 Good morning. Welcome to CMC Markets on Friday the 21st of January and this quick look at the week ahead beginning the 24th of January Before we look ahead to the upcoming weeks events and certainly there's quite a few of them Fed meeting being a particular case in point As well as tech earnings from the likes of Apple Tesla and Microsoft This week's market events obviously I think do merit some comment because once again We're seeing much more weakness in US markets than we're currently seeing in Europe Certainly the FTSE 100 is continuing to outperform which suggests that perhaps maybe the growth story is starting to become the Choice of trade rather than the value trade which is starting to come under increasing pressure I Think the big question at the moment is the decline is whether the declines that we're seeing in US markets are the beginnings of a much broader correction going forward certainly some of the more noteworthy declines that we've seen this week Like Peloton for example where the wheels have literally come off that you know, only the wheels of the chain and everything else As lockdown stocks or lockdown winners start to become reopening losers even Netflix Some posted some fairly decent Q4 numbers, but their guidance Q1 was fairly disappointing. We've seen Goldman Sachs Report again record breaking numbers this week and yet their shares slumped Massively in the aftermath of those earnings by as much as 8% Certainly US bank earnings have been by and large fairly positive But it's the guidance more than anything that is starting to weigh on US equity markets more broadly you European markets been much more resilient. We've seen some technical breakdowns in The likes of the NASDAQ we can see that on This chart here. We've broken below that 15,500 level in the past few days And we've broken below the 200 day moving average Which suggests that we could well retest the october lows on the NASDAQ the mere fact that on Thursday the NASDAQ was up over 2% at one point and actually closed down 2% is not a very Good sign. It's a very bad sign the inability to hold on to those highs that we saw yesterday Suggests that perhaps we're changing mindset in terms of US markets, and we're no longer in by the dip mode We're now looking and sell the rally now, of course whether or not that mindset Is applicable to European markets? It is another question entirely and I think this divergence Or this US exceptionalism if you like could well be behind us and now we've got to be much more critical in our thinking when it comes to looking at US markets and then extrapolating that into European markets essentially once again We're in that mindset of you need to trade what you see Certainly, I think the NASDAQ Has broken down and while we're below 15,500 by the dip mentality needs to be adapted To potentially sell the rally while we're below this particular level here now I would have would hazard a word of warning here even though we've seen a technical breakdown in the NASDAQ We haven't actually seen it in the S&P 500 Now that could change We're right on the 200-day moving average at this point in time So how the market reacts around this particular level? 4,480 the fact that we've broken below it would suggest to me that perhaps we are at a very critical juncture for the S&P 500 and As such we could potentially head back to the October lows of around about 4,270 so how markets react on the S&P 500 is going to be very very crucial Over the course of the next few days, but certainly there is a perception perhaps That we are starting to see the beginnings of a little bit of a rollover or a consolidation phase for US markets, let's quickly look at the Dow And the Dow has also broken below the 200-day moving average So we've had two US major benchmarks Closed below their 200-day moving averages now obviously the Dow has done that before So we need to be a little bit too little bit careful about extrapolating too much from that But certainly I think if we don't if we take out this 34,000 level and this series of loads through here Then the Dow could also be in a little bit of trouble as well So paying particular attention to US markets I think what's also important this week is that we saw US Treasury yields move to their highest levels in quite some time That for me around about 1.9% that was particularly important, but what was also I think particularly noteworthy was this inability To move beyond that and actually we are now back below 1.8% We filled the gap that we saw at the start of this week Which is obviously a shorter week for US investors because of the Martin Luther King holiday on Monday we gapped higher We went to 1.9% but we came back just as sharply and now we're back below 1.8% so in technical analysis parlance is What we've seen here a potential island reversal on US 10 year yields because even though we've fallen back and inflation risks continue to rise Maybe we're starting to get a little bit of haven by in US treasuries as equity markets US equity markets in particular Start to roll over Is there is there more money to be made in US treasuries? Ahead of obviously the Fed meeting next week perhaps There's a reluctance to sell off US treasuries too aggressively ahead of next week's Fed meeting so I think there could be an element of Position adjustments. I think there's definitely going to be an element of position adjustments heading into next week's meeting because we've not only got that We've got fourth quarter US fourth quarter GDP As well as US PCE deflator, which is the Fed's preferred measure of Inflation and if I cast your mind back to just over a week ago US CPI came in at its highest level since 1983 at 7% That's still well above EU CPI for December, which was confirmed at 5% this week And that's a record high for a UCP I German inflation confirmed at 5.3% the highest level since 1992 But one particular piece of data that did catch my eye, which may have got lost In all of the noise of this week was a German PPI for December Which rose from 19% Year on year to 24.2% and the month-on-month number the month-on-month number now get this Expecting a number of 0.9 came in at 5% 5% Think about that for a minute. I mean 5% will be a number Not, you know, even a big number for a year-on-year number But it came in a 5% month-on-month German PPI for December and yet Christine Lagarde at the ECB Insists that Inflation is likely to be transitory and that the ECB won't be raising rates this year at all Well, good luck with selling that narrative to The new Bundesbank president because I'll tell you I don't think that's going to go down Too well So I think the ECB is going to be particularly interesting as we look ahead Towards the next Two to three weeks because we've got an ECB meeting coming up over the next couple of weeks And we've also got a Bank of England meeting coming up and the likelihood is that we will see a rate rise in February from the Bank of England of naught point two five percent in response to those CPI numbers of five point four percent that we saw this week and RPI which came in at seven point five percent so inflation definitely an issue going forward and certainly I think as we head towards February and March Central banks have got a tricky balancing act of tightening into a slowing economy a rising inflation Narrative and it's going to be very difficult to see how they spin that narrative which brings me neatly on to This week's Fed rate meeting now look at looking at this chart here would appear to suggest that perhaps in the short to medium term we may have seen the top in The move higher in US Treasury yields, you know, how much can the Fed really tighten? There's been an awful lot of discussion as we head into this week's meeting as to how How they're going to frame the narrative ahead of a March rate hike because essentially I think the March rate hike is pretty much priced in it's really how they frame the narrative We've heard an awful lot of chatter this week The we could see four rate rises this year five. I've even heard in some quarters You know the Fed is so far behind the curve. It may have to hike great seven times this year Well, you know, I mean, that's just a nonsense argument Having said that what they could do is raise There's been a bigger discussion about a 50 basis point right high At some point this year. There's been a discussion about balance sheet reduction Now I don't for one moment think the Fed is going to talk about raising rates by 50 basis points in March. There's still Adding to the balance sheet So to go from adding to the balance sheet to Raising rates by 50 basis points in March. I don't see how they can do that unless they reframe the narrative that's next week's meeting and It would be a significant vault face if they were to do that But it certainly I think it would certainly have the capacity to catch Markets on the hop but having said that when you've got inflation at 7% Why would you not call an end to quantitative easing perhaps? Four or five weeks earlier, or would you let it run its course? So there is there is a supposed merit in Having the discussion as to whether or not they call time on QE next week But you know, what's what's the upside to doing that? Why not? Let's just let it run for an extra few weeks If you do terminate QE next week Are you then admitting that perhaps your tapering timeline was a mistake that you're behind the curve? massively and as such you're panicking and therefore you need to take remedial action sooner rather than later is that a narrative that they want to be basically Adopting, you know, it's it's a difficult balancing act. So I think the Fed has always been very measured in its responses and it's always projected forward quite significantly in advance in order to avoid the type of Policy surprises that we saw from the Bank of England in November and December, you know The Fed has always been fairly clear on its communications policy and they tend to project by a forward guidance Not by reacting on policy So I think we could get much more aggressive guidance next week while at the same time Adopting, you know, not changing policy and projecting forward as to whether or not we'll get a 25 basis point rate I can march and whether or not we get a very significant discussion on quantitative tightening IE balance sheet reduction Well, they set out a timeline for that and I think that will be more than anything How the the debate is framed not any significant change in policy now, but how they set it out their projections for Potential rate rises and at the moment there's three in the dot plots for this year and How they frame the debate around balance sheet reduction and I think that's where the main Policy debate will be around and how the discussion will be framed going forward Whether or not that drives yields higher, it's hard to say but certainly looking at this year There does appear to be some evidence that shorter term yields may have gone as far as they can for the time being Certainly, if you look at where they were, so for example pre-pandemic They're still below the levels that they were at the beginning of 2020. So You know, we've come a long way, but we're still below the levels that we were so for example Before the pandemic kicked off. So Looking at the dollar index We can see that we've seen a bit of a rebound over the course of the past few days ahead of them ahead of the Fed meeting and that's entirely sensible because of the fact that you're getting a little bit of Position adjustment ahead of that meeting and yes, we have broken the uptrend from the lows that we saw back in June last year But we're still above the 200 day moving average more broadly and if you look at the dollar index in the round The Fed still remains way out in front when it comes to the likelihood of Rate rises coming down the pipe. The bigger question is how many we get relative to their peers If we look at euro-dollar for example, that has continued to break down But crucially we haven't actually broken below this trend line here So one 1280 is going to be a very key level going forward need to keep an eye on that if we break below that then we're heading back towards 1180 and the lows that we saw back in November But certainly I think if the ECB hold the line that they're not going to be hiking rates this year Then it's very difficult to see any upside for euro dollar Same really applies to the pound. We've broken higher The likelihood is we'll probably see the Bank of England raise rates in a couple of weeks time Whether that's going to be sterling supportive. That's open to debate at the moment given The slowdown that we saw in December in the UK economy But now that plan B restrictions have been eased the biggest concern now is Inflation and what that does to consumer confidence and what that does to disposable incomes as we head towards April and the potential for those Tax rises so sterling has an awful lot of headwinds That it needs to overcome Does appear to have found a little bit of a base in the short to medium term the 50-day moving average is starting to roll up So that could if we do get a full Actors of support level of around about 134 20 if we could if we drop back that low Then we should get a decent rebound in the value of the pound euro sterling seen a little bit of a rebound off the lows of 8305 earlier this week Again the big resistance says 83 80 Seen as I say seen a fairly decent reversal We could see a little bit of period of sterling weakness taking us beyond 83 80 to 84 30 But I'm still of the opinion that euro sterling line of release resistance is for it to gradually Trend lower going forward. So we've got your fourth quarter GDP on the 27th of January That's likely to see an expansion of 5.8% annualized Slightly better than the 2.3 that we saw in Q3 although December is likely to have taken a hit To economic activity because of the Omicron outbreaks, which of course staff shortages flight cancellations and pretty much everything else that we saw Ripple out across the US throughout December as staff shortages caused all manner of economic problems across the US economy the PC deflator and US consumer spending for December also likely to be fairly key Key key data points Particularly the PC deflator, which is the feds preferred sign of inflation In the space of two months core PC is gone from 3.7 to 4.7 percent We could well go higher to 4.8 percent in December But one thing that we have seen in the US, which we haven't we're not currently seeing in Europe is some sign of an easing of inflationary pressure PPI eased actually in December from 9.8 to 9.7 percent and US natural gas prices have been coming off due to Much better supply channels in the US because of their fracking Which has meant that US natural gas prices are much lower than they are here in Europe So there has certainly been an easing of inflationary pressure in the US, which we haven't actually seen Here in Europe. So that's worth keeping an eye out for Personal spending in the US has been strongly's past few months But this is likely to slow as it is here in the UK in December for the same reasons that we saw it slow here so Looking looking at the various indexes that we can we can look at the youth of the footsie 100 That is still holding up much better than its peers It's still up for the year But we are now starting to see evidence of a little bit of a rollover Which could mean that we could drift back to around about 7,400 in the short to medium term But overall now that we're above 7,400 The footsie 100 is probably likely to do better Than say for example, it's a continental peers given the fact that it's lagged so much pretty much for the last two or three years with the DAX at record highs and The S&P and pretty much everything else. So the DAX is heading back to its 200 day moving average It's not really been that a significant support level over the course of the past few days You can see the volatility that we've seen in the DAX over the past few days with very long shadows on the candles Suggesting significant amounts of volatility big resistance of 15,900 Over the course of the past couple of days That's likely to be a bit of a barrier If we break below 15,600 then we could be having a little bit of a trip back to 15,300 Over the course of the the next few trading sessions But overall being being long of European stocks is probably a safer bet at this moment in time and being long US markets going forward. So Let's move on We've got flash PMIs next week. They're likely they're likely to paint a pretty ugly picture of December activity So I won't spend too much time on them. Hopefully in the UK's case, there'll be a little bit of a one-off On an anecdotal basis and certainly I think in terms of the hospitality sector, which took a big hit In December, we could see a fairly we could we might see a bit of a rebound In January and potentially in February, obviously that will depend on how confident people feel about Going back out to restaurants and pubs Given the price rises that we've seen in headline CPI So let's move on to earnings Tesla Seen that breakdown over the course of the past few days but one of the things that we do know is that They announced another record number for quarterly deliveries for their electric cars or electric vehicles 308,600 we've also seen Elon Musk sell 10% of his Tesla shares to play His tax bill so even with all of that The shares have held up fairly well, but you still have to question whether or not They'll continue to be able to do so Certainly deliver it from a delivery point of view Tesla Tesla is doing an awful lot better It produced a total of 936,172 vehicles in 2021 with the hope that 2022 will push that figure above the 1 million mark Musk was saying as recently as October last year that he was looking to maintain an annual growth rate More than 50% profits profits are expected to come in at a fairly healthy $2.24 a share. So big question is automated margins. Can they continue to improve? They were at 30 and a half percent in Q3. Will he be able to maintain those margins? in Q4 Certainly, I think in terms of this chart here, there is potential for a little bit more weakness Particularly given what we're seeing with respect to the NASDAQ. That's always assuming that you assign Tesla as being a tech stock. Big news for this week was Microsoft Going after Activision Blizzard for 70 billion dollars Whatever your feelings about that particular acquisition Regulatory hurdles notwithstanding Microsoft has been a beast when it comes to its earnings over the course of the past 12 months We certainly saw and this is this is this is this is going to be Microsoft's Q2 earnings and For Q2 Microsoft expects to set a record for revenues of above 50 billion dollars And that will be the first time that is moved above 50 billion dollars. Now, if you think yourself back to a year ago The first quarter It was only a year ago that they were projecting a first quarter of over 40 billion dollars So their revenue growth has been Astronomical you've got the rollout of Windows 11 You've got supply issues notwithstanding revenues from Office 365, which is obviously now a subscription model You've got their Xbox revenues or obviously Xbox Live and Xbox Gold and an awful lot of games now and now or more and more games now Becoming subscription only so you buy the CD for 40 or 50 quid and then that doesn't even guarantee you being allowed to play You then have to purchase an Xbox Live subscription for 10.99 a month to be able to play the game so Bouncement intelligent cloud segment that's been growing significantly We did see a bit of slowdown in revenues in Q1, but they still beat expectations. So again, you know The bigger question for me is how does Microsoft see the rest of the year playing out profits expected to come in at $2.32 a share Certainly, I think it could get caught up in the wider tech sell-off and we could we'll see a retest of 200-day moving average Even if the even if the numbers be expectations, then we've got Apple Apple appears to have broken down through its key support level It's a new fiscal year for Apple Q their Q1 which tends which is the Thanksgiving and Christmas period tends to be its best quarter Bigger question is Will it continue to be so in Q4 revenues fell short of expectations? Coming in at 83.36 billion dollars. Well, that's still a pretty decent number So I don't think we can be too complacent about the fact that whatever number Apple brings back For Q1, it's likely to be a decent one Supply chain problems cost six billion dollars for Apple over the last quarter so that's likely to continue to be a drag and If I need to remind you they did cut iPhone demand in their previous quarter by 10 million units, so Certainly think in terms of the services revenue We we need to pay particular attention to that and they did announce a raft of new product upgrades During Q4 the newest iPhones iPads watches and max not shipping until the end of November So you could see a little bit of a pickup Supply chain number in supply chain constraints not withstanding so expecting Q1 numbers Profits coming expected to come in at $1.89 a share as a reminder Apple hasn't offered any guidance Since the pandemic started hasn't stopped Wall Street projecting what that those estimates should be but Irrespective of the numbers that we are expecting this week on the 27th we could struggle based on the way this chart is playing out to Move significantly back to the record highs that we saw back in April and we could well see a further slide Back lower and that's no reflection on Apple's numbers It's just the direction of travel at the moment for markets more broadly Just have a quick look at Robin Hood markets. That's been an absolute disaster For them given the fact that their IPO They were really really optimistic, but they've really been hammered On on the revenue front If we look at q3 their losses came in at $1.32 billion and Crypto revenue, which was a big big earner in q2 Of this year fell off a cliff in q3 fell back to $51 million from $233 million in q2 Now at the time the company warned that q4 would be even worse when it comes to revenues their q4 estimate for revenues Is 325 million When you look at what bitcoins done over the course of the past few weeks This week's numbers don't fill me with optimism having said that the big question is how much of it is currently priced in given the fact that The shares are around about $13 and the IPO'd All the way back at 38. So, you know, as I say keep an eye on Robin Hood It'll be very interesting to see how the market reacts to Robin Hood markets numbers when they get published on the 27th of January so We've also got Moderna coming out. I'm not I'm gonna I'm gonna brush over them If you look at Moderna's share price That does appear to have broken down to the downside What were the unlocking? Plenty of speculation that fourth jabs may not be particularly desirable Has already hit Moderna's share price going forward and I think with all the new treatments that are coming out with with Covid pills I think I think winter is coming from Moderna's share price But it's still well above the levels that it was all All that time ago back in the early years of or the early months of 2020 in the mid months of 2020 But I certainly think winter is coming from Moderna's share price as it looks to report is q4 numbers on the 25th of January so Going back to My powerpoint slide That's it for this week. Thank you very much for listening. Hope you all have a great weekend And speak to you all same time same place Next week. Thanks very much for listening