 Good morning. Welcome to CMC Markets on Friday, the 10th of July. And this weekly market update, looking ahead to the week beginning, the 13th of July, 2020. And we've got a week that's pretty chock full of macroeconomic announcements, as well as company announcements. So there is certainly plenty to talk about, certainly plenty of scope for some significant market moves, not only in indices, but also currencies as well as companies as US earnings season starts to get underway. It's been, what I would characterize as a little bit of a mixed week for equity markets this week. We've seen the NASDAQ continue its progress higher, and we've seen a little bit of a divergence or disconnect. NASDAQ is doing, and other equity markets more broadly are doing. The NASDAQ has hit record highs on a consistently regular basis over the course of the past few days. And a large part of the reason for that is the fang stocks of Facebook, Apple, Amazon, Netflix and Alphabet, otherwise known. As Google, these have traded at or close to record highs along with Microsoft on a fairly regular basis. And these six stocks have a combined market capitalization of six and a half trillion dollars. I mean, there has been another couple of stocks, namely Netflix and Facebook, which aren't trillion-dollar companies, but which have also added to the push higher in the NASDAQ 100. Netflix is one particular company that will be reporting over the course of the next week that I'll be paying close attention to over the course of this video. Now, whether this trend continues remains to be seen, but I think what we've seen in this move into the big blue chip tech stocks is what I would call a little bit of, I think there's a bit of haven money, haven flow, going into these big tech companies with large balance sheets with significant free cash flow, as opposed to going into bond markets. And I think the reason for that is simply because the size of these companies makes them a perceptively, fairly safe bet, irrespective of their valuations. And in the case of Apple and Microsoft, you are at least getting some sort of yield, unlike government bonds, which are trading at very, very low yields of less than 1%. And in some cases, negative yields. So I think that is what has helped also drive the gold price this week to nine-year highs, highest levels since 2011 and those record highs all the way back at $1,900 an ounce. We've been above $1,800. So if we look at the NASDAQ here, we can certainly see the direction of travel. We're in very much a nice little uptrend. Now, if you contrast that with the broader S&P 500, and we look at this daily chart here, we can see that the progress has been much less significant. And we actually haven't been able to break above this downtrend line that's been in place since the peaks all the way back in February. And more importantly, it hasn't actually been able to get back above those peaks that we saw in early June. What we're seeing is a compression, significant compression of the price action over the course of the past week or so. We haven't really gone anywhere, even though the NASDAQ has pushed up to record highs. And actually the Russell 2000, if you look at the Russell 2000, which is US small caps, we are starting, certainly I think there is some sort of evidence that we could be starting to roll over. But the next key support in and around these lows that we saw at the end of June. Looking at the FTSE 100, that has really underperformed this week. It's come under pressure looking to retest below the 6,000 level and retest those lows that we saw back in early June or early to mid June, around about 5,930. And one of the reasons why the FTSE has underperformed today has largely been as a result of the rise this week in the value of the pound. That's risen to its highest levels for quite some time. Looking at the cable rate above 126, very nice rise off those lows that we saw back at the end of June this month. All the way back to just below the 200 day moving average and resistance at 126,70. So that 200 day moving average remains a significant resistance level. And if we actually look at the daily charts, it looks like there's a little bit of a gravestone doji there. And as a result, we could see the pound start to slip back lower again as we continue to trade this broad range that we've pretty much been in since the beginning of April. And it does very much remain very much a range trade when it comes to the value of the pound. And we've got a significant amount of UK economic data coming out in the days ahead, which could have a bearing on where the pound goes to next. If we also look at the euro dollar, it's a big week for the euro as well. We've got the European Central Bank rate meeting on the 16th of July. And again, the euro is doing pretty much what the pound is doing, albeit in a much tighter price range. Certainly over the course of the last three to four weeks, it's been trading pretty much 111,170,114. And I don't really expect that to change over the course of the next few days. The dollar still remains pretty much looks it looks as if it's pretty much a case of by the dip on the dollar, as it's always been. Having said that gold gold has actually been strengthening against the dollar. And the recent I think the recent resilience in the pound has largely been as a result of sterling strength as opposed to dollar weakness. So there's been there's not been so much movement in terms of the overall dollar move over the course of the past few days, as has been the case previously. But overall, still pretty much a range trade when it comes to euro dollar. And I don't expect the events of the next few days to really change that too much. So let's look at this. Let's look ahead to what's coming up over the course of the next few days. Let's say there's a whole host of announcements, which could be quite significant. Over the course of the past week, we've seen big rises in Chinese equity markets, largely as a result of some commentary from a Chinese state journal that suggested that buying stocks was probably the patriotic thing to do. So Chinese stocks rise for eight days in a row. And that's quite interesting given the fact that we've got a whole host of Chinese economic data coming out over the course of the next few days. We've got Chinese trade data coming out on the 14th of July. We've got second quarter GDP numbers coming out on the 16th of July, alongside industrial production and retail sales numbers. I think the data that we're going to see coming out of China is important for a number of reasons. First and foremost, it's the leading indicator as to how well the European and UK economy is likely to do as policymakers here continue to ease lockdown measures. We've seen further easing of lockdown measures this week from the UK government. And then we've seen how the Chinese economy's can now reopen as can outdoor swimming pools. So lockdown measures are slowly incrementally being loosened. And that could give us a good leading indicator in terms of what the Chinese economy is doing when it comes to their second quarter numbers. So let's have a quick dig in to the numbers. The Chinese economy saw a quarterly contraction in the first quarter of 9.8%. And that pushed the annualized growth numbers sharply into negative territory at minus 6.8%. Now, the Chinese economy is pretty much 50-50 now, but certainly between the Chinese consumer and the big SOEs, industrial production, the big state-owned enterprises. So the Chinese consumer has a much greater parts of play in terms of any rebound that we see in second quarter GDP. Certainly looking at the recent trade numbers over the course of the past three months, they haven't really been blowing the doors off. Now, the trade numbers for June are expected to be slightly better than the numbers in May. The imports are expected to show a decline of 8.7%, which is an improvement on the 16.7% decline that we saw in May. But nonetheless, that still paints a picture of fairly weak internal demand. Exports are expected to do slightly better simply because an awful lot of Chinese-China's export partners slowly reopening their economies. And economic activity is continuing to improve throughout the rest of the world. However, even here, the improvement is likely to be modest. And in previous export numbers, an awful lot of the improvement that's been driven by the export numbers has been as a result of exports of PPE and other virus-related products. Expecting to see a bit of a decline in Chinese exports of 1.3%. So given that retail sales out of China over the course of the past four months have been minus 20.6%, minus 15.8%, minus 7.5%, and minus 2.8%. And those last two numbers I'm particularly interested in, minus 7.5% for April, minus 2.8% for May. It's going in the right direction, but nonetheless, the June number for retail sales is still expected to be a negative number. When set against an average of 8% gains a year ago, the expectation from Chinese GDP bounce back of 9.6% does seem somewhat heroic. That's not to say that we won't get it, but certainly it does make you question as to whether or not the numbers are legitimate, shall we say? Because certainly the expectation is that China is going to see a V-shaped recovery in Q2. We saw a decline of 9.8% in Q1. It's being projected that we're going to see a 9.6 rebound in Q2. Certainly none of the data that I've seen, PMIs, industrial production retail sales, suggests that that is the case. So certainly I think Chinese GDP numbers need to be taken with a pinch of salt. Certainly if we look at the way other European markets have been behaving over the course of the past few weeks, certainly I think there is a widespread degree of skepticism about the likelihood of a V-shaped recovery, simply because of the way the US economy is behaving, the rising infection rates and death rates now, the rising infection rates, which is now translating into rising death rates in the Sun Belt states of Texas, Arizona, California and Florida, and the huge amounts of job losses. We've had an absolutely tsunami of announcements of job losses, not only on this side of the Atlantic, from retailers and what have you, but also in the United States where we've seen war greens boots announced a whole host of job losses. We've also heard from reports that Wells Fargo, which is due to report its second quarter numbers this coming week, is likely to announce a whole host of job losses as well because when we look ahead to next week, we've also got the start of US Bank earning seasons as well as obviously Netflix's second quarter announcements. So looking at the DAX as we are at the moment, we haven't as yet been able to get above those highs that we saw in early June at 12,930. And I think that is significant. We really do need to move back above that. Now, what could cause a bit of a rebound through that resistance level? Well, we've also got an EU summit as well as the ECB rate meeting. Now, not expecting any changes from the ECB. We're going to start with that simply because at the last meeting, the European Central Bank hiked its pandemic emergency purchase program by another 6 billion euros to 1.35 trillion euros and pushed the time horizon into the middle of June 2021. So not really expecting too many changes there. The ECB does still need to formally respond to the challenge of the German court about the legitimacy of its old bond buying program. And as yet, they haven't really done that yet. So it'll be interesting to see whether or not we see any updates on that. And what I would watch out for with respect to the ECB meeting is whether or not the bank has any plans to start buying the bonds of so-called fallen angels. Now, what do I mean by that? Well, these are the bonds of companies that were investment grade prior to the pandemic, but have fallen into junk status as a result of the pandemic. So let's talk about the pandemic recovery fund now. I think this is a big, big deal. The stakes for Europe couldn't be higher here because there's been a widespread expectation that or expectations have been raised that there needs to be an agreement with respect to a pandemic recovery fund. Germany is taking the reins of the six month rotating presidency of the European Union. And earlier this month, German Chancellor Angela Merkel urged EU leaders to come together in a crisis that could well determine Europe's future. They need to agree a package sooner rather than later. Angela Merkel said that the EU is in its most difficult situation in its history or Europe is in its most difficult situation in its history. I mean, that's up for debate. I mean, we've had the Second World War and I think that was slightly more serious. Nonetheless, the agreement that EU leaders need to come to relates to the 750 billion euro recovery fund, which is going to be financed by up to 5 billion euros of grants and 250 billion euros of loans. Now the proposal has already generated a significant amount of pushback from the likes of the Netherlands, Austria, Sweden and Denmark. They're unhappy at the lack of conditionality when it comes to the grants. And if you're the Netherlands Prime Minister, Mark Ruto, it's not really hard to understand why he's got an election next year. And Dutch taxpayers are not really going to take kindly to being asked to put their hands in their pockets to subsidize grants to countries like Spain and Italy without any conditionality whatsoever, without significant evidence that they are going to implement reforms to fix the economic problems within those countries. And Italy in particular is a case in point. Their economy now is no bigger than it was when they joined the euro 20 years ago. And trying to get any type of reform there has been really like pulling teeth. It's been like a visit to the dentist. So while Angela Merkel can build up the narrative that they need an agreement sooner rather than later, I think in terms of political optics, it's going to be very, very difficult for the Dutch Prime Minister to actually agree anything at this particular meeting. So I will be very surprised if there is any agreement at this meeting, notwithstanding the fact that it is needed. They do need to put some together some form of aid package, certainly to help Greece, Spain and Italy. But it's much dependent on those politicians there to come up with some form of evidence that they are actually going to reform economies. So that's the pandemic recovery fund 17th of July. We could get some form of holding statement or fudge there. I don't have very high expectations that we're going to see anything tangible come out of that, which might suggest that we could well see this range that we've been in over the course of the past few weeks continued for the foreseeable future, which would probably mean that we're probably going to come back down here if we're unable to get back above these peaks at 12,930. I think it's quite likely that we're going to continue to range trade for the foreseeable future. So what else am I looking at this week? Well, obviously we've got a whole host of UK economic data as well, and that could impact on how the pound is traded. We are currently at the top end of the recent range and we've got the latest monthly GDP numbers for May coming out on the 14th of July. Now, in April, we showed a monthly contraction of 20.4%. Not a surprise, really, given that most people were at home and the main arterial roads into UK cities resembled the backdrop of the spaghetti western with a tumbleweed blowing across the screen since then economic activity has picked up quite a bit. And as a result of that, I would expect to see a much better number for May. It's probably not going to be a positive number, but certainly in the context of the UK economy. I think the worst is behind us in terms of the economic slump. In terms of the unemployment numbers, completely different story that is only going to go one way that is higher. The number of job losses that we've seen over the course of the past few weeks is now on close to 100,000 jobs for the UK economy if you include retailers, energy companies and car companies. And those are just the three sectors off the top of my head and airlines as well. I think we can safely say that even though the jobless claims numbers were quite high in the main numbers, they're probably going to be even higher in the June numbers. In May, the claimant count rose to 7.8% and a 20 year high. And that was a rise of one and a half percent from April. It looks set to rise further this week and it could actually get as close to as 9%. The eye alone measure runs on a one month lag and that's going to be around. That should now move well above, well above 4%, probably coming around about 4.5, 4.6%. And as I say, those numbers, those unemployment and jobless claims numbers are due out on the 16th of July. So again, I don't expect that to really move the pound too much. Certainly, I think in terms of where we've been and where we're going, we're still pretty much in a little bit of a range trade. Certainly in terms of the earnings outlook, there's a host of announcements out next week. First half numbers from Ocado. That's this particular chart here that is looking to approach some fairly key support levels from this here. And again, that's due out on the 14th of July. Ocado has had its fair share of problems over the years, but its share price has proved to be fairly resilient. It's been one of the key winners, I think, as a result of the coronavirus shutdown. And has recently in June raised another £1 billion in the form of a share and convertible bond placing, so it can speed up the upgrading of its current and future infrastructure to build additional capacity. So certainly in terms of its first half numbers, we'll get a better idea of how well the website upgrade did in terms of boosting its retail revenue, which is expected to grow by 10% to 15%. So any disappointment there could see a little bit of weakness in those Ocado numbers. We've also got fourth quarter numbers from Dunnellm Group as well. That's due out on the 15th. A lot of their staff were furloughed in April. The company did reopen its online business and has since managed to reopen most of its stores on the basis of one way systems and strict social distancing guidelines. They reopened the install coffee shops, but nonetheless the share prices managed to recover pretty much all of its losses for this year, but hasn't as yet been able to get back to the highs that we saw in February. We can have a quick look at that if you wish by quickly calling up the product library going and typing in Dunnellm. So selecting the chart there and there it is. So we've seen a nice decent rebound off the lows there. We've started to stabilise over the course of the past month or so. So it'll be interesting to see whether or not we're able to continue to move higher now that the stores have reopened. Let's move on to US banks. They're going to be particularly interested. Also, if you're interested, have a look at our US banking index basket. That's certainly quite an interesting. It's quite an interesting. We've seen some quite interesting performance with respect to that. Again, you can find that in the products list here. We go to library. If you go to share baskets, you can see that there. And then you select US banks from there. And what I've done there is I've done a bit of a comparison of UK banks, European banks and US banks as against the S&P 500 over the course of the past 12 months. And that overlay tells us that US banks have recovered better from the lows that we saw in March, but nonetheless, all three are significantly lagging the S&P 500. So go back to JP Morgan. Also got Citigroup, Wells Fargo, Goldman Sachs, Bank of America on the 14th, 15th and the 16th of July. So absolute plethora of announcements here. The recent Federal Reserve stress test conducted three different scenarios on US banks in terms of a V-shaped recession, the W-shaped one and a longer U-shaped recession and recovery. Now, in terms of who did the worst under the most arduous scenario, actually Goldman Sachs did the worst. While Bank of New York, Mellon performed the best. In response to the tests, the Fed did cap the amount of the dividend that could be paid by any one bank. And it's also suspended any future buyback plans in terms of the buybacking shares. Now at the last set of numbers, these banks collectively set aside $25 billion in terms of provision for non-performing loans. I think it will be very interesting to see whether or not they decide to set aside any additional funds in respects of this after the events of the last three months. Having said that, US banks have actually done fairly well out of the payment protection plan, stimulus plan that the US government implemented as a result of the latest stimulus plan and the CARES Act. It's estimated that US banks have managed to benefit from around about $24 billion in fees. So given the market volatility, we could see some decent numbers out of the investment banking divisions of these banks. You could also see some decent numbers out of the result as a result of the payment of the payroll protection. The more mundane retail business, loans, deposits, credit cards and what have you, may well struggle given some of the numbers that we saw as a result of the shutdown of the US economy. And we could also see announcements of job losses as well. It's been reported that Wells Fargo is certainly looking along those lines given that it has a much higher cost base. Looking at JP Morgan, big support just below $90. If we look at Wells Fargo, it's trading in and around the lows that we saw back in May. So any disappointment with respect to Wells Fargo's numbers could actually see a retest of those lows around about $20 an ounce. Last but not least, let's look at Netflix. Netflix is going to be a big week for Netflix because it's going to be a bellwether for the streaming market over the course of the past three months. And certainly if you look at the direction of travel there, it's pretty impressive. There were high expectations when Netflix reported its first quarter numbers back in April. You may recall due to the very high bar management set in January with respect to the new subscribers. They set a bar of 7 million, which for the first quarter, the Netflix was quite ambitious. And it looks an enormously high bar. Then of course, we got the global lockdowns. They started in China in February. They rippled out across the rest of the world in March. And the COVID-19 pandemic kept a large part of the global economy indoors. And as a result, you saw the Netflix, you saw the streaming effect of a massive increase in a subscriber base as a result of most of the global economy being locked down. And those Q1 numbers certainly didn't disappoint because rather than getting 7 million new subscribers, they got 15.8 million new subscribers, which took their global subscriber base to over 118 million. Now some of these gains may well have been as a result of a pull forward from Q2, which generally tends to be slightly stronger. Nonetheless, we saw a big increase in revenues to 5.77 billion dollars. What was slightly more concerning, I think, was that profits fell slightly short of expectations, which suggests that costs went up quite significantly. Now, the strength of the US dollar could have played a part in that the dollar has been strong this year. And Netflix biggest problem now is how many of these subscribers stick around once lockdown measures get lifted. I suspect that they won't see much of a drop off in these second quarter numbers, simply because of the risk of new localized lockdowns rolling out across the rest of the quarter. There is also been some talk that the lack of a content pipeline, given the fact that it's been suspended due to lockdown restrictions, could also act as a bit of a break. I don't see this as being a problem because a lot of newly released shows have already been put into the can. And it could take some time before Netflix ran out of new material to put out there. And it's certainly not a problem that's going to be isolated in Netflix. It's going to be a problem for Amazon Prime. It's going to be a problem for Disney Plus. And it's going to be a problem for any other strict content streaming provider like Rakuten TV or what have you or Google Play. So it's not a problem that's unique to them. So what are the expectations for Q2? 7 million new subscribers, which would take their global total to around about 190 million. And profits are expected to come in at $1.81 a share. At the moment, these shares do look a little bit rich above that $500 a share. So we could see a little bit of a pullback there. But overall, I think these earnings and numbers that we're seeing come out over the course of the next few weeks should be a very, very important bellwether in terms of where equity markets go from here. So that's it for this week. That's it for this week. Thanks very much for listening. Hope you all have a great weekend. I'll speak to you all same time, same place next week. Thank you very much for listening. This is Michael Houston talking to you from CMC Markets.