 Good morning. Welcome to CMC Markets on Friday the 29th of January and this quick look at the week ahead beginning the 1st of February 2021. It's certainly been a month of two halves. Certainly the early optimism that we saw at the beginning of this year has quickly given way to much higher levels of uncertainty. There's been a number of factors around that. Obviously this week's volatility over reddit stocks has been a large part to play in some of the volatility that we've seen this week and to a lesser extent some of the declines that we've seen this week as hedge funds have to take margin calls and liquidate profitable positions to cover the margin calls on their underwater short positions and I have to say who wouldn't have a permit themselves a rise smile. At that particular prospect there's suddenly retail investors suddenly discover that they have a decent mechanism to be able to influence what goes on in financial markets. Anyway having got the disclaimers out the way we can now have a quick look back at some of the events of the last few days namely that the GameStop story is only one part of what's been driving markets this week and if you contrast what's been driving markets this week to the optimism and exuberance that we saw as we came out of the end of last year at the beginning of the month the so-called reflation trade optimism over vaccine rollouts optimism over fiscal stimulus that appears to have all gone by the by and now the tone and sentiment is markedly more negative than it was at the beginning of the month but let's have a look at and see how much has actually changed from that early week optimism or early year optimism or early month optimism whatever you want to call it and where we are now and I would argue that while the politics certainly got an awful lot more complicated you've only got to look at the European Commission's reaction to AstraZeneca and the fact that European Council President Charles Michelle this morning raised the prospect of seizing control of vaccine production in an attempt to get the EU's own botched vaccine program back on track. I think that gives you an indication of the fact that the EU is running scared they're running scared because ultimately they pretty much screwed up their procurement process when it came to the vaccine program and the fact that the UK stole a march of three months on them is making them look bad and obviously AstraZeneca is a good whipping board. Let's not forget as at the time of speaking the European Medicines Agency is due to give the AstraZeneca vaccine a green light today so at the moment AstraZeneca is not allowed to distribute it amongst the various counterparties in Europe that have bought its vaccine. We've also but this is not just an AstraZeneca problem it's also a Pfizer problem as well because Italy is also reporting that it's had to halt its vaccine program because it can't get enough Pfizer beyond tech vaccine vials. So we've got Spain we've got Italy we've got France we've got Germany pausing their vaccination programs because of vaccine supply problems so it's very easy to blame AstraZeneca because it's a British company but ultimately the EU have been caught out and they've not understand you know not unreasonably European governments are holding them to account and why shouldn't they it was supposed to be easier right a block of 27 countries negotiating en masse for a vaccine program not unexpectedly obviously pharmaceutical shares have come under pressure this week because ultimately they are caught in the middle but even amongst all of that the vaccine program is still going to get rolled out albeit at a slightly lower pace. I think one of the other things that's concerning investors is obviously the fact that extended lockdowns and tighter restrictions are now being pushed potentially into Q2 there was a perception at the end of last year that all of the restrictions that we were talking about over the Christmas and New Year period wouldn't extend beyond the first quarter of this year it is now becoming very very clear that that will not be the case and as a result markets are having to price in the prospect of a recovery deferred or delayed as opposed to a recovery that's more imminent than not and that is why I think you're seeing a little bit of equity market weakness as we head into month then so let's start with the FTSE 100 it's always a good idea to look at the daily charts here so this is the FTSE 100 you can see I've drawn a nice little neckline through here through here even we're still just about holding that trend line but even if we do break below it we've also got a fairly decent area of support around about 6300 the one thing that worries me about this is the fact that we have seen some very strong thrusts towards the downside without too much in the way of a rebound so I think there's certainly an awful lot of nervousness if you compare the moves at the beginning of the month and now the end of the month so from trading above 6900 in the first week of this year we've given up all of the gains that we saw in the first week and are now probably just about negative on the year well I think we're just about flat at the moment because of where we closed we closed on New Year's Eve on the 31st of December around about 6461 so we're currently flat on the year for the FTSE 100 so these sorts of levels right here are going to be a very key arbiter of where we go to next I still am fairly positive on the FTSE 100 but this does worry me a little bit because this potentially could be the beginnings of a reversal but I'm not prepared to throw in the towel yet because we are still above the 200 day moving average it just could take us a little bit longer to get where we're supposed to be going if we look at the DAX for example it's a slightly different picture but again no less have we seen some very big days this week you can see that from how long these candles are here nonetheless we are also around about where we were on New Year's Eve albeit maybe slightly below those levels and that is indicative of uncertainty the markets trying to make new highs it's trying to push higher it's not able to it suggests that investors are reluctant to hold on to anything for in any extended period of time or on traders more broadly so I'm looking probably around about 13200 as a fairly key support level US markets on the other hand have been slightly more positive but nonetheless even here we have seen some evidence of a little bit of nervousness we can see that with the 50 day moving average this strong thrust lower here an awful lot of the gains that we've seen over the course of the past month or so have been very tech driven we had another bumper quarter for Apple this week 111 billion dollars you know I mean that's a stunning number I didn't did I did not expect that particularly when you look at some of the consumer numbers but I'm guessing and I'm slowly beginning to realize that buying Apple products consumers generally don't tend to be that price sensitive I'm just surprised they buy so many so often I've still got the same iPad that I bought three years ago and it suits me just fine but I'm guessing there are those Apple fans out there who want the very latest product what's more importantly as well is that services is making up a much greater proportion of quarterly revenue for Apple so anyway that be that as it may 50 day moving average in this trend line here is likely to be a key support level on the S&P 500 you can also look at the NASDAQ it's a similar sort of story we've got a very nice trend line coming in here also coincides with the 50 day moving average so particularly US markets I'm paying particular attention to the 50 day moving average and the trend line supports on the NASDAQ and the S&P so I mean that I think that sort of gives you a nice little precy of where we are at the moment with respect to equity markets but also the pound which has really performed well this month but at the moment is finding the error a little bit thin around about 137.5 now what's encouraging about this not the fact that we can't break above 137.5 is that we are finding the dips so far contained to 136 so the pound is trading in a fairly decent range the outlook still remains fairly positive and I think the pound is benefiting from what is being colloquially referred to as the vaccine trade ultimately the UK vaccine program is much more advanced than those in the rest of Europe and as a result the pound is benefiting from that on the premise that the UK will be able to lift restrictions an awful lot quicker than Europe and ultimately that should release some pent up consumer spending for consumers to spend at home I think it's important to remember that it's unlikely that we UK consumers will be taking any foreign holidays this year simply because I think vaccine restrictions and virus restrictions or vaccine passports could well be the order of the day people have been saying that vaccine passports are on the agenda but I think that's I think that's naive I think an awful lot of companies will insist holiday companies will insist that you have a vaccine passports before you travel saga is already insisting of evidence of a vaccine shot before they will allow you on one of their cruise ships so I think that is essentially the direction of travel and I think it's naive to think otherwise no matter what your feelings are about having to prove that you've been vaccinated or not ultimately I think that will be that will dictate how strong the recovery is and I think what that will mean is that any vacations or holidays that are taken this year will probably be domestic in nature and that is likely to be positive for UK businesses and as a result despite the awfulness of the economic data that we've seen this month the services PMI the flash PMI which was below 40 for January this month and which we're likely to see not much of an improvement in the ordinary PMIs when they come out in the week ahead the likelihood is that that will keep the Bank of England's powder dry when they meet later in the week in the first week of February on the fourth of February and that's that's that's that's the first that's the first item on the agenda when it comes to looking at the week ahead we have the Bank of England meeting on the fourth of February now I think it's very unlikely that the Bank of England will do anything more than they already have done they increased their bond buying program in November by 150 billion there had been some speculation that this central bank might go further by cutting rates into negative territory I think we can safely assume that is not going to happen judging by the recent narrative that we've heard from Andrew Bailey the Bank of England governor now while some on the NPC still appear enthusiastic about the prospects it's hard to see how cutting rates further can help an economy that is essentially shut down you know we are where we are we can't go out and spend any more money than we already are doing because we're all confined to our houses so with Brexit in the rearview mirror yes there will be some bedding in problems we've already seen business organizations criticize some of the delays and some of the problems that they are currently facing as a result of what's happening at the borders but with Brexit now in the rearview mirror I think it's more than likely that the Bank of England will adopt a wait and see policy placing their hopes on the success of the vaccine rollout program which is well ahead at the moment of pretty much everybody else's with the exception of the UAE and Israel so that's the pound against the dollar still bullish on the pound against the dollar and still bullish on the pound against the euro even more so given the fact that we finally managed to break below the 8860 area okay what we've seen at the moment has been a little bit choppy but ultimately I think unless we break back above this 8930 level here on euro sterling we're going down we're going down and we're going down probably to back to these sorts of areas down here around about 86 and even further the vaccine trade I think the direction of travel is positive for sterling and as a result I think we can certainly see further sterling gains going forward as the economic data continues to play out we've also got services PMIs more broadly this week China and the US aside they have been poor we've got France Germany it's Italy and Spain services PMI the recent flash PMIs have been very very weak notably the UK ones were even weaker I mentioned that earlier but ultimately I really don't think that we're going to see anything above 50 in the services PMIs when they come out later in the week on the 3rd of February which is the Wednesday we've also got the US employment report this week that's the other macro item that I'm looking at this week and obviously I think that will affect the dollar which still remains in its downtrend but is starting to show flickers of a potential rebound but at the moment we're still below this 960 level on the CMC dollar index and this downtrend line here so at the moment while the outlook for the dollar is looking slightly more positive all of these all of this optimism about fiscal stimulus is starting to be tempered somewhat by the fact that it's unlikely to happen probably much before March and if it does it could well be less than the 1.9 trillion dollars that was originally outlined by President Biden were in his initial speech just before he was inaugurated the 900 billion dollars that was passed at the beginning of the year runs until March so US politicians have the ability and the headroom to continue to procrastinate on how and why they and how they direct any new stimulus package the likelihood is probably coming going to come in less than 1.9 trillion dollars but ultimately it'll still be much more than what the EU recovery fund is which has finally been approved 750 billion dollars euros rather 750 billion euros 390 390 billion of which is grants and which still hasn't been allocated and probably when it is it won't be anywhere near enough so we've got EU fourth quarter GDP also coming out euro dollar is starting to look a little so on the soft side we've got we've had various jaw boning ECB officials talking about the fact that they're uncomfortable with the level of the euro where it is they're talking about the potential for cutting rates further earlier this week we had a number of EU officials saying that the markets were underestimating the possibility that the the ECB might cut rates further this was Klaus Knot the or Klaus Knot however you want to pronounce it or the Dutch ECB governing council member I think the key thing here for the euro is this 127 area I've highlighted it consistently throughout the month in my commentaries and for me that's the key line in the sand 120 40 there are thereabouts if we break below 120 40 this would complete a potential head and shoulders reversal on euro dollar a potential target a move back of around about 300 points down to around about these lows hit 117 118 so keep a close eye on this 120 40 area ladies and gents because that could potentially confirm a head and shoulders reversal and a break lower towards the downside now in terms of other things that we've got obviously got non-farm payrolls on Friday that's probably one of the key another one of the key items this week and that will be closely monitored for whether or not the number that we saw in December was a one-off we saw 140 000 jobs lost in December it was a bit of a surprise and coming on top of a similarly negative 80 feet ADP jobs report this number will be closely monitored as to whether or not we get a rebound certainly the weekly jobless claims numbers that we've seen over the course of the past month or so would appear to suggest that the big spike to around about 950 000 that we saw in the lead-up and aftermath of the Christmas period has started to taper off and the jobless claims numbers are now starting to come down so in terms of the weekly jobless claims numbers they have been improving over the course of the past couple of weeks that is very very welcome of course whether or not that translates into an improvement in non-farm payrolls is anybody's guess nonetheless after the 140 000 job decline that we saw in December there is a small expectation that we might see a gain of around about 50 000 jobs in the January numbers so there is a hope that we might see an improvement in the US payrolls report for January in terms of companies that I'm keeping an eye out for in my week ahead it's we've got a quite a couple of important well more than a couple of important earnings announcements we've got big oil reporting over the course of the next week or so BP and Royal Dutch Shell and it's been quite a year for BP it's forced to raise an extra 10 billion dollars in the form of a new revolving credit facility as well as issuing 7 billion dollars in new bonds in April last year and then took a 15 billion dollar right down in June it's also announced the loss of 10 000 jobs so it was no surprise in August when they were finally forced to accept the inevitable and cut the dividend in half now it is slowly starting to acknowledge the fact that it needs to move to a much more renewables focused business model and one thing that I think will have helped it along with Royal Dutch Shell over the course of the past few weeks is the rebound in the oil price which will have improved its refining margins BP has a breakeven price of $42 a barrel so it's above its breakeven price that should be positive for profits the only concern that I have about is BP's is demand for refining products we're all stuck at home we're not driving anywhere near as much as we used to be airlines aren't flying so on the demand side it could well be that it hasn't sold much in the way of refining products even though it's getting more for its oil so the big I think the big thing for me is the series of lows through here and about the the 250 area we've come off the highs from earlier this month we are now starting to converge back to the long-term directional moving averages which are moving positive which would appear to suggest there is room for a rebound but I think much will depend on how BP paints its outlook how its performing while transforming strategy is going and what other steps it is looking to take in terms of improving its renewables business its light source business has already continued to expand it's required the responsibility for a solar panel portfolio in Spain so it'll be interesting to find out whether or not Bernard Lune's targets are on track or whether or they're likely to be any setbacks it's a similar sort of story for Royal Dutch Shell we can see that here from this chart it's amazing how similar the profile of the price movement is with BP and Royal Dutch Shell and also similar sort of support in and around December but for the forum Royal Dutch Shell around about 1235 1240 so there should be a decent area of support through there again the same factors that will dictate how the share price for Royal Dutch Shell moves will be the same as for BP and as I say the numbers for Royal Dutch Shell they are out on the 4th of February for BP they are out on the 2nd of February so there should be some trading opportunities for there we've also got BT Group we've got Vodafone some big numbers there and on the US we've got Amazon.com for Amazon and as we can see from here this has been pretty unremarkable with certainly decent area of range trading through here for Amazon I think in terms of Microsoft numbers earlier this week the cloud business did very very well and as such I would expect to pay close attention to Amazon's web services division given the fact that it has been a key contributor to Amazon's profits over the course of the last 12 months it's seen revenue growth of 29 in the last two quarters and it accounts now for 12.1% of total revenue for Amazon so while Amazon is ripping up trees in retail in terms of its prime subscription rates it's also been ripping up trees in terms of web services the big question is how much of it is already in the price and whether or not it can break out this trifecta of peaks here around about 33.60 going forward one of the things that has gone in Amazon's favor over the course of the past quarter has been the fact that the Amazon Prime Video app can now be installed on SkyQ boxes so you don't need a separate item if you're a SkyQ subscriber you can just basically log in to the app via there and and they placed a much greater emphasis on support with Rugby Union and Premier League football games so Premier League football games so they should get a whole host of new users there as well also got Alphabet that's Q4 2nd of February and we've got Peloton now Peloton is going to be interesting because of the fact that Apple launched a new subscription and new fitness bundle and it would be interesting to see whether or not Peloton has seen its growth in subscriber numbers cannibalized by Apple's much cheaper option Peloton has been a big big winner of the online boom in online fitness we can see that here over the course of the past year really really decent share price gains but as we can see from here it does appear to be consolidating in and around these levels here so I think for me I'll be paying particular attention to this area of loads through here 140 let me just extend that back to see whether or not it's acted as a decent level in the past now and as we can see it has it's this previous peak here over around about 139 140 and through here so I think significant break below 140 could trigger a bit of stop loss selling a bit of profit taking after this potential triple top breakout that we've got forming on Peloton Interactive so certainly keeping an eye on that particular chart over the course of the next week or so when Peloton reports its Q2 numbers on the 4th of February so just looking at my sheet of paper to make sure that I haven't forgotten anything or I haven't left anything out you can always view my week ahead in the news and analysis section on the CMC markets website otherwise all that's left for me to do is remind you of the non-farm payrolls webinar which is a regular feature every month on the first Friday which I will be hosting at 115 you can sign up to that from the events part of the website and hopefully we will have some decent market moves over the course of the next few days as and obviously enjoy your weekend as well so thanks very much for listening it's Michael Houston talking to you from CMC Markets