 Good morning, welcome to CMC Markets on Friday the 28th of January 2022 and this quick look ahead at the week beginning at the 31st of January. With me, Michael Houston, and it's certainly been another volatile, tempestuous week. You can run out of adjectives to describe some of the moves that we've seen this week. In fact, this month, if we look at the way equity markets have moved, there has been evidence of some divergence between what US markets have been doing. This week we've seen US markets hit seven month lows. On Monday we saw the FTSE 100 hit a one month low. Yesterday FTSE 100 was able to reverse all of its losses for the week. But has now since then slipped back into negative territory for the week as it closed the end of last week. Around about 7500 and it's trading slightly below that now. So there's an awful lot for markets and investors to consider obviously there's tensions on the Russia-Ukraine border. At the moment they continue to simmer ever so slightly underneath the surface, helping to push Brent crude prices up to $91 a barrel. Earlier this week we've got, or we've had, the US Federal Reserve latest meeting where, despite the fact that the Fed didn't announce any changes to its current program of asset purchases, it will continue to add to its balance sheet all the way till March. But the fallout from Powell's press conference was quite something to behold. To be quite honest, where do you start? No surprises around the statement, decision-keep, monetary policy on hold. Press conference really saw the heat quickly come out of the mid-week rally. Certainly if we look at the daily candles on this FSC 100 chart, you can certainly see it's been a week of two-halves, very sharp declines in the first part of the week, consolidation. And then Wednesday, Thursday, we saw a move higher. Let's start with the NASDAQ because I think the NASDAQ is particularly interesting, given how we started the week and where we are now. I mean, this is Monday, so we had a seven-month low on Monday. We pretty much reversed all of that to actually close modestly higher on the day. And on the Tuesday we came crashing lower again. Wednesday up, making high for the week, and then came crashing back down the following day. I mean, this sort of volatility, these sort of price swings. On successive days, I might add, we haven't seen this sort of volatility on US markets. I'm reliably informed, according to Bloomberg, since the 1980s, and that is really quite something. If we look at US short-term rates, we can also see that the two-year yield has gone this week alone from just below 1% to 1.2%. And this month alone has gone from 0.7% to 1.2%. So you've gone 50 basis points in the space of a month, which when you consider for how long the two-year yields were doing nothing for most of last year, it's quite something when you look at that chart. So I think what Powell was particularly good at doing on Wednesday was keeping his options open. We are going to get a rate hike in March. That much seems almost certain. He didn't rule out a 50 basis point rate hike, but then why would he? He didn't rule out a 1% rate hike either, and he's not going to do that. He passed up the opportunity to rule out any possibility. The good thing about that is it keeps the Fed's options open and rule nothing out, rule nothing in. It wasn't the messages that markets wanted to hear. And in essence, it was the Fed saying to markets, the days of hand-holding are over. The priority now is inflation, and you better get used to it. And that's why we're seeing the moves that we've been seeing notably in bond markets, but less so on the long end. If we look at, say for example, the US 10-year, which used to be very representative of what the Federal Reserve was looking to do over the course of the past few days, we've hit loads of 1.9%, but we weren't able to move above the highs that we saw earlier this month. So even though the Fed was very, very hawkish and people are talking about five rate hikes this year, six rate hikes, seven, what have you, the US 10-year really wasn't affected by any of that. All the movement was in the short end. That's flattening the curve. So long-term interest rate expectations haven't really changed that much. It's just really a question of how quickly the Fed is going to normalise monetary policy going forward. And I think that's a harder thing, I think, for markets to get their heads around. They're not worried about the fact that they're going to get six or seven rate hikes. They're worried about the timeframe of when they're going to get them. I myself think that it's highly unlikely that the Fed will be able to do anywhere near as many as the markets are currently pricing in. But that's just me. So we've had the biggest one-day jump in the two-year yield since March 2020, and yet the 10-year has barely moved. So really, where does that leave us? Well, if we look at this move in the two-year, I mean, it does look really, really stark. But now look at it over five years. And then suddenly it doesn't look as stark as perhaps maybe it was. I mean, if you look at two-year rates in 2018, they're at 3%, or just below. Now they're at 1.2%. So even with rates currently as they are, they are still below the levels that were pre-pandemic. So I think there's an element of markets freaking out. The bigger question is whether or not it's justified in the price action. On a technical basis, some very important things have happened over the course of the past few days. For a start, the known stack is below its 200-day moving average, and the 50-day moving average is starting to roll over. So that in itself is significant. It means that the bias has shifted from buying the dip to selling the rip or selling the rally. That for me I think makes it very, very difficult to articulate a case for continuing to buy the dip when it comes to US markets. We could certainly see a move back to 15,000 on the 200-day moving average. And even with the decent numbers that we've seen this week from the likes of Apple, Microsoft, and obviously we've got Amazon and Alphabet next week, it's going to be very, very difficult to make a case for new record highs for the NASDAQ if the rate trajectory plays out as markets are currently pricing. If we look at the S&P 500, again, it's a similar sort of story. What's significant about this though is that the 200-day moving average is currently acting as resistance when any moves higher. And again, we've hit a seven-month low on the S&P. We've seen quite a bit of volatility. We haven't taken out those seven-month lows despite all of this week's volatility. And even though we've made a new high on the week, these long shadows point to huge degrees of uncertainty as to the future direction of US equity markets. The fact that you're getting these very strong moves to the highs and the lows, but when you strip out the overall direction, there really isn't that much of a change, suggests that there's an awful lot of uncertainty out there. So really, you've got to trade the markets based on that, which means that this level here, the 200-day moving average, which managed to hold the rebound that we saw on Wednesday, is going to be a very key level going forward when it comes to the future direction of US markets. If we look at the Dow, we've got a similar sort of playbook playing out, again, the 200-day moving average. So the 200-day moving average is going to be an area that I'm going to keep my eye out for on any moves higher. As we look at the DAX, the DAX again, 200-day moving average, is continuing to find itself limited by that. What's concerning about this more than anything else is these are starting to roll over a little bit the 50-day, and that suggests that sentiment is starting to turn a little bit negative, but on the plus side, this 15,000-area still looks pretty solid, even allowing for the intraday penetrations lower that we've seen over the course of the past six to seven months. We've seen it here, we've seen it here, we've seen it here. What's important is that we haven't closed below it, and we've held above it here and here. So what we could see is just further volatility within a sideways range, and that's something that could also play out when it comes to the NASDAQ as well. For C100, still looking fairly positive, yes, we broke below 7,400, which obviously was very unwelcome given the fact that we fell to a one-month low, but what was important was that we didn't actually fall significantly below the 200-day moving average, or this broader, stronger support around about here, and now we're back within touching distance of 7,600. Of all of the indexes that we've looked at over the course of this little discussion, is probably most constructive in terms of further upside on the FTSE 100. Why? Well, simply because we haven't made new record highs on it. It is undervalued relative to its peers, and despite all of the concerns about politics in the UK, it is very much an internationally focused index. So when people talk about political risk potentially weighing on UK assets, I tend to park that because that generally tends to be pushing a political narrative and not a financial mark, it's one. And I've got very little time for political narratives when it comes to talking about financial markets. So that's where we are with respect to the FTSE. It still looks constructive, and as such, I see no reason to change my longer term view on that. The dollar's had a good week. It's had an absolute ripper of a week. Posted highest level since June 2020 on the back of the hawkish narrative from Powell's press conference. That's pushed Eurodollar lower. So Eurodollar breaking down the next target on this particular chart here. Well, the next one's 108. Obviously, looking at it from a slightly shorter term point of view, you've got to look at 111 initially. It was around number and then 110. But this breakdown of this trend line here and the breakthrough the lows and this low here in June 2020 suggests that we could well see further losses for the Euro back towards 111 and 110 over the course of the next few sessions. And we do have the European Central Bank rate meeting next week as well. And obviously we have, we have UK, EU flash CPI for January. And that could feed into the narrative that the ECB is not going to be raising rates this year at all, because their argument is that inflation in the Euro area is transitory. And legs significantly behind that of the US. Certainly the first argument I'm struggling with the second argument not so much. Euro sterling continuing to track lower watching paint dry. You need to be patient if you're a euro bear against the pound. But ultimately I still expect that to continue to drift lower. The big level on the upside and only rebounds is 84, 84, 20. So you need to pay attention to that. But certainly in terms of the overall trend, we still remain very much towards the downside. And I really don't expect that to change anytime soon. So very much sell the rally type moves there cable continues to break down. This is a bit of a struggle. This is, this is a little bit of a kin to try to catch a falling knife, which I would discourage anyone to do. Metaphorically and literally, we have continued to drift down. We're now below the 50 day moving average, which is not what I wanted to see below 134 20. That keeps the pressure on the downside, particularly when the dollar is as strong as it is. Obviously we've got the Bank of England meeting coming up this week. And we've also got the European Central Bank rate meeting this week. So those two central bank meetings could have a very big part to play. Not only on the direction of Euro dollar and cable, but euro sterling as well. And I think now will be a good opportunity to talk about those two because I think when we're talking about the Bank of England, we really do need to be cognizant of the fact that they are very unreliable when it comes to forward guidance. And we also need to remember that they did, they did raise the base rate by 15 basis points in December by an 8 to 1 majority, which was a little bit of a surprise given the fact that they chose not to act by a 7 to majority in November. However, like the Fed, it does appear to have been a significant shift in mindset from where they were only a few weeks before. So we can only presume on what prompted the change of heart. I think obviously it's a welcome change from the group think narrative that appears to be becoming increasingly embedded in the economic discourse right now. I think two interventions may well have been crucial in changing the Bank of England's mind. Firstly, the IMF urging the central bank to get on with it. It's surprising it took the IMF to get them to do that and not an inflation rate of an excess of 5%. There you go. This is where we are. We're now looking at RPI at 7.5%, CPI at 5.4% with an expectation on the part of the Bank of England that we're going to hit 6% by April. So this could see another rate rise this week by 25 basis points to 0.5%. Now, you're going to get the howls of anguish from people who say that this won't do anything to curtail the effective supply chain disruptions, blah, blah, blah. That completely misses the point. You can't keep interest rates at current levels forever. I'm not suggesting for one moment that we should be ripping interest rates higher back to 2%, 3% or 4%. And I don't think anyone else is, but you can't leave them where they are and completely ignore the inflation genie indefinitely. You have to try and start to normalize to a more reasonable level of rates at 0.25%. It's not priced in at the moment. The markets are already pricing in higher rates. So a 25 basis point rate hike this week will merely put market rates or base rate where the markets are already pricing it. So really, it's a question of whether or not Andrew Bailey, as governor on the Bank of England, can start confronting the risks that more embedded inflation will have on the UK economy going forward. Now, he's gone on the record as saying that it isn't his job to steer financial markets on interest rates. Sorry, mate. It is. That is your job. It's in your job description. It's your job to communicate to financial markets. And the sooner you get your head around that, the better. The Federal Reserve do it very, very well. ECB probably not so much. But ultimately, he needs to restore the Bank of England's credibility in the eyes of the financial markets. So this week would be another opportunity for him to try and rebuild that credibility. So 25 basis points we could well see come the 3rd of February. Later on, we get the European Central Bank rate meeting as well. And Madame Lagarde will have to defend why she thinks the ECB should keep interest rates currently where they are. So we have 5% free CPI. Now, this week's CPI numbers flash CPI numbers out of the EU could give her cover to basically continue to pedal that narrative because there is an expectation that the annualized numbers for January will fall from 5% in December to 4% in January. The reason for that is because of the one-off effects from last year, which pushed German CPI numbers up by over 2% on the month. And the reason for that was a raft of measures and the reintroduction of VAT after being emergency cut in the wake of the first lockdown, as well as various climate change measures or taxes that boosted German CPI in January. So EU CPI was at a much higher level a year ago than pretty much everyone else. So that means that the jump to this year is likely to be lower in relative terms. Obviously, it will allow the ECB to pedal the narrative that inflationary pressure is transitory. So if you've got import prices or PPI in the various Eurozone countries trending at 25, 30 and 35%, I think everyone knows that's a rather fallacious argument. No change is expected from the ECB, though we could get some indications as to whether or not they could increase their asset purchase program while at the same time is winding down their PEP program. Because their PEP program is due to roll off in March. So we could get some messaging around that and whether it will look at increasing its PEP program to compensate. And that's currently running at 20 billion euros a month. One other thing to keep an eye out for will be how new Bundesbank President Jocham Nagel basically influences the debate over inflation risk, given his warning last month that the ECB needed to be vigilant, given his concern that inflation risks are very much elevated to the upside. So we've got ECB, we've got Bank of England, we've also got US non-farm payrolls. Probably I think the most surprising thing about the payrolls numbers that we've seen in recent months is headline numbers have been very, very weak. The last two months in December we saw 199,000 jobs added, which was well below the 450,000 consensus, and it was also well below the ADP report of 807,000. So in both November and December the number of jobs added has been disappointing, which would suggest to me that even with US employers having to pay up to get people back into the workforce, workers don't appear to be in a hurry to return despite over 10 million vacancies and only 3 million fewer workers. So there appears to be an awful lot more caution about consensus estimates now having been burnt two months in a row. Expectations for the January report for 178,000 jobs to be added and the unemployment rate to remain steady at 3.9%. Again, I'll be keeping an eye out for wages because they were much more resilient in December, they rose 4.7%, which was well above the expectations of 4.2%. So certainly I think wage pressure, a decent wages number could well reinforce the hawkish narrative that we heard from Powell earlier this week. On the company's front, we've got two or three that I've got my particular eye out for, Shell being one of them, Royal Dutch Shell soon to become just Shell. Their numbers in Q3 were a little bit disappointing. If we look at this chart here, we can still see that we're still well below the levels we were in 2020. So there's certainly plenty more upside to go. There's certainly been one of the early winners so far this year with oil and gas prices where they are. And I think that's likely to continue. But I think more than anything, apart from the actual numbers themselves, in Q3 we got calls for the company's breakup from activist investor Dan Loeb's third point group. He appears to be frustrated with respect to the underperformance of the business. And to be quite honest, when you look at that share price chart, it's not really hard to see why, when you look at where they were and where they are. Now obviously they've had to write off an awful lot of assets over the course of the past two years. They've also sold off its Permian Basin business for $9.5 billion. And it'll be really, I think, interesting as to whether or not they've been able to rebound from the disruptions from Hurricane Ida, which cost the business $400 million, as well as higher costs elsewhere. With natural gas prices at record highs in Europe, multi-year highs in the US, shareholders appear to think the company should be doing better. And I would agree with that they should be. Shell management said they expected to see a much better performance in Q4. They better be right. Otherwise we could see third point making a lot more noise than they were in Q3 and could well ramp up pressure on senior management. Shell's Q4 numbers on the third of Feb. Going to be a busy day on the third of Feb Thursday with Bank of England and ECB. So certainly enough to keep everybody's hands full. And then we've got BT Group, another perennial under Performa. Now, since BT reported back in November, the shares have done pretty good. They've done pretty well, pretty good. That's a terrible adjective. They've done pretty well. But they're still below the levels that were in June last year. It's delivered on its cost-saving programs ahead of schedule. Q2 EBITDA came in better than expected. The first half revenues came in at $10.3 billion. Their open reach fiber to premises network has now reached $6 million premises. Bill costs are starting to come down as they become much more efficient in rolling out. And there's been renewed chatter about selling off open reach, which is starting to get a little bit boring and a little bit tiresome. You don't sell off your best performing business. But what you do do is sell off the bits of the business that are low margin and really don't offer an awful lot of value. And that's where BT does appear to be making progress. There does appear to be an agreement in place to sell the BT Sport Channel for around 580 million pounds. Negotiations here are still ongoing. There is interest from other parties. And it'll be very interesting to see whether or not those numbers have been firmed up and they're able to offload that because that is a very deep hole in terms of trying to maintain subscribers at the same time as keeping people hooked. And as we saw from Netflix's results earlier this week, margins in that business aren't getting any easier to maintain. So I think for BT to focus on what it's good at and to leave broadcasting to somebody else is probably the best way forward. So that's BT Sport or BT rather. We've also got Amazon and Alphabet. And Microsoft numbers earlier this week were very good. Azure posted some fairly decent numbers. And again with Amazon they have underperformed considerably over the course of past month or so. Quite a bit lower than they were. And more importantly they've moved below this key support level here. Their costs have gone up hugely. They have been one of the key winners of the pandemic but their costs have gone up massively. I think when we look at Amazon we want to look at their cloud business, web services as a bright spot in Q3. Revenues came in at $16.1 billion and they've been increasing quarter on quarter. They're obviously having to face increased competition from the likes of Microsoft and Alphabet who are also reporting this week. But in terms of Q4 we should see much higher sales. Christmas, New Year, so Thanksgiving and Christmas tends to be a really strong quarter for Amazon in the same way that it is for Apple. So we're expecting to see sales in the region of between $130 billion to $140 billion. But we also need to be cognizant that costs will be an awful lot higher as well. And they warned about that in Q3. They said they're going to be spending an extra $4 billion in this quarter on additional costs. So there's a possibility we might not even see the company make a profit in Q4. And I think that's one of the reasons why the shares have struggled since November. Annual expenses could be in the region of $20 billion and they were originally slated to be at $12 billion at the beginning of the year. Nonetheless, should still be a fairly decent year for Amazon. The bigger question I think for me is whether or not it'll be enough to prevent further declines in the share price. And a similar sort of story for Alphabet, Google. I've seen a similar breakdown in the share price there. For similar reasons really, total revenues have been strong over the course of the past few months. The change in the privacy changes, Google was able to shrug off from Apple, largely because of the fact that most of its business comes from its Android operating system. Revenues from YouTube did see a modest drag because of the iOS changes, but advertising continues to be their key source of revenues coming in well in excess of $50 billion in the last quarter. So still expected to see some fairly decent numbers from Alphabet. Again, keep an eye on costs. It's a recurring theme for a lot of companies. Shouldn't be a big issue for Alphabet, but you never know. So again here, I think there's going to be, there's a good chance now that below the 200 day moving average, we could see further weakness in the share price there. So that I think you'll find is pretty much it for this week. I've probably gone on for a lot longer than I intended to. But don't forget, we've also got the non-farm payrolls webinar on Friday, Friday the 4th of February. So please feel free to join me for that. And I'll cover the numbers as they break as well as take you through the various key chart points of all the key instruments. And in the meantime, I wish you all a great weekend and see you all same time, same place next week.