 Good morning. Welcome to CMC Markets on Friday the 20th of January and this quick look at the week ahead beginning the 23rd of January with me, Michael Houston. Well, we got off to a cracking start to the year. Equity Markets, the FTSE 100, retested or has got very close to the record highs, which was set back in 2018 and the DAX pushed back above 15,000. I think the bigger question is whether or not we can continue in this vein. Certainly this week we've seen a little bit of mild profit-taking, particularly in European markets. And consequently, I think that's got an awful lot of people asking the question as to whether or not we're now seeing a little bit of realism kick in. I think when you actually look at some of the earnings numbers that are coming out of the US, certainly I think in terms of the US, I talked last week about the fact that I preferred European markets over US markets, but particularly over on a valuation basis, very much so. And certainly I think what we have seen so far this year, particularly in Europe, has been how much of a rebound we've seen in travel and leisure stocks, companies like Whiz Air, whose shares have risen by up to 50% so far a year today. Even EasyJet has seen a really decent rebound over the course of the past couple of weeks. And I think that rebound will be tested as we look ahead towards the coming week when they release their latest numbers for Q1. Last year you may recall that EasyJet posted another annual loss, but I'm jumping slightly ahead. For the here and now, we pretty much are on course to see the first negative week for this year for European equity markets, but what has been also notable is that yields have also been falling as well. So we've seen some profit-taking kick in on equity markets. The FTSE 100 got to within touching distance of that 7,900 level and falling short by around about 20 or 30 points at 7870. The bigger question I think an awful lot of people are asking is whether or not we can take that level out and head towards 8,000. And you know, despite the fact that we are starting to see evidence of an economic slowdown, you know, why wouldn't you? Services inflation is still very sticky. You've still got an awful lot of towing and froing when it comes to whether or not the central banks will cut rates this year. I still maintain that is highly unlikely. Even as US bond markets are pricing in the potential for a rate cut later this year. And certainly I think in terms of how inflation expectations are falling, that is something that markets are increasingly pricing in. Now, whether or not that is credible or not is another matter, but certainly what we're seeing is the expectation that as inflation continues to fall, and it is particularly in the US, that discussion will continue to get airtime. Having said that, we've seen a couple of Fed policymakers this week. Patrick Harker of the Philadelphia Fed and Laurie Logan of the Dallas Fed argue for another step down in the Fed funds rate when the Fed meets in a couple of weeks time to 25 basis points. And Lyle Brainard has said who's Fed governor and who generally tends to lean very much towards the dovish side has also suggested that inflation is starting to have an impact on the US economy, albeit not the jobs market. Weekly jobless claims this week fell to the lowest level since September at 190,000. So certainly the US labor market is holding up fairly well, despite the fact that we've heard companies like Goldman Sachs announced job losses this week, Microsoft announced further job losses this week, as well as Amazon announced further job losses this week. So there are cracks starting to appear. But as you head into an economic slowdown, you're always going to get announcements of job losses, given the fact that all of these companies have hired aggressively over the course of the past three years. So modest job cuts of around 10,000, 18,000, they're fairly tiny in the context of the hundreds of thousands of employees or added headcount that they've added over the course of the past two or three years. And vacancy rates are still very high. So at the moment, the labor markets still remain fairly tight. So let's look at the FTSE 100 because I think if we look at this 7875 area, which was the previous high, we have seen a little bit of a pullback over the course of the past few days. I don't know why I put that in there. 7875. So we have seen a little bit of a pullback. But what is I think is particularly interesting is this was the previous highs from last year. So far, we've managed to hold above the highs that we saw back during last year around about 7689. We still have some way to go before we get back to the highs of May 2018, but certainly there is potential for that to continue to gain traction. What we've also seen is the DAX push higher as well. So we're seeing a modest pullback. So let's see what that looks like on a weekly candle. And we can see that over the course of the past few weeks, we've seen some really strong gains. So inevitably, you're going to see a little bit of profit taking. I think the key thing for me and the key warning sign for me is that we could see a deeper correction is if we break this support line here at 7689. If we do that, then we could drift all the way back towards this trend line from the lows that we saw back in October. But so far, so good. A modest correction is certainly by no means anything to be overly concerned about. We still remain very much in the uptrend that we've been in over the course of the past few weeks and months from the October lows. And for whatever reason, I've taken that trend line out. So I'm just going to add that back in. And there's that trend line there. Nice little line in there. So we can see again here with the DAX, we broke these previous highs in December around about 14,500. So again, in the case of the DAX, we could see a drift back down towards this support level here. But certainly in the short to medium term, I don't think there's any evidence that we've seen the peak for European equity markets. Having said that, if I'd said this, if I'd said that this time last year, I would have probably been hung out to dry a little bit. So it is interesting in the context of what happened last year, we saw an early rally from lows back in December, which we peaked in January, and then rolled over. So we do need to be cognizant of a potential turnaround. In terms of US equity markets, we still remain very much in the downtrend that we've been in pretty much since the highs last year. And thus far, even though we flirted with that trend line earlier this week, we haven't as yet broken above it. So certainly, I think further weakness in US equity markets could well act as a drag on a wider sentiment going forward. But again, the key level on the S&P is around about 3,780. And obviously, we're still well above the October lows of 3,500. Not so cut and dried when it comes to the NASDAQ 100. For some reason, I've lost the trend lines on that. Don't know why. So what I'm going to do is just going to make the font size bigger. There we go. Get rid of those active pointers. And then draw on the trend line from my favorite bar here. So taking that peak back in December, there we go all the way through there. That's quite nice. And then of course, we also have another trend line through here. So as I say, this is probably round about the horizontal line there, 10,400. For some reason, that line's not attached properly. So let's just readjust that. There we go. So again, with the NASDAQ, we do need to keep an eye on that support level in and around the lows back in December, but also the lows earlier this month. But given the fact that we've got the Federal Reserve coming up beginning of February, the ECB and the Bank of England, I think there is still scope for a little bit of a pullback, given that I think there is an awful lot of complacency amongst a certain cohort of investors that the US may be looking to cut rates sometime later this year. I think that's highly unlikely. I think rates are going to stay high for quite some time. And certainly, Leo Brainard's comments earlier this week would appear to support that. And I think markets are underestimating how quickly inflation can fall back. Let's not forget, central bank target for inflation is 2%. And even if we see another fall next week in USPCE, which is due out on the 27th, we are starting to see a sizable slowdown in personal spending. That is likely to act as a little bit of a drag on certainly demand and potentially act as a bit of a drag on prices. But if you look at USPCE called deflator, it is still at 4.7%. Yes, it has fallen back quite substantially in the last few months. But let's not forget the peak of that was around about 5.3%. And that was 12 months ago. So it's only come down 0.6% in the last 12 months. We could see a further fall in the December numbers to 4.4%. That will be the lowest level since October 2021. But, and it's important to reinforce this, it still will have a double the Fed's target for core PCE deflator, which is 2%. So, and I think there will be an awful lot of stickiness involved when it comes to getting that number down. If you think about it, we've only come down around about 0.3% in the last two or three months, in the last six months or so. So I think it's unlikely the Fed is going to start cutting rates if core PCE called deflator is still well north of 3.5%, 4%. And I think that's what markets are underestimating, despite the fact that we're seeing, we have seen bond yields, US 10 yields decline for three weeks, or what looks like could be three weeks in a row. So next week, we have got, we've got Bank of Canada rate decision that might give us a learning heads up as to whether or not the Bank of Canada is inclined to slow the pace of its rate-hiking cycle even further. You may recall the Bank of Canada was one of the first central banks, along with the RBA, to slow the pace of its rate hikes. And I think a large part of that was down to concern about how its housing market was reacting to the pace of the rate-hiking cycle. If we look at the Bank of Canada or the Canadian dollar, we can see that we're still very much in a range trade on that. If I can just tweak this trend line for you here, we can certainly see that there is some evidence of a support line through there. I'm just going to get rid of that because we don't need that anymore. But it does appear to be consolidating. If we draw a line through these peaks here, it does appear to be a triangular consolidation building out on dollar CAD. So I think when we look at the dollar CAD or the Bank of Canada, that could be a leading indicator for what the Federal Reserve might do. But even if they do go by 25 basis points as opposed to 50, I'm still slightly leaning towards 50. But now I'm starting to revise that a little bit given the fact that a number of Fed policy makers have broken ranks and arguing for the case of a 25, but it could be a hawkish 25. It could be, yeah, we're going to hike rates by 25 basis points. We want to get the terminal rate above 5% of the moment. It's 4.5. We want to get the terminal rate above 5%. But we might do it gradually. There are some on the FOMC who want to do it as quickly as possible, like James Bullard of the St Louis Fed. He's not a voting member this year. Patrick Harker and Laurie Logan are. And consequently, they could well steer the Fed towards a slightly slower pace. But you've got the likes of Jay Powell, who's a hawk, who's probably going to lean towards 50. So I think there is starting to become a little bit of divergence of opinions on the FOMC. So it'll be very interesting to see how next week's numbers play out. We've also got fourth quarter GDP from the U.S., the first iteration of that. That's likely, we're expecting a modest slide from the 3.2 that we saw in Q3, coming in something in the region around about 2.4, 2.5. Though with some signs in recent months, the consumer spending is slowing, that might miss slightly to the downside. But we are still nonetheless expecting a positive number on U.S. fourth quarter GDP. So out of the U.S., the North America, we've got fourth quarter GDP, personal spending, PCE, and the Bank of Canada rate decision. In terms of the earnings, it's probably going to be slightly more interesting. Obviously, we've seen Netflix, Goldman Sachs, and Morgan Stanley over the course of the past week or so to name, but notable three ones. Goldmans was disappointing, Morgan Stanley was slightly better than expected. And Netflix actually posted a very decent subscriber numbers, well above expectations of 4.5 million, coming in at 7.6 million new subscribers to a new record of around about 29.7 million subscribers. A lot higher than that. Anyway, so fairly decent numbers from Netflix. Revenues, probably a little bit on the low side when you actually consider that they added such a big jump in subscriber numbers. One thing I would say is they are cash flow positive, and they are making a profit from their streaming operation, unlike an awful lot of other people. But 230.75 million subscribers, an increase of 4% year on year, with 3.2 million coming from the Europe, Middle East and emerging market regions. So that's certainly a positive outcome when you consider what Netflix share price did and has done over the course of the past 24 months, still 50% down from its peaks, but seeing a fairly decent rally off the lows back in May of around about 70, 75%. So the big question is whether or not they can sustain that. Moving forward, I've got Tesla and Microsoft, I've picked two, we've also got EasyJet. So I'm going to start with EasyJet because I think given the rally that we've seen thus far this year, it'll be very interesting to see whether or not EasyJet can sustain that momentum at a time when consumer incomes are feeling stretched. But one of the things that came out from the Q3, the November GDP number that we saw last week was that spending on travel and leisure saw a big uptick in November. The big question is whether or not that continues into December and whether or not EasyJet is able to return to profitability. Unlike Ryanair, which is blowing the doors off when it comes to profitability. EasyJet has had problems of its own over the course of the past six to 12 months, logistical problems at Gatwick Airport and other UK airports. It has said it's taking steps to build resilience in order that the problems that it encountered in the summer of 2022 aren't repeated in the summer of 2023. So it'll be interesting to see whether or not this week's Q1 numbers act as a decent bellwether as to whether EasyJet is on track to deliver on an improvement when it comes to load factors, but also how well its EasyJet holidays operation is doing as well. The airline said it expects to fly around 38 million seats in the first half of this year, which is a 25% increase year on year and 56 million seats in the second half of the year, a 9% increase. EasyJet holidays expected to add to the bottom line with a target 30% growth. So I think the key level for me here, now that we've broken over the 200-day moving average and broken out of that downward spiral is whether or not we can sustain that move and retest and break above the highs that we saw back in June. So keep an eye out for EasyJet on the 25th of January. We've also got associated British foods, particularly Primark. We've seen a really decent rally in those shares over the course of the past few weeks since the October lows. Primark business has been doing very, very well and what we have seen is I think there is an element of the fact that we've come a hell of a long way when you look at how far these shares have fallen and potentially I think there is a case to argue that perhaps they've fallen too far. Certainly that's reflected in the rebound that we've seen thus far. Big question is again, as in the case of EasyJet, we're breaking above the 200-day moving average. Momentum is starting to turn positive and ultimately an awful lot of the bad news. Could it already be priced in? So associated British foods, their numbers are out on the 24th of January. So will they continue in the vein of next JD sports? And Fraser's group who posts some fairly decent gains so far this year and whose trading statements have generally pointed towards the positive side. Now Tesla is obviously the big one in terms of US earnings and we can certainly see in this price chart here how far the shares have fallen from their peaks in November last November 2021. Fallen below that key support level around about 200. We're finding a little bit of support at around just above $100. I have written a piece on the CMC website on whether or not I think the Tesla bubble has burst. It really depends I think on which side of the fence you sit when it comes to Tesla but I think with a valuation of $350 billion when set against the likes of Ford, Volkswagen and Toyota. So they've got a market cap that basically is above all of them whether or not you think that is credible. So you can find that there has the bubble burst for Tesla. Are the share prices if I can get my words out? It's the share price vulnerable to further declines on a break below $100. So I make the case that it could be at the moment it is looking a little bit overbought. It could edge all the way back to $160 but there is a concern that maybe its best days are behind it when it comes to share price moves. Certainly in terms of the number of cars itself hit a record in Q4, 405,278, 40% increase year on year but the biggest concern I have is having cut prices. It's cut prices by 20% in China. It's cut prices twice in China. It's cutting prices now in the US and it's cutting prices in Europe. So margins are going to be lower. The big question is by how much? I think it was notable that the costs of raw materials are going up quite significantly and likely to continue to do so now that you've got the players, the major players like Toyota, Volkswagen, all the major car makers are getting into electric cars so demand for raw materials is going to skyrocket which means costs are going to go up. At the Q3 sales call Musk said that lithium prices are proving to be crazy expensive although he did say that other cost pressures were easing and of course one other concern is that the economics of owning an electric car becoming less compelling due to higher electricity prices. So the big question for me is not so much about the fact that Tesla is probably going to sell more cars than it has done previously. It's also having to build new capacity which again is a high cost, build new factories whereas existing car makers simply have to retall their existing ones. They don't have to build new premises. So Tesla has some major challenges on its hands. They never underestimate Elon Musk. He can certainly confound the skeptics but the big concern I think is that maybe the valuation has further to fall. Then we've got Microsoft. Microsoft announced further job losses this year, 10,000. Its Q2 numbers are coming out this week. When it was reporting back in Q1 on its guidance, Microsoft was pessimistic predicting that weaker PC Deban could see a 30% decline in Windows revenue in Q2. So that's what we're looking at for this week's Q2 numbers. Windows revenue, gaming revenue. The company has announced the loss of 10,000 jobs this week. The company is also facing challenges to its acquisition of Activision over competition concerns with regulators not only in the US but the EU and the UK all looking at the deal. Now, profits are still expected to come in at a fairly healthy $2.30 a share, but I think in this case Q3 guidance is likely to be key. And certainly when we look at this chart, the lows are getting higher and the big question now is whether or not we see a retest of these lows that we saw back in October. It's interesting how closely correlated Microsoft shares are with the NASDAQ 100. So that's that. I'm going to finish off now with a quick look at currencies, euro, dollar. It's finding a little bit of a resistance up and around the 109 area. It's finding that a little bit of a tough nut to crack, but it's finding decent support of 107.5. So there's a little bit of a range trade going on there. It's also interesting that it's retesting this neckline from this breakout when I targeted the move below parity in April last year. We have obviously found some fairly decent support of 95. We are now looking to retest this neckline. And the big question is whether we can actually break above 109, 40, 109.50, which is also a 50% retracement of this entire down move from the peaks we saw back in January 2021. So euro, dollar is at the moment trying to push through. I'll push up to that 50% area that I highlighted on the weekly chart there. This is a daily. So we're approaching a fairly key level on euro, dollar between 109 and 109.50. Cable. Cable has proved to be remarkably resilient, but what's interesting I think with respect to cable is we weren't able to retake the December peaks of 124.50. We retested them, but we need to get through them. What is slightly more positive is that momentum on the 50-day moving average is turning positive. We've crossed above the 200-day moving average. A lot of people would say that's a golden cross. It is and it isn't. It isn't because the 200-day moving average is still falling. And for a proper golden cross, you want to see both of these moving averages turning higher. The 200-day, in this case, is still falling, which means we could so well see a little bit of a pullback in cable back towards these loads of around about 121.70 in the short to medium term. But certainly in terms of the dollar, I do think we've peaked. The bigger question is how best to play that? Certainly I think dollar yen has quite some way to go when it comes to looking at the overall picture when looking at the potential for a lower dollar. Looking at what the Bank of Japan pushed back on this week with respect to its yield curve control, it may have just delayed the inevitable move lower in dollar yen. But certainly I think what we're seeing with respect to this chart is the next target for dollar yen is the 50% retracement of this entire up move here. So decent support around about 126.50. If we do get a squeeze, it was notable that on the Bank of Japan pushback, we got a squeeze back to around about 131.50. We certainly didn't get anywhere close to the previous peaks of 134.50. Moving averages, golden death cross here. Again, we are now starting to roll over on the 200 days. So momentum has definitely shifted. We could squeeze back to 131.50. But certainly I think in terms of dollar weakness and yen strength, there's potential for an awful lot more dollar weakness in dollar yen over the course of the past few weeks. As long as we stay below 132.50, 134 for a test back to 120 over the course of the next few weeks and months. Okay, so that's pretty much it for this week. Ladies and gentlemen, once again, I'd like to thank you for listening. Have a great weekend and speak to you all same time, same place next week. Thanks very much for listening. This is Michael Houston talking to you from CMC Markets.