past 12 months. If we look at FTSE 100, we can see here that the next target is all the way back here in May 2018. But certainly I think there is potential for us to go quite a bit higher simply on the basis of valuations. And some of the decent gains that we've seen so far this week, I mean the FTSE 100 is up over 4.5% this year alone. And a large part of that has been driven by big rebounds in retail stocks like JD Sports, but house builders as well as interest rates and mortgage rates have come down. But as far as US markets are concerned, nothing has changed. Yes, we've seen a decent rebound over the course of the past few days, but we are still very much in the downtrend that we've been in since the peaks of last year. And that really, I think, keeps me slightly more cautious about the prospects for US markets than it does say, for example, for markets in Europe. We're seeing a significant divergence when it comes to market performance and have been seeing a significant divergence pretty much since the lows all the way back in October. For markets in Europe have rallied strongly, that certainly hasn't been the case for US markets. And that, I think, for me, keeps the focus very much as far as US markets are concerned on a sell the rally mentality. The dollar continues to remain weak. The dollar yen is going to be a particular focus of my attention this week, as well as obviously Japanese stock market. If we look at dollar yen, we've broken below 129.50 and the previous lows. And with the Bank of Japan coming up this coming week, all eyes will be on policymakers there in the light of the tweak to yield curve control that we saw at the last meeting. And certainly I think the markets are front running a significant change in monetary policy from the Bank of Japan. Of course, I don't think they'll get it, but certainly I think there is potential for it to happen over the course of the next few months. And that suggests to me that we are going to see further weakness in dollar yen. And we will probably see a test of this 50% Fibonacci retracement level from the lows that we saw back in 2020 to the peaks of last year. So certainly I think as a minimum we're going to see a test of this trend line and a test of this 50% level of 18126.5 over the course of the next few days. And certainly I think there's a big cap at around 13480. We saw that with these two peaks here on the 28th of December, but also this peak through here that we saw in the early parts of last week. Certainly week a dollar remains the underlying narrative. Certainly ahead of the Fed meeting on the 30th of January and the 1st of February. There does appear to be split starting to open up now amongst Fed policymakers. Those who want to get to the 5% or an above 5% sooner rather than later you've had James Bullard of the St. Louis Fed arguing for that very fact in the aftermath of the CPI report earlier this week. So he's want to get to 5% as soon as possible front loading with the Fed funds rate four and a half percent. That suggests that he would want a 50 basis point rate hike when the Fed meets at the beginning of February, but then you've got Patrick Harker of the Philadelphia Fed and Thomas Barker of the Richmond Fed, who are suggesting that a step down another step down to 25 basis points might be appropriate. Certainly I think there are divisions opening up not in terms of hiking rates, but in terms of the scale of the hike that we're likely to see. We could also see a 25 basis point hawkish hike. Ultimately the markets are front running a Fed pivot at some point. I still think that is probably unlikely at this case in point markets are pricing in a right cut in the fourth quarter of this year. Time will tell whether or not that's a realistic proposition, but given the fact that core prices are still at 6% and the headline rate or the Fed's target rate is 2%, we still have some way to go. Certainly in respect to euro dollar, we have starting to see a move higher. The break of 10780 has the potential to target further gains, so it was 10940, 10950. ECB policy makers have been arguing for another 50 basis point rate hike in early February. So we'll see whether or not on the 2nd of February we'll see whether or not that transpires. Certainly there are also divisions on the governing council when it comes to whether or not we get 50 or whether we get another 350s or another 250s between now and the end of Q1. So there's certainly room for significant splits. And then of course we've got the Bank of England. We're also meeting on the 2nd of February and the recent GDP numbers that saw the UK economy actually expand modestly in November by 0.1%. A large part of the reason for that slightly better than expected number was the services sector, which saw spending as a consequence of the World Cup, which started in Qatar on the 20th of November. We also saw additional spend as a result of travel and leisure. And given some of the retail updates that we've seen this week, we could well see a positive month in terms of services for December as well. People have talked about the negative effect of strikes and in Royal Mail and the railways. But ultimately I think what what this week's retail numbers have told us is all that's done is displace retail activity in the likes of Marks and Spencer's instead of people asking or ordering stuff online. They've gone and collected it. And I think that's probably going to have been the same for an awful lot of high street retailers rather than people ordering stuff online and having it delivered. They've used or they've made more use of click and collect. So that could well not be as a negative as perhaps that we might have suggested it might be in the lead up to Christmas. So certainly I think there is a perception that maybe the glass is half full as opposed to being half empty. And earnings by and large have been better than expected. Now we're starting to get into the guts of earning season and certainly some of the numbers that we're seeing come out have been good. Obviously some there has been some room for disappointment. But ultimately we've got we've got bank earnings starting today so it'll be interesting to see whether or not we see these US banks start to set aside higher provisions for non performing loans. As the US economy heads into the back end of 2022. More importantly, I think as we look ahead, we're going to I'm going to start looking at Netflix, for example, their numbers are due out next week and the share price there has been has seen a fairly decent rebound over the course of the past few months. As we get to see the first indications of how they knew ad tier has done in Q3 paid memberships rebounded by 2.4 1 million, which was well above expectations of 1 million which pushed total subscribers to a new record high of 200 just over 223 million. They expect this number to rise by 4.5 million in this fourth quarter to 227.59 million. It'll be interesting to see whether or not Q4 revenues actually come in in line with expectations they are. They are expected to moderate slightly from the 7.85 billion that we saw sorry the 7.93 billion that we saw in Q3 expecting a slightly slightly slower rate of revenue at 7.78 billion dollars. Net income is expected to fall quite sharply to 163 million dollars or 36 cents a share but Q4 always tends to be the weaker quarter. Because generally that's when all the content costs get loaded into the end of the year operating margin is also expected to fall to 4.2% down from 8.2% a year ago. Netflix is blaming the strength of the US dollar for the headwinds with respect to its Q4 expectations. But I think that smoke and mirrors because the strong dollar has been a symptom of the numbers for Q1 Q2 and Q3 and actually in Q4 the dollar has actually come off not gone up. So it's basically down from its peaks from the tone of the shareholder letter that we saw in Q3. It's clear that Netflix doesn't expect a material contribution from the new ads tier in Q4 which started on November the third and recent indications do suggest it has got off to a slow start with Netflix actually returning some ad revenue to advertisers due to a due to low take up. So I think company one of the things that what we did pay particular attention to for 2023 Netflix has said it's no longer going to be publishing guidance of subscriber numbers and that they wanted investors focus on the key metrics of revenue operating margin operating margin operating income and net income. So certainly we've got significant resistance these highs here from December and January filled the gap here this big gap here. So the big question is can we not only fill the gap but also we push up through $350 so it's going to be a big week for Tesla. The big question is is whether or not all the good news is already priced in Goldman Sachs. Similarly, we've seen a fairly decent rebound over the course of the past few weeks that rebound does appear to be running out of steam. Goldman Sachs has already announced that it's going to be cutting headcount and we could get further detail on that in Monday's numbers. Furthermore, I think there's certainly an even chance that profits could well come in lower as a result of the reduction in headcount. And potentially as well. I think the fact that they probably haven't leveraged the improvements that we've seen when it comes to the improvements in their interest margin. So I think the big level on Goldman Sachs is $390. Big question is whether or not we get enough from the trading statement on Monday to signal whether or not we can see a retest of these highs or whether we drift back to the lows that we saw in the early part of this month. We've got Ocado Group as well. We've seen a very solid rebound in Ocado shares over the course of the past few days. We haven't quite matched the big bump that we saw as a result of the deal that they announced back in November with Korea's lot shopping, which saw these shares surge to their highest levels since August. But certainly, I think since those October lows, we have seen a little bit of a rebound and we are now starting to see a little bit of a push higher as well. But it's interesting to note that that November spike didn't take out the 200 day moving average, which has over the course of the past two years managed to contain every single move into it since then. I think this week's numbers are likely to face a key test. Can we break above the 200 day moving average and test the peaks that we saw all the way back in last summer, and which was capped by the spike higher in November 200 day moving average. Keep an eye on that. It's going to be very interesting week when it comes to Ocado shares. In terms of the fundamentals that we've got out this week, we've got UK CPI, are we going to see a further softening there fell back to 10.7% in November. Obviously, oil prices have fallen back and those eagle-eyed of you will have noticed that pump prices have also fallen back below £1.50 a litre. The big question is whether or not that is going to be sustained going forward. Certainly, we've seen a decent rebound and Brent prices over the course of the past week or so after a very poor start to the year in the opening start. But we do appear to be slowly recovering and awful lot of those losses are still down on the year. The big question is whether or not we continue to go higher. Certainly, the expectation is that we will. But if we look at a daily chart, we still are very much in the downtrend that we've been in pretty much since June. So we could well see a retest back to around about $90 a barrel. The big question is whether or not that rebuffs this particular rally and we drift back lower again. Still an awful lot of water to go under that particular bridge. So I'm certainly not calling for higher oil prices quite yet. We've also got UK wages, UK unemployment data on the 17th. We've got UK retail sales on the Friday. Judging by those retail updates, we could see a positive surprise there. So I'll be paying particular attention to that. And we've also got China's fourth quarter GDP numbers, China's retail sales numbers. It'll be very surprising indeed if China's economy doesn't drop into contraction territory when those numbers are released later this week. We already know October retail sales in China fell by 0.5%. It's followed by a 5.9% decline in November. This week's retail sales numbers for December forecast see a 8.3% decline. And there is a distinct possibility that we could well see the Chinese economy contracts by 0.8% when those numbers are released later this week. We've also got US retail sales coming out as well. So a huge week for data, a huge week for earnings. But ultimately, well, we've got off to a very positive start when it comes to European equity markets. And I certainly think there's room for improvement there. US markets still remain very much in a downtrend. And that's not particularly hard to explain when you actually consider that on a yield basis, the forward dividend yield for the FTSE 100 and the DAX is very much in the 3.5%, 4% percentile. Whereas in the US S&P 500 NASDAQ, it's yielding at around about 1%. So why invest in US markets and US stocks when you can buy US treasuries and get a coupon of around about 4% or invest in European and UK stocks and you can get dividend yield and average dividend yield of 4%, 4.5%, 3%, 4%, 4.5%, 5%. So interesting few couple of weeks coming up. That's it for this week. Thank you very much for listening. This is Michael Houston talking to you from CMC Markets.