 Good morning. Welcome to CMC Markets on Friday the 22nd of January and this quick look at the week ahead beginning the 25th of January. I think it's been notable this week that we've seen a little bit of a change in mood when it comes to the optimism that we saw at the beginning of this year. Equity markets are looking soft once again. They had a very weekend to the end of last week. It looks like we're probably going to see a similarly weekend as I say a weekend to this week as well and I think a large part of the reason for that is that the optimism that we saw at the beginning of the year was pretty much predicated on the fact that we might see a reopening of the economies in the second quarter of this year at the latest. Now given the direction of travel when it comes to hospitalizations and death rates that calculus has shifted quite significantly over the course of the past two weeks whereby you've now got European leaders mulling the idea of tighter restrictions. We've already seen here in the UK that the Scottish government has extended its lockdown into the middle of February. We've heard that French government and the German governments mulling the idea of much tighter restrictions heading into March and earlier this week we had reports that the French government on its most optimistic scenario was mulling the prospect that bars and restaurants wouldn't reopen before Easter. Well Easter is around about the fourth or fifth of April so if in your best case scenario you're not going to open your bars and restaurants until Easter what's your worst case scenario? It potentially means that any economic reopening is probably not going to happen much before the end of the second quarter of this year potentially the beginning of the third quarter. Obviously in Europe as well vaccine rollout program has been fraught with problems unlike here in the UK where the government has actually performed quite well in terms of managing the vaccine rollout program. Certainly I think it's in stark contrast to its management of the pandemic as a whole. There is increasing pressure now being brought to bear on Chancellor of the Exchequer Rishi Suneck to extend the job retention scheme into July currently it ends in April when we've looked at this week's flash PMIs out of the UK 38.8 you can see it right there on this chart here 38.8 that is obviously a very disappointing number but it all together it's probably not surprising given the fact the UK economy didn't really reopen after Christmas it was locked down pretty much from the 6th of January and is likely to remain locked down for the foreseeable future and one of the things that has struck me this week is even though the seven-day average of positive cases coronavirus is coming down the death rate still remains very very high well above 1200 a day having peaked at 1800 deaths in a single day earlier this week. So while the infection rate is coming down hospitalizations are still going up the NHS is under pressure like never before and I think the government will probably want to make sure that not only our infection rates coming down but hospitalizations are coming down to try and ease the pressure on the healthcare staff who are probably really really suffering quite badly as a result of this pandemic in terms of trying to keep people alive. So that I think is the lens that we have to look at the declines that we've seen over the course of the past two weeks contrasting with the early year optimism that we saw in the first week. So if we look at the C100 we can see that over the course of the past couple of weeks since the 7th of January we've slowly started to fall back but what I think is significant about this decline is thus far we've managed to hold above the 50-day moving average and more importantly we're above these previous series of peaks through here. So there's certainly potential for us to fall a little bit further I think some of the froth needs to come off the market. I think while we have also have a new president of the United States in place now rather than basically being president in the next two months I mean whoever thought it was a good idea to have a US election in November and then have to wait two months before he takes office. I mean I think the US really needs to look at that I mean that's just a ridiculous state of affairs because essentially you've got a lame duck president for two months before the new man takes over. And what you've got at the moment is a little bit of divergence between European markets and US markets because US markets still look very very frothy. We've still got the prospect of a $1.9 trillion stimulus deal. I certainly don't think that is as nailed on as markets may be thinking. I think there's probably going to be quite a bit of horse trading going on certainly President Biden has laid out his stall already with over 10 executive orders unwinding some of President Trump's some of President Trump's more controversial policy shall we say but certainly in the context of how the US deals with the virus they're going to be very they're going to be an awful lot more stringent when it comes to restrictions and the like and that could well act as a little bit of a break on the US economy going forward and more importantly all of the gains that we've seen in the NASDAQ and the S&P 500 do appear on the optimistic side we can see that from this this this nice little chart here that I've got in front of me and this is the NASDAQ the NASDAQ has continued to make new record highs driven largely by the big tech stocks the likes of Apple Amazon Alphabet Facebook Netflix earlier this week posted some really bumper numbers in my weekend last week I suggested that they might they might outperform and they certainly have done but and there's a huge but to this particular one the US tech sector is probably the most vulnerable to tighter regulation on the part of the new Democrat administration so this move higher in the NASDAQ while making a little bit of sense I would suggest is probably the most vulnerable because I think US investors are still got their rose tinted glasses on when it comes to valuations now at the moment we are still in an uptrend so you really can't buck the market the 50 day moving average is looking fairly positive you've got higher highs and higher lows and while we're in that sort of mindset you still have to be in buy the dip mode but there will be a reckoning and I think some of the earnings reports that are likely to come out over the course of the next two weeks starting with Apple on the 27th are likely to be instructive when it comes to the overall outlook when it comes to consumer spending now I'll have a look at them in a minute obviously we look at the NASDAQ very much buy the dip very much in an uptrend so you don't really want to be looking to try and pick the top in that nonetheless I think there is I think there is scope for a little bit of a correction over the course of the next few days and I certainly think in terms of the S&P there is potential for us to come back down here certainly if you certainly if we continue to see this type of daily candle on this daily chart here this has the makings of a potential reversal here ultimately I think the big support on the S&P at the moment is around about 3745 3740 there are there abouts if we break below there then we could well see a significant move lower I think given the fact we made another record high you could argue that the earnings announcements that are due out over the course of the next couple of weeks are likely to reinforce the move higher I would potentially argue the opposite because I think earnings expectations are probably a little bit too optimistic and Apple in particular I think could well disappoint given the tough comparatives and I'll come to that in a minute for the here and now there is potential for us to come back lower on the S&P through 3800 and this this level through here back towards the overall trend line here there is some evidence that equity markets are struggling a little bit at these sorts of levels irrespective of what your overall mentality is it's a similar sort of story with the the DAX as well here we have tried to go higher I think there is potential for us to drift back down again tools around about 13600 but the overriding sentiment still remains very much by the dip but for me I think it's really about trying to manage your entry and exit points going forward and at the moment I think there is a good chance that we could drift lower before we head higher again so in terms of European markets valuations are an awful lot cheaper in terms of US markets I'm very very nervous at current levels about being aggressively long stocks because I certainly think that in terms of the new US administration there's probably an awful lot more frost to get blown off tech stocks than there is anywhere else so I'll be keeping on those over the course of the next few days in terms of what's coming up one of the things that we have seen over the course of the past few weeks is is the dology or rebound well it bottomed out in and around the Sixer Jan which coincidentally was round about the same time that equity markets or European equity markets I should say topped out obviously you can't level that you can't make that same assumption about US markets because US markets have continued to go from strength to strength but they seem to operate in a paradigm in a bubble all by themselves in terms of the dollar where do we go from here well at the moment we're still in a downtrend now you can argue potentially that there is the beginnings of a potential reversal forming here where you've got let me just blow that up for you so you can actually see what I'm driving at there is potential and I say there is potential for a potential bottom here you've got a left shoulder there you've got a head there and the right shoulder is forming here you've also got this downtrend line all the way from the peaks that we saw last March I've heard all manner of stories about the demise of the dollar how you know the the euro or the Chinese rim nimby is going to replace it as the number one reserve currency please spare me okay the US dollar is not going anywhere you're in the middle of a global pandemic ultimately it will continue to remain the number one reserve currency to quite some time to come the rim nimby is not freely floated and the euro don't even get me started it's not even a proper currency in terms of the fact that it doesn't have a single treasury and until it does then it's going to be very unlikely to be able to get anywhere close to the dollar when it comes to be a really number one global reserve currency so at the moment what we've got here is potential for the dollar to rebound and come all the way back to 960 and potentially this line here that would complete a potential head and shoulders reversal we're not there yet and there is just an there is an even more significant chance this downtrend could continue so this is just a pattern that I'm keeping my eye out for and being aware of in case we get a break higher but it won't become a pattern until we get confirmation and confirmation is key when it comes to reversal patterns head and shoulders double tops triple tops double bottoms triple bottoms and what have your inverse head and shoulders as this one would be they all need confirmation so it's about biding your time and trading what you see and at the moment we're still in very much sell the rally dollar mode and we'll continue to be so until we break that downtrend line but we also need to be aware of a potential for a reversal so let's look at the US dollar in the round because we've got a Fed meeting on the 27th of this month and I think one of the key things that I'll be keeping a close eye out for at this particular meeting is the tone because at its last central bank meeting of 2020 the Federal Reserve was slightly more upbeat about the US economic outlook it improved its 2020 GDP forecast to a 2.4 percent contraction and it upgraded its 2021 forecast to 4.2 percent from 4 percent the FOMC was also more optimistic about the unemployment rate forecasting it to 4 by 5 percent by the end of this year now these more positive outlooks didn't exactly chime with the near-term outlook you know and I think this is the key question that needs to be addressed the central bank has committed to keep buying bonds at the rate of at least 120 billion dollars a month until substantial progress has been made in respect of the economic recovery now this tone changed a little bit at the beginning of the year when you had these concerns about the reflation trade and US 10-year treasury yields popped up above 1 percent the 10-year yield is still above 1 percent it's backed off its highs of 118 but it is still above 1 percent now this this change of tack has helped steepen the curve in terms of the two-year five-year and 10-year meal curve but what it hasn't done I don't think is change people's concerns that maybe inflation is starting to build up in the system and could well be coming towards the end of this year now Jay Powell and Richard Clarida the vice chair have stamped down on this these concerns and that has prompted yields to come back lower but if you look at five-year five-year inflation expectations in the US they were higher at the end of last year than they were the previous year and they're higher now than they were at the end of last year so bond markets are trying to tell us something and even though the economic data still looks very weak and the services sector is on its knees in Europe and also the US will say on its knees it's relative but certainly the services sector is struggling personal spending is struggling retail sales are struggling the bond data is trying to tell us something so we cannot completely ignore it so the big I think the big the big takeaway for me we're at this week's Fed meeting or this coming week's Fed meeting will be how officials try and tread that line between being overly dovish but also not too pessimistic because you don't want to create the very concerns that you're trying to you want to try and keep some optimism on the table so without obviously sending bond yields back up again so that for me I think it'll be more a case of tone what does Jay Powell say about inflation expectations about the Fed's intentions going forward there's no surprise that the guidance will be we're going to keep rates lower until 2024 but I don't think the markets really believe that now and it's how the it's how the Fed navigates that I think that will be key to the direction of the dollar going forward we've also got US fourth quarter GDP coming out on the 28th and we've got personal spending data coming out on the 29th and it's the personal spending and retail day retail sales data that I'm going to be most interested in when it comes to the overall health of the US economy as well as the consumer confidence numbers we've seen retail sales in the US slip back quite significantly over the course of the past couple of months and I think a large part of the reason for the slow down was obviously the uncertainty about a new fiscal stimulus program we've now seen the potential we've already seen one new fiscal stimulus program announced at the end of last year beginning of this year and we've got the potential for another $1.9 trillion of fiscal stimulus coming down the pipe with an extra $2,000 of stimulus checks for US households coming down the pipe of course they still need to be delivered and I think that's the key concern so in terms of US personal spending for December you know I really can't see too much of a I'm not too optimistic about a recovery when it comes to that going forward and this week's fourth quarter GDP numbers are likely to be weaker for pretty much the same reason personal consumption was one of the key drivers behind the Q3 rebound it's likely to be one of the key drivers between the week as a result of a weak queue for reading now expectations for US fourth quarter GDP it's likely to come in for an annualized number of around about 4.3 percent so a very very modest rise which will be a sharp slowdown from the 33.4 that we saw in Q3 so you know we do need to be very very aware that the data that we're going to be seeing it's probably not going to be particularly market moving and it's also going to be it's also going to be very very weak so consumer confidence expecting that to come in on the weak side of things 88.6 maybe even lower than that in January and personal spending is expected to come in at a minus 0.6 as well so in terms of the Fed got US consumer confidence US fourth quarter GDP and US December personal spending in terms of the pound we continue to see fairly decent gains in the value of the pound that was of course the past few days a large part of that I think is down to stimuli not the stimulus the vaccine program the UK is pretty much way out in front when it comes to the vaccine program and I think that's fueling optimism that if any economy is going to come out of the various states of lockdown restrictions early it will be the UK one though that is obviously being played down by the UK government now we have seen this is a weekly chart that we're looking at here so it's important to remember we did see a little bit of a pop above 137.13 137.15 but what's interesting about this particular move is we haven't been able to sustain the move above 137.20 and that is likely to keep the pressure on the downside for us to make further gains and really head back towards this sort of 140 area we really do need to clear this very key resistance level here and as you can see from previous history it has been a fairly decent area of support and it's also a Fibonacci retracement level so I'm paying particular attention to this level it's a very very key arbiter for me in terms of the move to 140 and at the moment we don't look as if we're going to get there yet I still think we will I still think we will get a move to 140 but it could be slightly more difficult to get there then maybe perhaps we originally envisaged and we've also got the unknown of what the UK government's next fiscal measures are likely to be we're already getting an awful lot of uncertainty that there may be some tax rises in the March budget personally I think that sort of speculation is fiscally you know people can talk about fiscal responsibility because the cows come home and there is certainly is a place for fiscal responsibility but in the middle of a pandemic it's fiscal stupidity ultimately talking about tax rises when UK businesses are on their knees it's absolute nonsense and we really need to get out of this mindset at the moment that while we're well while the UK government's borrowing all this money we have to think about paying it back no we don't we don't not yet once we're out of the pandemic then we can start thinking about paying it back we've already seen this week that demand for long-term government debt is very very high the French government issued a 50-year bond earlier this week and it's for seven billion euros and there was demand of 59 billion euros for a 50-year bond five zero so if the UK government plays its cards right then it can borrow very very long term over the course of the next 30 40 50 years 30 year treasury yields are less than 1 percent they're not 0.9 percent you know we're not talking an awful lot of money here they can start thinking about long term longer term maturities quite soon now what we've seen over the course of the past few days is Euro sterling tried to break through that ADA 60 level we can see that here we've seen a sharp pullback on the back of that very weak services PMI data that we saw earlier today I mean it's not a surprise right the UK you know the UK economy is very serious services geared it's not a surprise that we saw a collapse in activity in January given that most of the economy has been shut down apart from manufacturing maybe there's an awful lot of sterling long positions out there certainly selling the break of that low is on a technical basis the smart trade to make and I would suggest that we've got series of stop losses now kicking in there's all those short positions got taken out which means the next key resistance level on this is 89 30 so we may have to wait a little bit longer before we see further sterling gains against the euro as this squeeze could well take us all the way back to 89 80 or 90 as those sterling long positions get squeezed out but nonetheless it's not just the UK economy that's going to have difficulties over the course of the next three months now as I indicated earlier France it's not reopening its bars or restaurants until April so there's not going to be a strong rebound there either so we're not unique in that so at the moment I'm still very much a buyer of sterling on dips despite the fact that we've seen a little bit of a false break in this euro sterling chart here we've got UK unemployment data out also this week it's not really going to tell us anything we're expecting to move up from 4.9 percent level seen in October to 5.1 percent in November and that's obviously a three month average it will be the first it will be the first time that the UK unemployment level has moved above 5 percent for the first time since April 2016 prior to the Brexit vote and I think one of the reasons why unemployment probably hasn't risen as much as maybe we thought that it might is because an awful lot of workers who work in the hospitality sector are foreign born and rather than staying in the UK they've probably gone back home so that would have kept the not only the claimant count down but also the headline unemployment rate down as well so UK unemployment that's due out on the 26th along with the latest wages numbers but certainly the outlook for sterling for me hasn't changed that much I'm still very much a buyer on dips for cable so those are the key economic announcements over the course of the next week or so now let's move on to headline earnings because we've got a whole host now we've got the banks out of the way US banks and by and large they've been fairly positive a lot of the US banks have moved some of their provisions back out of reserve and added them back into their profits which has helped boost their numbers personally I think that's I think that's probably a little bit premature because I certainly don't think we're out of the woods when it comes to non-performing loans either here in the UK or anywhere else for that matter but certainly in terms of the banks we now move on to tech and I'm going to focus on we'll focus on three we've got Boeing's fourth quarter numbers we've got American Airlines fourth quarter numbers next week but the ones that I'm particularly interested in are Apple Tesla and Facebook so I'm going to start with Apple because it's a favorite of mine and as we can see from this chart here we'll we're back to retesting those peaks that we saw back at back at the end of last year and also in the middle of the summer around about 137.90 138 so I think one of the main characteristics of last year was the fragmented nature of the rollout of Apple's new products ahead of what traditionally tends to be its best quarter when it comes to sales and revenues and these are Apple's first quarter numbers an awful lot of companies it's their fourth quarter numbers but these are this is Apple's first quarter numbers now the Thanksgiving and Christmas quarter tends to be the one that generates the most when it comes to product enthusiasm and upgrades and we did get announcements in September of new upgrades with a new iPad an Apple One subscription bundle in what looks like an attempt to take on Amazon Prime and a new Apple Watch 6 with a fitness bundle which looks like an attempt by Apple to tap into the fitness market which Peloton currently has so that then a month later we had the new iPhone 12 which to my mind was a little underwhelming yeah we did get the long-awaited 5G model you know four new ones and over the last 12 months we've seen Apple services revenues grow to the point where they make up a great greater proportion of its overall revenue however it's still at heart a hardware provider and lesser services provider yes it is making greater inroads into services but while Apple TV is expected to see some gains against the likes of Netflix we reported earlier this week and who blew out the lights when it comes when it came to their subscriber numbers 203.7 million subscribers worldwide Amazon Prime Disney Plus it is hardware sales that really drive Apple's revenues going forward now last year the company posted record revenue and income for Q1 at $91.8 billion for revenue and $22.2 billion for income now the company hasn't provided any guidance at all for its first quarter I'll be very surprised if they get anywhere near close to those sorts of numbers at this first quarter update given concerns about consumer spending not only here in Europe the UK but also in the US yes China is doing very very well but even in China retail sales growth is still well below the levels it was at the end of 2019 so we could see Apple disappoint this week profits are expected to come in and around about $1.40 a share so pay particular attention to see whether or not these peaks here are remain intact or whether we get a sharp correction back towards 125 I'll be paying very close attention to this series of peaks through here and I'll be very surprised if Apple surprised to the upside and move higher on the back of that that's a big barrier just below 140 moving on we've also got Tesla another another fan favorite I mean look at this chart here I mean it's just unbelievable um you know I don't even know where to start with that I mean look at the distance between the price and the 200 day move in average that sort of move is not sustainable in the long term at some point the price will have to move back closer to the 200 day moving average now that can do it can do that one or two ways it can trade sideways and let the 200 day moving average catch up or it can correct lower you know obviously it can move an awful lot higher from here but ultimately that sort of move is not sustainable you know there's so much froth in the share price it's not funny and I know Tesla fanboys won't appreciate me saying this but at some point you are going to see a correction it's been an absolutely stellar year and a quarter for Tesla it's been admitted to the the S&P 500 it's got share price gains of over 600 percent from a year ago it's been a one-way ticket to the moon for shareholders it's got a market cap in excess of the entire automotive sector um you know it's almost like a cult when it comes to the direction of travel and obviously the renewables and electric cars story is a positive but Tesla absolutely is a positive Tesla but it still fell short of its annual target for the production of cars 500,000 cars fell just mine just minorly short there are 499,000 there's only a minor miss you know so to be fair it was only a minor miss because of the addition of the new Chinese factory which helped boost reduction capacity but it still doesn't make a profit from the sale of cars yet you know it has been profitable four quarters in a row that is true but on car sales alone the company is still losing money so with other stream with other mainstream automakers now making inroads into the electric vehicle market it can only be a matter of time in my opinion before Tesla's first mover advantage becomes much more difficult to maintain doesn't change the fact that it's an innovator doesn't change the fact that it's an iconic brand but even iconic brands have to come down to earth occasionally and have more realistic expectations about valuations so profits for Tesla are expected to come in around a dollar a share which is still not too shabby but the big question for me is are they making any money from the sale of motor vehicles and at the moment they're not so but of course I'm making the big mistake of trading on the basis of fundamentals rather than actually just trading on momentum and this pretty much what it's about when it comes to trading it's about momentum and at the moment momentum is positive for Tesla and the only way that I would revise that is if we quickly have another look at that is if we drop below the series of lows through here so if we drop back below 800 then we could see a sharp sell off so I'll be paying particular attention to the lows on the 11th of January and a move below there to signal a bit of a decline in the Tesla share price but at the moment things still look fairly positive now Facebook that saw a bit of a sell off at the beginning of last week end of last week at the end of last week when Facebook banned President Trump from its platform along with Twitter seen a bit of a rebound since then but it's very much a range trade you've got fairly decent support all the way through here around about 245 dollars but you've also got resistance in and around here now I think the key thing for me here is given some of the concerns that the US government or US lawmakers have about big tech Facebook could be in the far end line for much tighter regulation going forward so whatever the rights and wrongs of the decision to ban President Trump I think there is a wider concern the policymakers are becoming increasingly uncomfortable that the gripped social media companies have over the social and political discourse around the world and an increasingly polarized world the amplifiers of division which the social media's companies have you know are have seen increasing calls for them to be regulated on the grounds that they are purveyors of so-called fake news and inverted commas so advertisers have already started to pull back spending on social media sites in the past few weeks that that that particular move is probably more than likely to sharp in the next quarter rather than this particular quarter but it does speak to a direction of travel so while profits are expected to come in around about $3.20 the outlook for this sector is likely to be clouded in uncertainty until we get some clarity from the new US administration on what new steps might be taken to regulate a sector that has a very unhealthy grip on the discourse that takes place on its platforms WhatsApp also which is owned by Facebook is already changing its usage rules and data sharing and that in itself has caused a storm of protest and causing some migration to other messaging platforms like snap telegram and signal so in terms of Facebook I'm not a big fan personally I hate Facebook and I think if anything if we see and move back towards the highs that might be worth a little bit of a cheeky short position particularly if you look at it through the prism of increased regulation I think more than anything Facebook and Twitter are probably fairly vulnerable as are potentially alphabet and to a lesser extent Amazon let's look at that nice little trend line there that I've drawn in we may not even get that far but certainly momentum does appear to be starting to tail off a little bit for the likes of Facebook okay so that sort of neatly brings me up to the end of this particular webcast so slightly longer one than usual this morning sometimes I do have a tendency to procrastinate a little and I apologize for that certainly I think to sum up fairly big week for earnings tech earnings gets underway also got fed meeting also got us fourth quarter GDP got UK unemployment and obviously the direction of travel when it comes to the pandemic will also have a great bearing on where equity markets go from here but overall while we've seen a very much negative bias this week I think as the case rates start to come down then the markets will start to forward look a little bit more and hopefully that will put a flaw under equity markets so that's it for this week thanks very much for listening it's Michael Houston talking to you from CMC Markets