 Good morning, welcome to CMC Markets on Friday, 12th of February and this quick look at the week ahead beginning the 15th of February with me, Michael Hueson. Before we get started, let's get a little bit of housekeeping out of the way with various risk warnings and disclaimers, but by and large, it's been a fairly uneventful week for European equity markets. US markets have continued to grab the headlines with another series of record highs. And though the DAX has also managed to week out a new record at the beginning of the week, there has been not much in the way of momentum behind any of this week's moves. So if we look at the FTSE 100 to begin with, we can see from this daily candle chart that we've seen a pretty much sideways consolidation with the current rebound that we've seen since the beginning of the month, holding below the 50 day moving average. So that's going to be, I think, a key level going forward. Asia markets returned from their Lunar New Year holiday on Friday in a similarly lackluster fashion. And while the Nikkei 225 has also posted its best levels since 1990, this certainly appears to be more upward momentum in probably US, Asia and German markets than there is in UK markets at the moment. Now, not really, I think we can easily understand why that is. Obviously, the FTSE 100 has an awful lot of what I would call cyclical stocks in it. So it has travel and leisure. It also has banks. And as we look ahead towards next week, it's banks in particular that I'm going to be playing particularly close to tension too. For a get to that, what we have seen in the past week or so is a significant rise in inflation expectations. And that has provoked or prompted a little bit of caution about upside when it comes particularly to European markets. We can see that born out in this week's UK guilt yield, which has hit its highest level since the 23rd of March last year, the day that the first lockdown was announced, poked its head back above 0.5 percent. The US 10 year also popped its head above up towards 1.2 percent, this level here. So we're on the cusp of some very key levels when it comes to guilt yields and US 10 year yields. So in terms of further gains with respect to them, if we get an increase, if we get further increases in US 10 year treasury yields and potentially UK guilt yields, there is a risk and it's a small one at the moment that that could well have a little bit of a lag effect on equity markets on concerns about rising inflation expectations. Now, in the short term, I think a surge in inflation is unlikely. But in the longer term, that is certainly being started to price in to bond markets, particularly US and UK bond markets. And to a lesser extent, also, I think in German bonds as well, certainly if you look at the direction of travel when it comes to yields, they are heading higher. And I think that is something that we really do need to be aware of in the context of the rebounds or the resilience, shall we say? I think the resilience of equity markets in general. So 1.2 percent on the US 10 year, keep an eye on that. More importantly, also have a keep an eye on the UK guilt yield around 0.5 percent, which is also edged higher. And the reason they're edging higher is simply because of concerns about the amount of additional stimulus that is likely to get unleashed over the course of the next two or three months. There's the US 1.9 trillion dollar stimulus plan, which is currently going through the corridors of power on Capitol Hill, which are Democrats are trying to push through without Republican support. We've also got the UK budget coming up next month. And Rishi Sunak in particular is under a significant amount of pressure to support the economy, support the UK economy even more than he already is. Let's not forget the furlough ends at the end of April. He's under pressure to extend that further. The fact is that with the various further restrictions that are set to kick in next week, quarantine restrictions, hotel quarantines, the likelihood that it's not. Probable that we will be able to go back to business as usual in Q2 or Q3 when it comes to overseas travel. That's likely to weigh on the airline sector and the travel and leisure sector. And already is in early trade at the moment. Airlines have slipped back from the gains that we saw last week. Easy jet, IAG, wet bread premier in a wet bread has probably felt a little bit better, but also cruise lines. Carnival cruise lines was also downgraded today as well by Berenberg over uncertainty about the outlook for cruises and overseas travel in general. So there's an awful lot of uncertainty going forward. So while it's quite possible we'll be able to go on holiday in this country, it's not immediately. It's not immediately obvious whether or not we will be able to go abroad as yet. And that's weighing on the travel and leisure sector. It could be as it could be next year before we even get any semblance of normal when it comes to overseas travel. So that's essentially where we are with respect to start markets. Vaccine rollout program is going well. The latest UK GDP numbers came in better than expected. And that's certainly welcome news. Having said that, the pound has slipped back a little bit over the course of the past couple of days, but that hasn't stopped it from hitting its highest levels in nearly three years earlier this week when it popped above 138. Now, it is slipping back a little bit over the course of the past couple of days. This high here of 138.65, given how 137.4050 acted as a little bit of a barrier on the way up, I would expect that there to be a significant amount of buying interest between 137.20 and 137.50 on any dip back down. Certainly, I think if we look, we look at the line, if you draw a horizontal line through here. We can we can sort of see that there. And we've also got this this fib level, this long term fib level that I drew in a few weeks ago, coming in on on that particular level there. If we just change that out to a month, do that. We can see this particular fib level here. So we can see that my target for a move to 140 is still very much intact while we hold above my broader long term support line, which is around about 136, and we can quickly change that from there. Go back to the daily chart here. And that's basically around this series of loads through here around about 136. So still very much of the opinion buying the dips in cable is the way to go. Selling rallies in Euro sterling as well. Now that we've broken below this 86.50 level here, we could 88.60 yeah, 88.60 level here, we could squeeze back at the moment we're finding a better resistance in and around 88.05.10. But I think while we're below 88.60, then we could we'll see a move back to 86. That's certainly my longer term target over the course of the next few weeks. Euro dollar been a bit of a disappointment. Those of you who listened to my video last week will know that I was fairly bearish on Euro dollar once we broke below this support level of one 2070. Unfortunately, this this particular move hasn't played out as I expected it. So ultimately, that's one particular move that would have resulted in a bit of a loss. Having said that, we are still below the 50 day moving average here. That's acting as a bit of a cap. So certainly 121.50, 121.70, as well as these peaks here, that's likely to be a barrier in the short to medium term. I still remain very much of the opinion that Euro dollar is very much a sell the rally trade, just in this particular case. This hasn't played out as I suspected it might well have done. So one, that's one we're just going to have to take on the chin, sadly. And that's the way it happens sometimes. Not every not every trade idea you you have will play out as you expect. And that's why you have stop losses so that you can basically chop yourself out and then reassess and look at another opportunity as and when it comes along. So looking back at the UK economy, it's a big week for UK data. We've already seen the latest fourth quarter GDP numbers. We saw a 1% expansion in Q4. So that means that we will avoid a double dip recession even though we are going to contract in the first quarter of this year with a bank of England estimating that we will contract to the extent of 4%. Having said that, it's still the worst annual performance of the UK economy since 1709, apparently. So obviously that's not good. But if you focus on what's coming down the line and not what has happened, then hopefully the outlook does look much more positive. There is a bright side to all of this. We're not alone in this particular economic crisis. It's a global economic crisis caused by a once in a lifetime pandemic. And while the focus is going to be on the annual contraction, the worst annual contractions in 1709, there is there are reasons to be optimistic. The fact of the matter is that the Bank of England is likely to continue to remain fairly accommodative. And ultimately, the UK government does have full control of all the fiscal leaves at its disposal to try and cushion the economy and get a rebound in Q2 and Q3 once the vaccination program continues to ramp up as we head into the end of this quarter and look at the months beyond Easter. And I think that's something that, you know, we probably need to focus more on because GDP numbers are very much rearview mirror stuff. So looking ahead to next week, we've got more UK data to get our heads around starting with UK CPI inflation. That's likely to be a key bellwether, given concerns about rising inflation expectations. We certainly saw a big increase in German inflation in the most recent numbers, but an awful lot of that was down to a VAT increase. So very much to do with a significant tax rise, nothing more. With respect to UK CPI, which is on the 17th of February, these numbers have fallen below the radar a bit simply because of the fact that they're around about 0.5, 0.6 percent. They're not likely to change that much for January. Core inflation is expected to remain about 1.3, 1.4. But certainly keep an eye on PPI, factory gate prices, because that's where the early indications will be if there is inflation pressure starting to build up in the system at the moment. Short-term inflation pressures aren't an issue, but certainly if we are going to see them, that's where they'll start to build up. So those are due on the 17th. We've also got UK retail sales for January. And UK public sector borrowing for January, both on the 19th of February. Obviously, the UK economy has been in lockdown for most of, well, for all of January, since the 6th of January. I'm not expecting a good number there. We got a rebound of 0.3 percent retail sales in December. That was a little disappointing, given the fact that there was a two week unlock at the beginning of the month, which saw consumers go on a pre-Christmas spending binge before restrictions were tightened again. But I think there was an expectation that we were going to need tighter restrictions and maybe consumers held back a little bit. That being said, with the new lockdown being imposed in January, it's likely that we could we'll see a 1% decline in retail sales simply on the basis that consumers generally don't spend anywhere near as much money after Christmas than they do in the lead up. So January generally tends to be seasonally a week month for retail sales as people pay down there and pay down bills and what have you. So not expecting big things from that. We've also got the latest flash PMIs for manufacturing and services, which which are expected to, sorry, for February flash PMIs for manufacturing and services for February. Now, in January, they came in at fifty four point one and thirty nine point five. Services was particularly weak. So it'll be very interesting to see whether or not we get an improvement on the very weak January number that we saw for February. And we also have public sector borrowing. That's already outpost war records. It's certainly no secret that Chancellor of the Exchequer Rishi Sunak would rather rain back on the support measures sooner rather than later. Unfortunately, circumstances dictate that he won't be able to do that quite yet. And we talked about UK guilt yields, borrowing costs and what have you. They're still well below one percent, even well, even below 0.5 percent. So they remain a very well anchor in December. The government borrowed thirty three point four billion pounds. With the economy locked down for most of January, as well as the rest of Q one. This figure is set to move well beyond three hundred billion dollars, three hundred billion dollars, three hundred billion pounds by year end. We will probably see another twenty billion pounds of borrowing for January. That's significantly lower than in December. January is also a big date for tax invoices and tax payments. So that could see that number for January actually come in at the lower end of expectations. So public sector borrowing likely to see another significant increase, though, not as much as December. So that's the UK data that we've got coming out. As I said, I've done quite a bit of talking on that, which brings me neatly on to the latest Federal Reserve minutes. I don't think we're going to see too much in the way of surprises. There, if we look at the way the dollar has behaved over the course of the past few days, we can see that we have we've seen a fairly decent sell off after we squeezed all the way back up to this series of peaks through here. So there is some element or expectation that we could see further dollar strength. But at the moment, we are struggling on that basis. And that dollar weakness that we saw helped pull Euro dollar back up towards back up towards one twenty one fifty. That's negating my lower euro scenario in the short term. I'm still in the opinion that the dollar is probably going to start edging back up again. But the time being, it can't really make up its mind. And that is a bit of a that is a bit of a concern. But nonetheless, we've got a bit of a messy consolidation going on here with decent resistance in and around this sort of nine sixty area. So I'll be paying close attention to that over the course of the next few days. With respect to dollar yen. We've pulled back lower off the two hundred day moving average. So that's likely to be a key barrier going forward. But in terms of the strength of the dollar, the fact that dollar yen hasn't broken this uptrend line leads me to believe that the dollar will ultimately continue to edge higher. And that's why I'm not ready to throw in the towel on my euro dollar opinion that we go back towards one twenty. Dollar yen is still looking fairly resilient. And on that basis, while we're above this uptrend line here, I still remain fairly comfortable with the idea that the dollar is going to go higher with the exception of against the pound, where I think the pound is probably more room to move higher against the dollar. And the reasons for that pretty much well known in terms of the fact that the economic outlook is probably slightly brighter for the UK because of the much better adaptability that the UK has when it comes to its own fiscal policy, its own fiscal support and its monetary policy support. That is the case in Europe. So lower euro sterling pound could well go back to one forty. I'll be interested to see whether or not it gets much beyond that. If the dollar can continues to remain fairly resilient. Anyway, I'm digressing slightly. I was talking about FOMC. Recent comments from Jay Powell have suggested that the feds in no hurry to go anywhere. So I will be surprised if there is any surprise whatsoever about this week's Fed minutes. But Chief Jay Powell, as along with Vice Chair, Richard Clarider has clamped down on the messaging that came out at the beginning of the year that the Fed might look at tapering its bond purchase programs slightly earlier than expected. He's still been very dovish when it comes to the US economy. He's continued to make the point that it's very, very fragile. And on that basis, then I think it's highly unlikely that we'll get any hawkish surprises from this particular meeting. And even if we do get anything mildly hawkish, given where US Treasury yields are right now, I would suggest that much of that is probably already in the price when it comes to US bond markets. We've also got US retail sales for January. They're coming out on the 17th. Unlike the UK economy, the US economy hasn't been locked down. If anything, we've seen a modest loosening of restrictions in places like California, which would suggest that after a week in November and December for the US consumer, you could we'll see a bit of a bounce back in January. If we look back at November and December, when it comes to US retail sales, we saw declines of 1.1 and 0.7 percent. Since then, the economic data has picked up quite sharply helped in some part by the new $900 billion stimulus plan that was agreed at the end of last year and expectations over another $1.9 trillion over the course of the rest of this quarter. So this is likely to translate into a rebound in consumer spending, consumer confidence and expectations are for a 0.8 percent rise in US retail sales for January, which could extend into February and March. So if we quickly look at this week's key markets, we've talked about the fact that the S&P made more record highs this week. We look at this chart here. We can see that here. What we can also see is in the last four days, even though we've made modest record highs, we haven't really gone anywhere. There's been an awful lot of uncertainty about the overall direction travel. We're sort of just trading sideways. So while there's been a record breaking week, we certainly haven't seen any significant amount of what I would call direction or volatility. Same applies to the German DAX here. Again, record high on Monday. Since then, we've drifted back a little bit. It's really struggling to really gain a foothold above this 14,000, 14,100 level. And we really do need to gain a foothold above that to suggest progress on gains going forward. When it comes to the Nikkei, it's very much the line of least resistance here. We can see that since the breakout that we saw at the end of last year, we've pretty much gone one way. With the next target for me, that 30,000 area, it's really psychologically important. And I think the market investors will want to go in that direction. So 30,000 remains the next key level. It's also important to remember with Chinese New Year, the Asia markets are probably likely to be less liquid than they would normally be. They'll probably be a little bit more subdued. So those are the key markets there. In terms of numbers that I'm keeping an eye out for this week, UK banks, NatWest Group, Barclays. Let's look at NatWest because of all the big four, we've seen a significant rebound in that Westshire price over the course of the past quarter. It's been a bit of a rollercoaster start for new CEO, Alison Rose. She's rebadged the bank from RBS to NatWest and she's done a fairly decent job of giving the bank a nice makeover. But not before we made new record lows back in September since then the share price has almost doubled. But ultimately, while she's given the bank a makeover, given it, given the paintwork, a bit of a buff up, unless you fix what's under the bonnet, you're still left with the same old banger underneath. So for me, it's really about how she continues to navigate the restructuring of the bank going forward and how the bank is able to help the UK economy over what is going to be a very, very difficult next two to three years. Now, the past 12 months has been one of damaged limitation with the concerns about Brexit deal. The pandemic, all of the problems that's brought about and the amount in the amount in impairments the bank has set aside, loan loss provisions. NatWest expects full impairments of between three and a half and four and a half billion pounds. It'll be interesting to see how that figure or whether that figure has changed with the new lockdown restrictions that were brought in at the beginning of this month because I think in Q3, at the end of Q3, the expectation was all things being equal, the annual impairments will probably come in between that amount. If they get adjusted up and there's a good possibility that they might, that could well act as a headwind going forward. What we can see from this chart here, there's decent areas of support in and around 145, 146. On the plus side, higher bond yields and a steeper yield curve is likely to improve its net interest margin, which is the lowest, which is one of the lowest in the UK banking sector at 1.65%. So looking for any extra provision for non-performing loans, but also looking for an increase in its net interest margins. If we get positive news on both, then we could potentially see a move back through and above 180p here. And the last time it was there, it was in the 2nd of March. So we're pretty much, we're very, very close to 11 months, one year highs. The big question now is whether or not NatWest full year numbers can continue. What has generally been a very good news story since the lows back in September? So that's NatWest, Barclays. Also got Barclays full year numbers. Again, this chart here, you may have noticed on the NatWest chart, this was overbought and so is Barclays. And we found a decent area of resistance just below 160p. So what's the story with Barclays? Well, you know, it's been a difficult 12 months of banks in general. You saw the fact that the NatWest's share price hit a record low. Barclays has been able to ride out the trials and tribulations of the last 12 months, probably better than most overall performance since the beginning of 2020 has been disappointing. Having said that, Barclays has been the best performer amongst the big four banks, currently down over 15 percent where it finished 2019. So the recovery of the March lows has been a bit of a slower one. And certainly when Barclays made its lows there, NatWest was all the way down here. So certainly in terms of the sell-off or the slow decline from the June highs to the September lows, it certainly was much more muted than, say, for example, NatWest. And since then, we've seen a fairly decent recovery. So for me, it's the same story, non-performing loans. How much does Barclays set aside? Year-to-date so far, it's around about 4.3 billion pounds. So big question for me will be, is how much extra do they set aside with respect to non-performing loans, net interest margins? More importantly, unlike NatWest, Barclays has a very big investment bank. Does Barclays follow in the footsteps of its US peers and have its investment bank drive profits higher? Or does it fall short in the way that some banks in Europe's investment banking operations have fallen short? So US deepening of the yield curve should be positive for Barclays. Investment banking, hopefully, is going to be positive for Barclays. If it is, we should hold this uptrend line here, head towards 160 and head up towards 180. And if they are decent numbers, you could get some talk about look at reinstating the dividend. So that's Barclays. Those numbers are due out on the 18th of February. NatWest's groups is out on the 19th of February. The one remaining item I'm keeping an eye out for this week, Walmart. Walmart has been one of the key US retailers taking the fight to Amazon. You can see it here from this chart here. I would imagine it's probably the US equivalent of Tesco's, if you like. So it's pretty much everything that you want. It's hit record highs. It's taken the fight to Amazon when it comes to e-commerce, the increased e-commerce sales by 74% in Q1 in terms of free cash flow year to date. The business has seen an increase of $9.7 billion to $16.4 billion from the previous year. So free cash flow has almost doubled for Walmart, despite the fact that their costs have gone up and they've employed in excess of 500,000 extra people this year alone to deal with the pandemic. It's obviously managed to sell it as their operation in the UK. So it's drawn a line under that and it recently acquired Ribbit Capital in an attempt to get into the FinTech space. Now, Ribbit Capital owns Robinhood or has a stake in Robinhood. So it seems to me that Walmart might be want to go into the FinTech space. Profits are expected to come in and around $1.50 a share. With respect to key support area on here, we've got fairly decent support in and around $140. You can probably draw a line through these series of loads through here. So I'll quickly just do that for you. There we go. Probably not so much. Let me draw a line through there. But ultimately, what we've got here is a session of high lows and higher highs starting to run out a little bit of a momentum. So the only way I would be a bit concerned that we may have reached a short term top for Walmart is if we drop below that low there, which is around about 1.37. So keep an eye on that particular support level when the numbers come out on the 18th of February. OK, I think I've rambled on enough. One thing I would have a quick look at is Brent crude. Let's continue to defy gravity. And I think that's another reason why we've seen a big rise in inflation expectations, the big rise in crude prices is at some point going to feed through into fuel prices at the pump and could actually act as a bit of a break on consumer spending if they are allowed to continue to rise at the rate they have been. So that's one other thing to keep an eye out for going forward. What we want to see with crude prices is for them to start coming back down again. Because ultimately, I think there will come a time that they could start to cause more harm than good. Anyway, that's it for this week, ladies and gentlemen. I hope you all have a great weekend. And in the meantime, I'd like to wish you all a very good restful and enjoyable weekend. Thank you very much for listening. It's Michael Houston talking to you from CMC Markets.