 Good morning. Welcome to CMC markets on Friday the 22nd of April and this quick look at the week ahead beginning the 25th of April with me Michael Husion. It's been another choppy week of price action for not only European equity markets but also US equity markets in the wake of those comments from Jerome Powell head of the Federal Reserve at the IMF spring meetings on Thursday evening. US markets saw a late Thursday sell-off on the back of a much more perceivably hawkish Federal Reserve comments from Jay Powell that a 50 basis point rate hike was on the table. The market reaction was somewhat surprising I think when you consider that essentially the base case has been for a 50 basis point rate hike as we as we look ahead to the main meeting it's already priced in. I think markets are slightly getting ahead of in terms of perhaps pricing in a much more aggressive Fed over the course of the next few months with Nomura actually calling for a 50 basis point rate hike in May and then two subsequent 75 basis point rate hikes over the course of the next two to three months after that. So essentially 200 basis points in the space of the next three months well if we look at what US Treasury yields are doing that's already priced in anyway so I don't really get the negative reaction the Fed funds rate has already been raised the upper bound to 0.5 so essentially we're already 2.25 percent above that level which suggests that markets are probably getting a little bit ahead of themselves particularly when you consider that Fed policymakers can't even agree on what the neutral rate is because there are a wide range of estimates of where that is whether it be two and a half percent or three and a half percent it depends very much on who you speak to. If we look at the 10-year what we are seeing is once again the yield curve is flattening out the US 10-year is still below the levels that we saw at the beginning of this week just below three percent whereas the two-year is now 2.75 percent so we've seen a much more distinct flattening of the yield curve over the course of the past couple of days that was the case at the beginning of the week so essentially I think Mark is starting price in a prospect of a policy mistake from the Federal Reserve in that they are potentially deliberately looking to slow the US economy and potentially tip it into recession. Compare that to the numbers that we've seen out of the UK this morning US retail sales in March fell by 1.4 percent I mean that's a really really big fall when you consider the estimates were for a decline of around about minus 0.3 percent and that's really I think filtered into a very sharp decline in the value of sterling we've seen that this morning a break below 1.29 and a half consumer confidence is slim sunk back to levels in April that we last saw in July 2008 and that's not altogether surprising when you actually consider that UK consumers are going to have are facing essentially the biggest fiscal squeeze in living memory. April energy prices rose by 54 percent we're seeing national insurance tax rises kicking in this month and we've seen a whole host of other price rises tax rises kicking starting in April so to a certain extent however you want to spin this this consumer slowdown is very much one of the government's own making and it's likely to make for a very difficult summer for business and consumers alike and ultimately it's going to make the Bank of England's decision in May that much more difficult and I think we could well get a split between those members who may want to go down the 50 basis point rate right rate hike route and those who would prefer to be much more cautious but obviously if you are much more cautious against the backdrop of a much more aggressive federal reserve that is going to raise the prospect of a much weaker pound and we're certainly seeing that the break below 1.29 and a half today has seen the pound head lower and the likelihood is we're going to head to 1.28 25 over the course of the next few days and potentially even fall as low as 1.25 over the course of the next few sessions it really depends on how we react around this Fibonacci retracement level that I've drawn in here from the lows back in 2020 and the peaks that we saw in June 2021 so we remain very much on a downward track when it comes to the value of the pound we're getting lower highs and now we've got another lower low so the line of least resistance sadly for the pound is very much for a weaker pound against the US dollar what we've also seen this week is a slightly more aggressive narrative when it comes to ECB rate hikes and we're seeing that play out in euro sterling I still at the moment I think very much with respect to the ECB and the Bank of England we've got the FX equivalent of two drunks propping each other up at the bar the euro has gained against the pound I think that's largely as a result of the fact that we've seen ECB policymakers this week become more vocal about a rate rise as soon as July we also saw a little bit of a softening in the headline rate of EU inflation from 7.5 to 7.4 while core prices fell back to 2.9 we've got flash CPI for April for the euro area coming out on Friday Friday the 29th of April and that is one particular number I've got my eye out for this week this coming week we've also got the French election the outcome of that on Sunday on the 24th that looks unlikely to spring a surprise I think there had been some expectation that Marine Le Pen will close the gap on Emmanuel Macron and ultimately I think the choice I think between Le Pen and Macron is pretty much akin to you know it's really the least least popular option when it comes to who French voters want to vote for I think the biggest risk for Macron is that voters don't turn out and Le Pen squeaks through that way but I think looking at the results of the debate that we saw between Macron and Le Pen on Wednesday night I think it's quite likely that Emmanuel Macron will will will essentially I think win out in the end I think if he doesn't then obviously it will be akin to a political earthquake akin to obviously Donald Trump being voted president of the US and obviously the UK Brexit vote but I think the appetite for voters for a surprise is probably going to be slightly mitigated by the fact that there is a war going on between Ukraine and Russia and I think voters will probably prefer stability over disruption going forward so I think the geopolitics could well influence that voters in terms of the least of the least of two options I think there we've got a Bank of Japan rate decision coming up as well on the 28th of April and that's interesting in the context of the declines that we've seen in the Japanese yen in terms of the euro sterling before I go on to that I think there is potential for further gains but only in the context of the overall range that we've pretty much been in over the course of the past few weeks and months so I certainly don't expect to shift in the overall narrative I think the ECB is unlikely to be able to hike as many times as markets are currently pricing in but I think that is also true of the Bank of England as well so I think it's really all about the dollar and that's no better I think borne out than in the performance in the dollar yen that we've seen over the course of the past few weeks the decline in the yen is likely to increase the pressure on the Bank of Japan to be slightly more hawkish when it meets later this week but certainly when we look at the inflation numbers in Japan they still remain very much on the low side in March headline CPI increased from 0.9 percent to 1.2 that's still well below the levels of 1.5 percent seen in February 2018 and with an inflation target of 2 percent the Bank of Japan has only managed to briefly breach and or hit that target back in 2008 and for a few months in 2014 and 2015 when CPI briefly peaked at 3.7 percent before dropping back sharply however unlike then we haven't seen a massive decline in the Japanese yen from where we were back in January when we were around about 113 to where we are now just shy of 130 so we could well see a big uptick in Japanese inflation given the fact there are big energy importer over the course of the next few months and I think that's something that the Bank of Japan could be seriously underestimating we have to go back all the way back to 1998 to really sort of see a move anywhere near 140 and obviously the 2002 peaks of 135 March 2002 are the next key level for me when it comes to dollar yen we've broken above all these peaks through here you know 124 125 126 so on that basis you would expect to see a little bit of a barrier at 130 but while we're above 125 80 the road is clear to a move towards these sorts of levels back at 135 back in 2002 so it's certainly worth keeping an eye out for the move in dollar yen when it comes to further gains for the dollar against the Japanese yen over the course of the next few weeks and months the weakness of the pound has mitigated some of the losses this week on the footsie 100 we still remain fairly well supported anywhere near 7500 if we look at these series of lows all the way through here even though we have seen a little bit of more of a sell-off today on the back of European markets but once again footsie 100 pretty much like watching paint dry we could fall back to around about 7400 but that continues to look reasonably resilient and pretty much the same can be said for the German Dax once again we are struggling to really push higher probably really need to withdraw that line there so I will do that right now for you fairly easy to do just select that high there draw a line through those peaks there and there we have it another redrawn line the thing with redrawn lines is that as long as you you redraw them to a point whereby they're not completely new lines and certainly in the context of the way I've redrawn those we actually haven't closed above any of them and if we look at the way the market is reacted here we actually close lower on the day even though we tested above the originally drawn line the line still remains pretty much intact so there is an awful lot of uncertainty at the moment markets are finding increasingly difficult to price the relationship between bond markets and equity markets real yields are starting to wedge back into positive territory and maybe the calculation could shift over the course of the next few sessions but certainly I think it's getting much much harder to make a case for higher equity markets and certainly in the context of the more expensively expensive parts of the market we've seen that in the way the markets reacted to Netflix's results this week we could see further downward pressure come to bear in the in in the coming week so we've talked about the bank of Japan we've talked about the French election we've talked about flash CPI we've got US core PCE later this week but I don't think that's really going to add to the overall narrative when it comes to the glide path for Federal Reserve rate hikes so I think for me as we look forward to this week the focus very much needs to be on company earnings certainly if we look at the NASDAQ and we look at the S&P 500 we can see that the likelihood is we may well see a retest of the lows that we saw over the course of the last few weeks particularly if earnings disappoint we look at the S&P 500 this 43,000 this 4,360 level is likely to be a key support level going forward after the failure to break the 200 day moving average yesterday so next week is likely to be very much a key bellwether of where potentially we go to next because we've got a raft of earnings numbers we can see them here we've got UK banks but it's also a big week for tech on on on Thursday snap could have could act could well act as a canary in the coal mine for Facebook and Google when it when it comes to ad spend so alphabet and meta and let's not forget when we look at Facebook's numbers and the plunge that we saw in the aftermath of the release of their Q4 numbers and their guidance for Q1 we are now back towards the lows of that particular set off which we saw when we bottomed out in March we come back to revisit that in the aftermath of obviously what happened with respect to the snap results that came out on Thursday night so that's I think that's going I think that's going to be a very interesting it's going to be a very interesting number active user growth in terms of daily active user growth monthly active user growth but more importantly what is the direction of travel for ad spend for businesses against a backdrop of a consumer not only here in the in the UK but also in the US that's likely to find further pressure being brought to bear in the face of rising prices so could we see another meta meltdown this week we will find out on the 27th of April when meta release their first quarter numbers we've also got numbers from Apple they've been fairly resilient despite the weakness across the board certainly Q1 revenue came in a new record of 123.95 billion dollars Q2 revenues are expected to slow to around 90 billion so 90 billion dollars for Q2 Apple once again is refusing to offer guidance in line with previous quarters so really this is about what markets are expecting not what Apple is expecting and profits are expected to come in around about a dollar 42 a share but it will be certainly interesting to see whether or not that resilience is maintained as we head into what is likely to be a significant cost of living squeeze and the fact that China's economy is starting to show a significant evidence of slowing down Amazon again seen in sorry what am I doing Amazon just kind of selected the wrong chart there that's meta going back to Amazon get the right chart that always helps we have broken law when it comes to Amazon certainly been fairly in different quarter since the company posted its Q4 numbers back back in January February they have hiked their prices in the US but so did Netflix and we saw a significant slow down there I think investors will be hoping that web services the cloud business has continued to grow its revenue going forward I think that's certainly a certainly a key area that investors will be looking for a significant amount of strength as it looks ahead I think as we look ahead to the stock split that was announced in March and is set to take place on June 6 investors seem fairly relaxed about that so I certainly don't think that there is likely to be anything in Amazon's numbers that are likely to I think upset investors going forward I think the big question for me is whether or not we see a significant drop off in subscriber numbers on Amazon Prime because of the price hike that was announced on its US members I think there is concern about the company's margins so I think we need to pay particular attention to those numbers when they release them on the 29th of April also a big week for UK banks given how the shares given how the US the US UK consumer has been performing in February and March I think the big question for me when it comes to UK banks is how lending how lending has been going particularly mortgages because obviously we are now starting to price in the prospect not only of higher mortgage rates but also I think consumer discretionary spending is likely to be significantly lower I think when we look at Lloyd's in particular because obviously Lloyd's is very much exposed to the UK banking sector it's really I think the big question is obviously how that will affect Lloyd's margins we are finding resistance up near 48p I think it's one of life's great mysteries why Lloyd's bank share price is still below the levels it was back in 2019 when it was much less profitable than it is now but this is the world that we live in and unfortunately we have to deal with the world as it is not as the world not as the world as we'd like it to be so I think you know as we look ahead to Q2 and Q3 I think the big concern I think for shareholders of Lloyd's and any of the other banks is what does what does a diminution in margins mean for a potential further buybacks for the dividend certainly I think there are high expectations in terms of loans loan growth business lending mortgage lending effect on margins higher rates is generally fairly good for banks but the problem is if people aren't if people aren't willing to borrow then obviously those margins are those margins are neither here nor there so significant challenges for UK banks if we look at Lloyd's obviously we've seen a nice little uptick there there's certainly potential for further gains there if we look at say for example Barclays it's a completely different story we are approaching a very key trend line support they've had obviously problems of their own with respect to the new CEO Venkat the honeymoon is well and truly over for him after his competence was called into question after it was revealed the bank was facing a 450 million pound hit and a regulatory investigation over some of its trading products in the US in light of the numbers we've seen out of US banks you know what does that mean for their fixed income revenues their equities business investment banking advisory fees and other capital markets activity going forward is all the bad news priced in are we likely to see a little bit of a rebound when they report their first quarter numbers on the 28th of April and we've got that West Group numbers on the 29th so let's have a quick look at that West Groups chart here again fairly seen a fairly decent recovery off the lows back in March can that be sustained certainly I think in terms of valuations it's one of the cheaper UK banks relative say for example HSBC which is also reporting its first quarter numbers on the 26th and particularly its Asia operations will be a particular area of interest given the COVID lockdowns that we've seen across China and obviously business activity there so we've got HSBC on the 26th Lloyd's on the 27th Barclays on the 28th and Nat West on the 29th we've also got four-year numbers from Sainsbury's in the wake of the Tesco numbers earlier this month it's highly unlikely that Sainsbury's will be able to get anywhere anywhere near to matching Tesco's numbers and obviously the cost of living squeeze there will impact its margins we've seen an increase in salaries from Sainsbury's but overall if we look at where Sainsbury shares are relative to where they've been you could argue that perhaps some of the some of the worst news has perhaps been already priced in but again you know who knows when it comes to a supermarket price war it's signed up to the real living wage a pledge to pay all of its workers over £10 an hour and it's facing a scrap with the likes of Aldi, Little, Waitrose, Tesco's in terms of competing for staff so it's going to be a very difficult retail outlook going forward also got associated British Foods, Primark on the 26th and they're reporting their first half numbers. One silver lining has been the inability of oil prices to significantly rally above $110 a barrel this week now that would suggest that perhaps we're starting to see an element of demand destruction we certainly saw evidence of that in the latest UK retail sales numbers so in that context perhaps we could well see prices at the pump start to edge back down again that's not necessarily a good thing demand destruction but ultimately I think that's the only way that we're likely to see inflationary pressure start to diminish so certainly would like to see a move back to $100 a barrel which would hopefully ease the squeeze on consumers wallets going forward. I think pretty much covered most of everything that I need to talk about this week it's certainly going to be a packed week it's likely to be a significant test for US markets in particular which have remained very resilient to some of the geopolitics and the macro outlook going forward the bigger question is whether or not any disappointment that we see this week will prompt further declines in equity markets particularly against the backdrop of a much more hawkish Federal Reserve going forward so that's it for this week thanks very much for listening ladies and gentlemen hope you have a great weekend speak to you all same time same place next week thank you very much for listening