 Good morning and happy new year to everybody at the start of this new calendar year. Welcome to this week's weekly market update with me Michael Houston Friday the 12th of January as we look back at the price action of the last few days and the week ahead of the 15th of January 2024. Since the end of last year and the strong gains leading up to the end of last month, markets have struggled essentially. I think we haven't seen any of the same enthusiasm to carry the momentum higher that we saw in November and December. Trading activity has been relatively subdued and ultimately we've seen a fairly negative bias so far year to date and you know you sort of have to ask yourself why that would be why we've started to see a little bit of caution come into the market. Risk sentiment has been slightly tempered. We can certainly see that in the way all of the major markets have behaved since the opening days of January. FTSE 100 has slipped back. One of the reasons for the FTSE 100 sliding back has been the weakness that we've seen in oil and gas prices which actually is a good thing. Take some of the pressure off consumers. We've also seen some fairly decent retail updates from the likes of Marks and Spencer's, Tesco's, Sainsbury's and next. JD Sports issued a profits warning as has Burberry. So it's been a bit of a mixed bag and obviously the misses or the disappointment over some of the numbers so far year to date has seen fairly sizable moves towards the downside and even some of the decent numbers have prompted a response of the meh variety. People aren't particularly overly impressed and as I say it's hard to assign a singular reason for the lack of enthusiasm and obviously there's uncertainty around the prospects for the global economy but I think it's more to do with the fact of the timeline for central bank rate cuts. In December obviously we saw Fed Chair Jay Powell perform a rather extraordinary pivot when it comes to the prospect of when we can expect to see a loosening of monetary policy from the Federal Reserve. We actually opened to the door to the prospect of rate cuts and it was a sharp reversal from the tone that we saw at the beginning of December nonetheless equity markets liked it and bond markets liked it as well because we saw yields fall back quite sharply. Now we have seen a bit of a rebound in the US 10 year since the end of last year. I think largely on the back of the fact that some of the data out of the US has been reasonably positive certainly on the labor side of things the payrolls report was fairly positive a much better number than expected for December. The unemployment rate continues to remain at fairly low levels of 3.7 percent although I'm struggling a little bit with the fact that the participation rate fell modestly from 62.8 percent to 62.5 so that was a bit of a head scratcher but weekly jobless claims are around about 200,000 and the CPI report this week was slightly firmer than expected so the idea that we could see rate cuts from the Federal Reserve by March took a little bit of a knock and to be quite honest it's the idea that the Fed's going to start cutting rates in March it's not an argument that I can really get behind. The US economy saw 4.9% GDP growth in Q3 in Q4 was still likely to see a fairly decent quarter. The unemployment rate job the labor market still looks fairly resilient we're certainly not seeing any significant signs of stress as far as the US economy is concerned even as we look ahead to the first quarter of this year and we could well see earnings guidance because we're heading into earnings season now Q4 earnings season we've got US banks starting today with JP Morgan a city group the Wells Fargo and Bank of America it'd be interesting to see the market reaction to those numbers today I think it could be instructive when it comes to the overall direction of travel when it comes to US equity markets what we saw yesterday with respect to the inflation numbers and we've got PPI numbers US PPI numbers later today so it'll be interesting to see whether we see a pickup in inflation on the PPI measure which has you know which has been consistently coming down from most of the last 12 months on a core basis be interesting to see whether that continues to come lower or whether we start to see a little bit of a rebound there US two-year yields are back at the lows of last month be interested to see whether or not that trend of weaker yields continues in the wake of the PPI numbers but the idea that we're going to see a March rate cut I think took a knock this week and ultimately I don't expect the Fed to start cutting rates until well into the second quarter of this year so we're not talking you know we're talking June potentially May I still struggle with the idea that we could get a rate cut in May you know if you don't hear the ECB talking about rate cuts and these and the euro the euro area economy is on its knees and yet we've got people talking about the Fed cutting rates and not the ECB if anyone needs to cut rates it's the ECB not the Federal Reserve but this is the you know this is this is the world that we're operating at the moment you know can the Fed afford to cut rates I would argue that they need to see more data I think we need to see more evidence with inflation at 3.4 percent the inflation is returning to target yes commodity prices are lower but that doesn't mean given the geopolitics that are that are that are a bay at the moment that are a play at the moment that that will continue obviously we've seen oil prices react to this morning's retaliation on the part of the UK and US militaries to hooty attacks on commercial shipping in the Red Sea so it'll be very interesting to see how that escalates over the course of the next few days certainly the response as far as oil prices is concerned the seen oil prices rebound to one week highs back to the levels that were at the end of last year but overall oil prices have been weaker over the course of the last few days we've seen a rebound we've seen a sell-off back towards the December lows you know for me I think oil prices are likely to remain reasonably well supported with these key support levels all the way through here at around about 71 dollars a barrel for Brent why because ultimately I think any dips are going to be bought into the US still needs to refill its strategic petroleum reserve so that should support the downside when it comes to WTI and therefore Ergo should also support the downside when it comes to Brent crude as well so certainly I think there's limited downside even as we are seeing lower highs it'll be interesting to see whether or not the current squeeze that we're seeing higher is able to take out the peaks that we saw around about boxing day towards the end of last year so that'll be something I'll be paying particularly close attention to over the course of the next few days firstly 100 finding a little bit of support at the 100 day moving average but we've also got to remember that we've got a nice little trend line coming in here from the lows back in October as well as the 50 day moving average as well so a little bit of weakness but ultimately I think it's within the broader confines of the wider uptrend similarly with the DAX here we've got a little bit of support in and around 16400 there are there abouts very notable that it also coincides with a series of peaks through here so that you know and we've got the 50 and 200 day moving averages also pointing higher as well so it'll be interesting to see how the DAX reacts if we're able to break above whoops through that completely wrong let's try that again there we go so let's draw that through there nice little piece so we've got a little bit of a channel forming a short-term trading channel forming on the DAX be interested to see whether or not we're able to take out this peak start here around about 16900 or the 17000 level on the DAX looking at the S&P 500 4800 or the previous peaks or this 4800 level is proving to be a bit of a barrier so it'll be interesting to see whether or not we're able to take that previous peak the peak the peaks from January last year sorry January two years ago even um January 2022 whether or not we're able to take those peaks out from two years ago nest deck 100 pushing higher seen a bit of a reversal saw a bit of a reversal last week but we've seen a strong rebound this week so we're now back to flat um flat on the year more or less when it comes to uh the sort of flat on the year um well yeah I mean basically with the end of last year we finished a little bit a little bit a little bit on the on the on the back foot but ultimately um we've rebounded haven't taken out the previous highs yet so be interested to see whether or not there's any more traction on that certainly lower yields help in that regard we've seen 34 year highs on the part of the Nikkei 225 that continues to push higher above 35 000 could we go through the 36 while dolly yen uh continues to head back to what was 146 and 150 then the likelihood is that um we'll see dolly yen continue to push higher I don't know why I closed my watch list there that's quickly go there we go so so looking looking looking at the week ahead um momentum it's a little bit sideways at the moment an awful lot of indecision I think the key themes for 2024 are going to be not so much when we get rate not not so much as to whether we get rate cuts I think we will get rate cuts it's really about the timing um the initial timing was priced for March April May given the data that we've seen thus far in terms of inflation I think that's unlikely in the UK we've got CPI coming out on the 17th of January for December we've also got wages data as well for the three months to November and both of those I think both of those sets of numbers will be very key in the context of when to expect rate cuts from the Bank of England and I think that will play for me into a slightly stronger sterling theme because I think at the moment the market is fixated on the idea that the UK economy will need the Bank of England to start cutting rates sooner than everybody else I think that's unlikely and there are a number of reasons around that assumption or not assumption presumption on my part first and foremost the GDP numbers that we saw for November this morning were slightly better than expected we can see that in these numbers here UK GDP for November came at 0.3 percent reversing the 0.3 percent contraction in October index of services provided a 0.4 percent of that rebound and certainly I think if you look at the PMIs the services PMIs that we've seen at the end of last year they've actually been fairly strong retail sales in November was 1.1 percent now obviously we've got retail sales for December coming out next week as well so they will be instructive we've seen some reasonably positive trading updates from the likes of next Mark's and Spencer's Tesco's and Sainsbury's and potentially a bunch of other retailers yeah there have been some weak spots Burberry luxury obviously but Burberry most of that decline was in the US market we saw a 15% declining in same-store sales so most of the decline in Burberry's business was overseas so I think the data for the UK would appear to suggest that after a week start to Q4 we saw a fairly decent rebound in November and December which should mean which should mean that the UK economy perhaps avoids a recession a technical recession having said that there were a number of downward revisions to previous months GDP numbers which might mean that perhaps Q3 saw a deeper contraction from the minus 0.1 percent that we saw in the previous quarterly numbers but ultimately I think Q4 should be better than expected and should signal much better economic performance in Q4 and that is likely to stay the Bank of England's hand and let's not forget that three people voted for a rate hike in December so it's tall order for me to then expect them to start voting for rate cuts you know I think at the next meeting in February we're likely to see those three hikers if you like start to perhaps temper their expectations and signal a pause and obviously the wages data that is coming out over the course of the next few days is going to come in it's still above seven percent you know we're talking UK wages that are rising at over seven percent and that is going to give the Bank of England I think significant pause for thought when it comes to thinking about rate cuts we are expecting a modest decline to six point seven percent from seven point two percent that seven point three percent that excludes bonuses but ultimately that's still over three times higher than the Bank of England's inflation target headline CPI for December is expected to fall modestly from three point nine percent to three point eight percent but let's not forget services CPI is trending at six point three percent year on year so I will also be paying particular attention to that and core CPI was five point one percent in November so rate cuts from the Bank of England in Q1 not a chance we might see them towards the end of Q2 depending on how quickly we see inflation slow from the current levels a number of investment banks have suggested that it could fall to two percent by April well if it does we're not going to know that until May so because the April numbers come out in May so we've still got a need for another four months for inflationary pressures to show evidence of a continued downward path now you can argue that obviously China is already in deflation and that deflationary impulse will ripple out through the rest of the global economy and that could well be true but given the fact that China is already in deflation and is the only economy that is there obviously is a significant lag effect taking effect here and ultimately that is going to make even even accounting for that it's going to be it's going to make central bankers extremely cautious having been slow to tighten on the way in they could well be similarly cautious on the way out so that for me suggests that we could we'll see a break through 128 and up to 130 as it becomes increasingly apparent that the Bank of England isn't any isn't in any hurry to reduce rates significantly now that's not to say they're not going to cut rates by 25 basis points you know basically just tweak them slightly but I would be very surprised if we see the sort of rate cuts that are currently being priced by the markets over the course of the next three to six months but who knows but based on this current direction of travel I would hope to see cable continue to push higher towards 130 over the course of the next two to three months similarly euro dollar I think is has a decent prospect of pushing higher again here it's in it's very much in a range but once again we are in an uptrend the lows are getting higher and I think as long as we stay above the lows that we saw last Friday around about 10875 10850 and these two moving averages here then we could we'll see a revisit of 110 and move through 110 and a gradual move higher towards 112 over the course of the next few sessions I think the dollar will continue to get a little bit weaker not because the Fed is going to be delaying the prospects of rate cuts but because I think that ultimately that they will come it's just that the markets direction of travel is probably a little too expect expectations market expectations of the direction of travel are shall we say a little bit optimistic when it comes to the timing of such rate cuts if anything the ECB is probably going to be forced to cut significantly sooner and that could mean that euro sterling could see further weakness over the course of the next few sessions certainly I'm not expecting great things from euro sterling we are very much in a range here with the top of the range around about the November highs of 87 8770 fairly decent support around about 80 or 90 so continue to play that range it's pretty uninteresting dolly in bit of a bit of a top at 146 at the moment and the 50 day moving average this cloud resistance should as it should act as a decent cap would expect dolly in to start um or should start to potentially roll over as long as we stay below this area of resistance through here we did try and move through 146 earlier this week we weren't able to sustain it and as long as as long as this ishimoku cloud which generally tends to be reasonably reliable when it comes to dolly in while this area of resistant caps then I think we could start to trade 141 46 over the course of the next few sessions in terms of the earnings numbers it's a fairly lightweight week next week we've got delivery reporting their latest fourth quarter numbers 2023 certainly we've seen a fairly decent performance from the delivery share price over the course of the past 12 months the bigger question is whether or not continue the momentum that we've seen over the course of the past year or so come off the highs back in November heading back to support in and around the 200 day moving average we could draw in a fairly decent trend line here but certainly I think the various deals that Deliveroo has signed with various retailers are helping the business to continue to push higher and ultimately start to show signs of profitability back in October Bank of America targeted 151 share price target we've pretty much got there already the big question is whether we can sustain the momentum that we've seen over the course of the past 12 months and that'll be I think that will be a key test for when when the numbers get released next week Goldman Sachs and Morgan Stanley Q4 bank earnings next week big big resistance on Goldman Sachs share price over the course of the past 12 months I'm not expecting great things from bank earnings if I'm honest I'm earlier this week's city group reported that they were taking billions of dollars in write downs on their Argentina and Russia business obviously the currency depreciation has hurt the business there but also they warned about volatility a lack of volatility in investment banking could see a hit to their Q4 numbers as did Barclays Barclays also warned of a significant impact on Q4 numbers so it'd be very interesting to see whether or not this week's earnings season starts to see a little bit of a reversal of the the rally that we've seen off the lows back in October Goldman Sachs has got big big resistance at 390 that for me is a key barrier to further gains going forward so I think to summarize we've got UK wages and UK CPI for December on Tuesday and Wednesday of next week we've got retail sales from the UK on the 19th on Friday as I say we saw a big rebound in consumer spending in November we could well see a little bit of a flat month for December big gains in food and drink but one of the things that was notable in the recent retail numbers was that while we saw fairly strong growth in grocery sales um general merchandise like clothing and home and what have you and big ticket items saw a significant slowdown so you could see a little bit of a mixed picture when it comes to December retail sales we've got US retail sales for December on the 17th the US consumer has proven to be reasonably resilient when it comes to consumer spending um expect that to be continue to be the case in December expecting a rise of 0.4 percent for US retail sales for December up from 0.3 in November and we've also got quarter China GDP um and December retail sales on the 17th as well now expecting a slightly slower rate of growth from the 1.3 percent that we saw in Q3 um I'm always skeptical about China GDP numbers because ultimately I think they make them up as they go along if you look at the industrial production numbers if you look at the retail sales numbers um they've actually been stronger in Q4 for China than they were in Q3 and yet the estimates for China Q4 GDP are actually lower than they were in Q3 expecting around about 0.9 percent rise in fourth quarter GDP in China the Chinese economy is struggling with the problems posed by Evergrande country garden and now laterally is Zhongji so I think after a slow start to Q4 um there was a modest improvement in retail sales in November we saw a decent uptick in retail sales to 10.1 percent this was still below expectations despite the number including Chinese singles day sales on weak comparatives given that a lot of China still hadn't come out of lockdown measures in November 2022 so for December 2022 two retail sales we're likely to see a sizable skew because in December 2022 the Chinese economy reopened um from its COVID lockdown slumber so we need to be aware of the comparatives of China retail sales when they are released um so um as I say they are due on the 17th of um January anyway so that's pretty much it for um this week's opening um opening video for 2024 as I say for me the the key takeaways this week are how will the data that we see over the course of the next few weeks impact the timing or the timeline of um central bank rate cuts for me I think they're going to come later rather than sooner and if they do come later that could exert downward pressure on equity markets going forward and make it much more difficult to return to the highs that we saw earlier at the end at the end of last year that said we still are in the overall uptrend that we've been in since the October lows so you know bear that in mind as we look ahead to the next few weeks that's it thank you very much for listening this is Michael Houston talking to you from CMC Markets