 Good morning. Welcome to CMC Markets on Friday the 26th of February and this quick look at the week ahead beginning the 1st of March Before we get started on that just get through various risk warnings before we get on to the discussion I'm not so much a discussion, but my look back at the events of the past few days because I think if anything This week can be characterized by I think a single question Whether an increase in rates or yields is good for stock market or bad for stock markets Certainly, I think in the context of the discussions that central bankers have been having this week They would argue that higher rates are a broad reflection of an improving economic outlook and thus should actually be Very positive for stock markets, but as we well know and have known for the past 10 years or so The economy is not stock markets and the stock markets isn't the economy So just because the stock market is doing well doesn't necessarily mean that the economy is doing well And if the economy is doing well, you could conceivably argue that the stock market might do Not as well as maybe it should have been doing say for example five or ten years ago simply because central bankers might be inclined to pull away Some of the fists of some of the monetary policy support That they've been putting in over the course of the past 12 years So this is where we currently are With respect to stock markets. I think it's important to remember that even though We've seen an awful lot of choppiness this week and Stock markets have tried to go up. They've tried to go down and Really this week haven't ended up going really anywhere I think there is a concern about over frothy valuations at a time when particularly US Treasury yields and UK guilt yields I've come an awful long way in a very short space of time And I think that more than anything is what is spooking the markets If you look at where UK guilt yields were for example at the beginning of this year They're around about 0.2 percent They're now point they're now 0.75 so that's at 55 basis points Above where they started the year if you look at US Treasuries Treasury yields It's been a similar sort of story. They were around about 0.91 percent at the beginning of 2021 and they're now one and a half percent so 60 basis points higher With most of that Rising yields coming in this month of February which we are now Coming to the back end off with the 1st of March beginning on Monday So I think more than anything it's not so much the fact that rates are going up But it's the speed that they're going up and you've got a stimulus plan a US stimulus plan That's due to be pushed through The US Congress over the course of the next week or so an extra 1.9 trillion dollars on top of the $900 billion that we saw pushed through at the beginning of January and I think there's an there's a perception or a fear that maybe A fiscal side is probably doing too much Lifting and you could see an economic surge over the course of the next six months because we're certainly not going to get it over the next three because Restrictions will still be in place And I think one thing that we can well, I think one thing that we can Acknowledge over the course of the past few days is the massive rise that we've seen in copper prices from Where we were at the beginning of this year now that does appear to be some evidence potentially The copper may have topped out now if copper has topped out That could potentially be bad news for stock markets because if we look at the way stock markets have gone this year And we are still up for February So despite all the volatility that we've seen this week February is still set to be a positive month for the footsie The DAX and the S&P despite all the hysteria about the big declines that we've seen This week We're still up on the month nonetheless Canary in the coal mine could be a potential reversal in copper and a key day reversal on the daily chart So I'll be paying particular attention to the copper price in the context of whether or not we can go higher in stock markets now there could be a Divergence starting to take place, but we've seen big gains also in other base metal prices on the basis that We're going to see a significant shortfall in supply relative to demand for all those renewables That the copper that copper is going to be used in terms of batteries Electric cars solar panels Wind turbines anything that conduct an electric current Also seen Brent prices Move higher over the course of the past Few weeks. You can certainly see that here just shy of $70 a barrel $66 a barrel. I think it's been the high. We've got an OPEC meeting coming up over the course of the next few days in fact, I think it's next Thursday and This is something again that we need to be aware of At the moment OPEC plus has been broadly in agreement about keeping the production curbs exactly where they are To basically try and pinch off Too much supply now that prices are about $60 a barrel You could see some crack starts to open up between some of the smaller countries who want to take advantage of higher prices By pumping out more oil into the market and that could well Act as a headwind the crude oil prices over the course of the next few days and weeks That would also be welcome for inflation expectations If we start to see evidence of a topping out in commodity prices Which have been which are back at levels last seen in 2011 2012 particularly where copper is concerned so those are the two things to Two key commodities that I'll be paying attention to over the course of the next week or so It's also a big week for macro We've got non farm payrolls coming up before I come on to that. Let's have a quick look at the FTSE 100 as we can see Despite the choppiness of the past few days. We haven't really broken out of the range that we've been in Since the beginning of February We're still above the lows and even though we've come down from the highs in the middle of a month We have the middle of a month We actually haven't come down too far and actually we found support and every day this week around about 65 40 so based on that The downside for the FTSE 100 at the moment Looks fairly limited. Why do I say that given that I'm concerned about highs in copper and Oil prices well, ultimately while the FTSE 100 is very Susceptible to moves in copper and crude oil prices. It's also not a complete proxy for them One of the one of the key one of the key Beneficiaries of the past week or so has been banks From a much steeper yield curve. We've also seen travel and leisure Pick up quite significantly over the course of the past few days And we've also seen retailers pick up as well and the FTSE 100 has an awful lot of them. So I Think overall The FTSE 100 up my bias for the FTSE 100 still remains more positive than negative And I don't expect crude oil prices or copper prices to come crashing off But what I do expect to see is a little bit of consolidation at these higher levels Which in the short to medium term should well be positive for the FTSE 100 It's certainly I certainly don't expect to see it below this trend line that I've drawn in through here From these lows here the 6540 in the short term still expecting to see a retest of potentially these These series of peaks all the way through here. So let's draw in a little trend line for here Go through there. So that's my next trend line resistance on The FTSE 100 looking for a retest of that over the course of the next few days Similar sort of story for the German DAX again here daily chart Yes, we have made marginal new lows But what I think is significant about this particular chart here is that every time we've gone lower These long lower shadows would appear to suggest that there's fairly decent demand Anywhere near 13600 in a similar way there was fairly decent demand all the way over here When we dipped back below to this level here and even though we spiked below that And the 50-day moving average on these three or four days here That move low approved to be fairly short lived simply because it wasn't followed through by similar down moves and equity markets S&P 500 same thing here very much in the uptrend that we've been in over the course of the past Few days and weeks if we look at the weekly chart to see whether or not the candles are telling us anything there Not so much. Certainly a little bit of a rollover may well see a retest of 3600 but I think if we are going to see a correction in equity markets Then I think the the bigger correction is going to come in US markets rather than it rather than European markets more broadly the NASDAQ I think is going to be very important in the overall scheme of things this 12700 level here which thus far has held but is Acting as a very very case to pull and we have broken below the 50-day moving average So the NASDAQ is flashing red. It's flashing some warning signs about Further upside going forward and certainly here the weekly charts are suggesting that we could see a little bit of a correction lower Particularly if the economic recovery story Continues to gain traction because I think some of the key beneficiaries of the pandemic have been stocks Ultimately and companies are ultimately that don't generate an awful lot of profits, but obviously do and have Been very very good in terms of growth over the course of the last few months companies like Peloton and zoom And who who I will be basically looking at as part of my look at the week ahead Other companies like net like Netflix as well Could well suffer as a result as specifically as we head into the summer and the weather improves They may well find their subscriber numbers drop off simply because people won't Be staying in they'll be going out and obviously lucid restrictions will mean less eyes on Streaming platforms. So again, you could see a little bit of softness there so Looking ahead to the week ahead. We've got us payrolls, which is you out on the Friday We've got services PMIs. They're going to be very important in the context of How The the economy is doing and it's not going to be any surprise To know that there is going to be a continued weakness in Europe Got the US base book. We've got the UK budget now I'm going to devote a little bit of time to the UK budget simply because of how the pound has performed Over the course of the past few weeks We are starting to see some signs of a little bit of a reversal in the pound from The levels that we saw all the way back at the beginning of the year but also from what we saw back in September and I have published a piece on the budget which can be found in the insight section and use an analysis section Where I talk about what Rishi Sunak may be looking to do as we look ahead to Next Wednesday, but I think more importantly. I think the pressure will be on For him to do no harm. What he's going to be doing looking to do is plot the road to Recovery so while we've seen a little bit of a reversal in the pound at the moment, we could see further declines Going forward. We could see a move back to 138 20 and this 50 day moving average through here and 137 12 these series of highs through here which prompted the break higher I think we could well see a retest of that, but it doesn't change my overall view That we will see the pound continue to push higher over the course of the next few months UK still leads Europe and the US in its vaccination program and assuming That the Chancellor of the Exchequer doesn't do anything stupid then week We will probably see a furlough extension In the coming week and that's one area that's proving to be extremely expensive and it's due to end in April We could well see the cut in VAT to 5% Extended that is due to expire at the end of March. I think it's I think it would be fallhardy in the extreme if he were to raise VAT all the way back to That 20% level at a time when aviation Restaurants bars and other leisure venues have yet to reopen and I think that is a worry going forward I think the support measures for those particular sectors will continue to have to stay in place For the foreseeable future either that or he could well come up with a whole new tax regime for a sector That is likely to take a very long time to recover Because something like that just can't be dreamed up on the hoof So these are the areas that I think are going to need an awful lot of Tweaking shall we say and I think that's and they could well get extended into the middle of the summer And we could have another budget in November when hopefully the economic outlook will be that much clearer I think we do need to look at long-term solutions. It is a time for long-term solutions And I think while it's entirely right to be concerned about the level of the current deficit Borrowing costs are still fairly low I mean the government can afford to be creative when it comes to time frames in terms of Closing the gap when it comes to plugging the tax and spend The the the tax and spend gap He could look at new to he could look at new long-term funding or savings vehicles That will be one area 50 year bonds infrastructure bonds could be another area the government could look at Extending the debt profile of UK borrowing UK already has the longest remate payment profile in its terms of its peers at over 10 years Other countries are looking at 50 year bonds Austria Belgium and Ireland have issued hundred year bonds so-called century bonds You could encourage People with some savings to put them in national savings and investments They cut the interest rate on that which at a time when government needs money and excess savings Seems a remarkably short-sighted thing to do So there's any number of things that the Chancellor could do so ultimately I think when we look at the pound The outlook will continue to be fairly positive We look at this candle here and it does appear to suggest That we could well be overdue a little bit of a pullback in the short to medium term and As such, I'd be very very cautious of being about overly long of sterling as we head into the budget similar sort of story when it comes to Euro sterling if we look at this euro sterling chart here There's a potential hammer on the daily chart there with this very strong upper thrust candle here that suggests That we are probably overdue a little bit of a short squeeze back to 88 Maybe even the 50-day moving average all the way up there around about 88 60 88 70 But I'm still of the opinion that euro sterling is likely to go lower But we could well be due a little bit of a pullback in the short to medium term Okay, so I think that's about as much time as I'm going to devote to the UK budget It's it's going to be very very important But in the overall scheme of things I think more important than anything else is that the hope is the Chancellor won't do any harm He might Announce a rise in corporation tax That's currently at 19% you could push it up to 20 21% But that may take effect From next year. It could be that he will sign post a rise in corporation tax Rather than bringing it in straight away so In politics Sometimes optics is everything And while he can afford to be generous now he can start sign posting Tax increases Further down the line and certainly corporation tax is a tax on profits. Do you not make in any profits? You don't pay any tax I mean amazon plays that game very very well Anyway, because it ciphers its profits out of the UK so Digressing ever so slightly there So that's the budget on the third of march We've also got us payrolls and the dollar the performance of the dollar In recent days has been Fairly interesting. What's been notable is that we actually haven't taken out these previous lows through here So the dollar has consistently Tried to push lower Or what it hasn't been able to do Is to take out the previous lows that we've seen in the cmc dollar index here I think that's the very very I think that's the key thing to keep an eye out for People talk about dollar weakness An awful lot And it's very keen and very very keen to ride off the dollar But every time We threaten to break lower. We get a nice little pull higher And we've got what it looks like a bit of a bullish reversal here Which suggests again That we could see further dollar upside If that's the case Then the euro May well find it's very very difficult to go higher And if we look at euro dollar, we had a little bit of a false break on the daily chart here Above the 50 day moving average long upper shadow there Suggests the error above 122 is very very thin As such we're probably going to get another downward thrust perhaps towards The 120 60 area Which again is very fairly key support going forward So if we get a retest of 120 60 70 We could we could well get a retest Of 119 and a half Certainly, I think a stronger currency Is not necessarily a bad thing And one thing I think that And the resilience of the euro has done Is it will limit Inflation cpi inflation And while that's probably a bad thing for europe because their rates are negative It's probably not such a bad thing to the uk Because it certainly makes import inflation that much more difficult to filter through so Certainly in terms of the overall inflation outlook Higher pound is probably going to take some of the edge off Any move higher in headline cpi so That's euro dollar for you So looking ahead to us payrolls. I'll be hosting a webinar usual time Next week 115 Onwards for half an hour to 45 minutes And the thing about this payrolls number is it's going to be important In the wider scheme of things in terms of How well the us jobs market is starting to recover Now just as a quick recap on that what we've seen is up until The december number We saw seven consecutive months of job games job job job games And they came to a shuttering halt in december The us economy shed 227,000 jobs at the end of last year And the adp report was also negative now since then in january We've seen And a decent a fairly decent recovery Now the prospects of further fiscal support on top of the 900 billion past the beginning of january also bailed as well We saw january payrolls rebound With 49,000 new jobs added the unemployment rate fell quite sharply to 6.3 in december I'm not really paying too much attention to that Because of the width because of the low participation rate nonetheless You would hope That as the vaccination program rolls out across the us US businesses become much more optimistic about the outlook going forward and that's where the beige book Will come in and that's obviously coming out on the 3rd of march as well So it's going to be quite a busy day Look for look for look for signs of positivity in the beige book But more importantly, I think Look at the under employment rate at the moment That's currently sitting at 11.1 percent. It's still well below the april peak last year of 22.8 And it's still well above the low which we saw at the end of 2019 when it was at 6.7 so As I say virus cases are falling hospitalizations are falling deaths are falling mercifully across the us And I think that's playing a part in the rise in optimism now expectations are for 133,000 new jobs to be added in february And weekly jobless claims are still trending between 700 or 800 000 So they're they're down from the peak that we saw Around about 950 at the beginning of january So the hope is that december is the low point or an aberration And subsequent months will see a continuation of the gains that we saw in january We're still well below the levels of unemployment And the number of jobs that we lost in the months of march and april last year is 21 and a half million We've only added back around about half that number so While the headline unemployment number looks Failing low at 6.3 6.4 relative to where it was You have to remember That that does not include people who've given up Looking for work and have dropped out of the workforce has also been a more than 2 drop In the participation rate as well But nonetheless it's about the direction of travel and the hope is that we'll get an upward revision to january But we'll also see a fairly positive February number given some of the data that's been coming out on the isms manufacturing services isms and What have you So keep an eye on the services pmi's or the services isms the us also on the third look for a pickup in uk services pmi's And as well because we saw a nice little pickup in the flash number When it came out a couple of weeks ago Fact is uk is already talking about a roadmap out of lockdown Unlike france and germany and that will I think continue to help underpin the pound going forward okay, so that's um That's the major Currencies that we've looked at let's now have a quick look at some of the companies that are reporting their four-year numbers next weekend housing market very much in focus certainly percept certainly potential for a stamp duty the stamp duty Stamp duty divot the stamp duty extension to be extended The threshold to be extended beyond the end of march that certainly helps The likes of taylor wimpy and persimmon and look at the share prices. Obviously, there's the original there's the original Korean post lockdown plunge Since then we've come back Round about halfway in the case of taylor wimpy And yet when you actually look At the total completions. It's not hard to see why they were down 39 percent They're down they're probably going to be down 39 percent year on year which is not surprising when you saw The suspensions that we saw in march and april We can expect to see a recommencement of the dividend starting with the 2020 final dividend Management haven't completely committed to that and I think it will really depend whether or not they can actually Match their expectations for 2021 but certainly I think in terms of the rebound taylor wimpy's share price Rebound has been a little bit Underwhelming if we look at say for example persimmon and look at their Share price rebound. It's probably been slightly more positive. It's certainly Rebounded an awful lot more than say for example taylor wimpy And that's because they paid a second interim dividend to 70p in december. So The payout is obviously encouraging a few more people to buy into the shares forward sales are looking fairly decent So that will I think will be a key bellwether for both persimmon and taylor wimpy going forward as I say my all of the There'll be various comments about all of these in my week ahead Which you can find on the news and analysis section of the website. We've also got earnings from prudential and aviva four-year numbers from those two And in the u.s. We've got the likes of zoom Which has been a big big winner from the pandemic, but which is now starting to show Signs of a little bit of a slowdown as the 200 day moving average We're currently bouncing off it. We're well down from the highs that we saw in october And I think there are there's big questions being asked about the fact that weather evaluation of around about 120 billion dollars is really Is really credible for a for a company that Doesn't even turn over a billion dollars a year so um, sorry, sorry a billion dollars a quarter so I think that really is the key question when you're turning over less than a billion dollars a quarter Is it really credible to have a market cap of around about 120 billion? Yes, the company's profitable But is it worth what the market's got it valued at and I think this is the this is the question that's being asked by an awful lot of investors about some of these Pandemic stocks as I like to call them similar sort of question with respect of room which basically allows you to buy used cars online that has fairly eye-watering valuation as well I mean, we've seen it here in the uk with kazoo And the kazoo is talking about going down the ipo route Spending lots of money on shirt sponsorship in the premier league is kazoo And looking to take advantage of the ipo boom that we saw in the us last year and With room the big difference with room is it's not making any money. It's losing money as is expected to appear Carvana so this market is a very very challenging one. Ultimately if I'm going to buy a car I want to get in it Find out if the gearbox is any good find out if the brakes are any good I'm certainly not going to buy it online even if it is delivered and I've got a seven-day money back guarantee on it I want to drive it first But call me old fashioned. That's probably because I'd prefer to actually sit in a car before I think about driving in a way anyway, um, that's um, that's pretty much it for this week Ladies and gentlemen, as I say, um, please tune in for non-farm payrolls next week on On the friday for between one and two Um, we've also got the budget Obviously on the third Of march as well and those will be the key but those were to those will be the but the two key items on the agenda along with opec obviously On thursday, otherwise, thanks very much for listening ladies and gentlemen. Have a great weekend and speak to you all Same time same place next week. Thanks very much