 Good morning. Welcome to CMC markets on Friday the 10th of February and this quick look at the week ahead beginning the 13th of February with me And Michael Houston It's been one of it's been a bit of a strange week actually this week because while we've seen new record highs for the FTSE 100 we've seen the DAX try and push on and We've seen the S&P chop around quite significantly It looks like that we actually could finish the week down On the gains that we saw from the previous week Which seems a little bit bizarre when you think about the fact that Three to three days this week. We've seen the FTSE 100 putting new record highs, but I think that that sort of ties into an awful lot of the indecision when it comes to Central bank interest rate policy and that indecision was no better illustrated in last week's payrolls numbers now when I recorded last week's video, obviously we didn't have Sight nor sound of those of those payrolls numbers And they were just wow. I mean 517,000 new jobs were added in January and The unemployment rate well to the lowest level in the US since 1969 at 3.4% so there's no question The US labor market still looks pretty tight and certainly I think what we've seen in bond markets Certainly reflects that new Narrative and markets are slowly starting to wake up to the fact this is Friday's payrolls report that candle there On the Thursday in the wake of the Fed meeting and the power press conference Two-year yields hit their lowest levels since back in September So not only did we hit a four-month low? The previous week, but we're now back at levels. We saw back in November at 4.5% And I think slowly and surely Markets are waking up to the fact that hey, guess what we're not going to see rate cuts this year and The Fed may well have quite a bit further to go when it comes to raising rates something that I've been saying for quite some time and You know, I've been scratching my head as to why the NASDAQ Has continued to hold up fairly well But certainly I think this week we are now starting to see some evidence That the messaging is trying it is finally starting to get through It just makes pals. I think Reticence and his nuance all the more puzzling when it comes to Outlining a path for future interest rates, but certainly what we have seen this week from a number of Fed speakers and on Wednesday We've got Fed Vice Chair John Williams echoing pals comments But he also went a bit further. He said the rates might need to remain restrictive for a few years Now no Fed policymaker has said that before certainly not in such clearly defined terms And I think that that is significant He was then followed by Minneapolis Fed President Neil Kashkari who reiterated his own comments from earlier this year But the Fed needed to see a terminal rate of 5.4 percent Before a pause while both Governor Chris Waller as well as Lisa Cook followed up with hawkish comments of their own so the impact on yields has Been fairly significant because we've held on to the gains that we saw on Friday as well as the gains that we saw on Monday and we're back at 4.5 percent now that is significant I think if we can move through 4.5 percent again, it's going to be much much harder to justify valuations on US markets particularly in the tech sector because the tech sector despite the fact that we've moved quite a bit higher on the two-year Continues to hold up reasonably well But I think what's significant about that more than anything else particularly if we look at this chart here Is how well this fib level has held 12,850. It's a double fib So basically we've taken the highs of last year the lows of last year We've retraced 38.2 percent and it's been a fairly decent level It doubles up on both sides of the equation Going from the lows there to the highs there and 38.2 there and it's 38.2 there So it's a significant it's a significant obstacle on the upside and we do appear to be starting to roll over again Over the course of the past few days, I think the big question is whether or not we start to see a a move back Towards these sort of areas around the 12,000 level and I think the only way that is going to happen is if US yields continue to edge higher and I think that's one particular area of the market that I will be keeping a close eye on not just the two-year but also Slightly longer term in terms of the five-year as well because while we've seen a sharp move in the two-year The the moves at the slightly longer end While they've been pronounced They they are the yield on the five-year for example is at 3.88 percent. So it is still quite a bit lower So I'd want to see that gap Start to narrow and at the moment. It's still it's still widening out particularly on the twos twos five twos tens as markets start to price out the possibility of aggressive cutting over the course of Over the course of the curve That's not to say that we won't see cuts in 2024 We could well do but certainly I think to be pricing them now is a little bit premature Certainly given the fact that oil prices that seem to be having Seem to be struggling to go lower even as natural gas prices are continuing to Find the air quite a bit thin and I'll continue into drift a little bit lower. So Earlier today we saw fourth-quarter GDP out of the UK economy came in at zero percent So on a on a technical basis the UK has avoided a technical recession Though I think the nuance of that will be lost on an awful lot of people who are struggling with the cost of living Whether you see zero percent growth or a Plus or minus naught point one. I think is neither here nor there But at least it gives the politicians room to say we're not in recession Even though it probably feels like it to an awful lot of people Having said that the fact that the UK economy is probably not in recession Against all the predictions of the OBR and the Bank of England. Yeah, they got it wrong again That's not to say that we haven't got a Significantly difficult quarter coming up actually a Significantly difficult first half of the year given the fact that we got a whole raft of tax changes coming in in the April budget and AstraZeneca earlier this week touted some of those tax changes as the reasons why they decided to locate a A new office or a new laboratory in Ireland and not in the UK something Pascal Sorio the CEO Made a particular pointed mention of now and this is I think this just highlights perfectly You know the the economics almost the economic illiteracy of The current government, you know if you raise taxes. Yeah, okay the percentage headline rate may be higher But a higher rate of nothing is still nothing And ultimately it's better to get a smaller percentage of something than a higher percentage of nothing But it's something that politicians of both sides appear completely at odds with Obviously the talk this week has also been increased windfall tax or you know increased windfall taxes and all the oil majors all predictably boring and But nonetheless, we've seen the FTSE 100 Continue to make record highs this week and despite the initial The initial open slightly lower But the FTSE does continue to look fairly resilient and you know despite the Fairly lackluster economic outlook. I Still see plenty of us. I certainly see no reasons why The FTSE 100 can't continue to benefit At the expense of some of the more highly valued areas of the market Certainly, we certainly we're certainly seeing that in the earnings numbers that are coming out particularly in some of the bigger cap stocks like AstraZeneca like BP and Like Shell, but we're also seeing very decent recoveries in the likes of the airline sector So for the travel and leisure sector, so In the 250 the airlines have been the biggest the biggest You know the biggest gainers so far year-to-date companies like Whiz air easy jet obviously I AG who own British Airways Intercontinental hotels kind of all cruise lines as well. So travel and leisure sector has been Has been a key beneficiary of this recent rally in markets and it was notable that In the GDP numbers that we saw this morning that To travel and leisure support services and what have you contributed 14.8% growth in the Q4 GDP numbers Which is a fairly decent tagline if you want the economy to grow book a holiday outside the UK Because that will help the economy So yeah, as I say, that's a that's a that was one of the key numbers that sort stood out from me, so I'm still of the opinion that we can head towards the 8000 level in it over the course of the next few days and weeks Particularly given the fact that the pound is probably not going to be That strong we could certainly see it move up to 125 and 130 But certainly on a historical level is still a fairly fairly low levels. The only thing that would cause me to revise My outlook for the FTSE 100 is a fall below This key area of support through here at the moment The dips that we've seen thus far have managed to Stay well clear of that. I'm hopeful that will continue to be the case. I'm looking at the DAX We've started to see a little bit of a slowdown there Certainly a negative certainly looks like a negative week This is a little bit worrying this little doji here does appear to suggest that above 15,600 the area is a bit thin So that could see a dip back to 15,000 in the short to medium term but overall again the trend very much is Positive from the October lows. So again, no reason to Push back against a by-the-dip narrative when it comes to the DAX Euro-dollar we've seen a big fall in Euro-dollar over the course of the past week from where we were last week at the moment Holding above the 50-day moving average And that as that that exacting is a fairly decent area of support. So keep keeping an eye on that If we do fall below the 50-day moving average, then we could see a little bit of a slippage back to 106 20 but Given where we are at the moment, we could see a bit of dollar strength, which could bring us back all the way down here But certainly on the basis of this price action alone We've got resistance at around about 107 80 108 So that peak there and also that low there So keep an eye on that particular level 108 108 20 if we can get back above that then we could Have a retest of the highs, but at the moment does look it does appear that The the the euros a little bit range bound at the moment similarly the the cable the cable Found support on the 200-day moving average and it's currently being capped by the 50-day moving average. So again 200-day moving average is currently supported The move lower from the peaks that we saw at the end of January keep an eye on that area of support around about 119 and a half If we can if we can hold above that and there's no reason to suppose that we can't continue to push higher But what is interesting is well the 200-day moving average is still falling The 50 day is starting to roll over. So that is an indication that The market is becoming slightly more Undecided about the future direction for the pound in terms of euro sterling Particularly given the fact we've got a whole host of UK data coming up UK CPI UK unemployment UK Wages UK wages which are due out next week and are likely to give us a distinct insight into Whether that wages inflation gap is continuing to narrow it has been over the past two or three months Since the October peaks of inflation at 11.1 percent, but certainly not fast enough for my liking Looking looking at euro sterling. We've seen a bearish reversal on the Monday. We had started to drift lower That's encouraging But we we could we could be susceptible to a little bit of a pullback towards 88 70 88 80 but with euro sterling, I think it's still range bound and Now while we have squeezed higher and we have made higher highs We asked we could well we could well retest These two moving averages here, which basically supported a Previous move lower so range bound on euro sterling But again here it does look a little bit of a by-the-dip trade on euro sterling. So looking ahead, I think US CPI is going to have a huge bearing on what happens to the dollar next week It's been it's been trending lower for several months now Jay Powell that chair has pointed to Disinflation retrends playing out in the US economy. I think that was part of the narrative But an awful lot of people latched on to disinflation Not deflation disinflation, but I think an awful lot of people were conflating the two You know, it's no surprise that we are starting to see inflation slow in the US It peaked in the summer and it has been coming down Slowly ever since now in the December CPI fell to 6.5 percent Core prices fell to five point seven percent from six percent It's heading in the right direction But I think if anything There's you know, if the markets have taught us anything is, you know, don't try and front-run the Fed too much or don't try and Assume what the Fed is going to do too much because that Friday payrolls report has really upended the Apple cart and it wasn't just about the Employment report on Friday. It was also about the ISM Services report prices paid there are at sixty seven point eight. Well, that's well, not that's well north of the fifty Stagnation level so there is still significant services inflation in the US Wages also still appear to be looking reasonably resilient So on a month-on-month basis, we're still expected to see a fairly decent US CPI number of around about 0.4 0.5 percent Now that won't mean that we won't see a slowdown in the annualized number I think we'll probably it's being predicted that that will slow to six point two percent from six point five Core prices are also expected to fall further from five point seven percent in December to five point four percent year-on-year In January, but again, that is still well above the Fed's target rate And I think whenever you see these numbers, that's what you've always got to bear in mind any prospect or thought That the Fed will be cutting rates this year I think is wishful thinking and certainly the reaction of the bond markets this week Over the past few days has certainly reflected that realignment in Market expectations when it comes to the Fed rate path the message Finally appears to be sinking in UK CPI base rates now four percent and I think the attention at the moment is turning to when the Bank of England might be likely to signal a pause Well, certainly, I think the Treasury Select Committee earlier this week which saw Andrew Bailey Sylvia Tenreiro and Jonathan Haskell testified to MPs highlighted how much Fragmentation there is on the MPC Sylvia Tenreiro even went as far to suggest that she might be disposed to vote for a rate cut But she didn't actually specify when now, you know, I'm all for diversity of views and not Indulging in group think absolutely, but a rate cut when headline CPI is at ten point five percent And it's likely to stay above ten percent next week when the January numbers. I mean really I mean that just I Mean that that just beggars belief that an MPC policymaker could think that with headline inflation Training it above ten percent and grocery price inflation at sixteen percent that somehow Cutting rates to push the pound below 120 and push up import prices is a good way of trying to keep a lid on inflation I mean it I Was sitting shaking my head in disbelief Fortunately, it's a minority view which I think is only probably shared with Anna with one other MPC member So it's unlikely to see the light of day But certainly I think if she does vote for a rate cut that could certainly be perceived as dovish even if it doesn't carry a majority So CPI expected to fall to ten point one percent in the January numbers unemployment is expected to remain steady that's due out on the 14th Valentine's Day and wage growth We're expected to see further increase from the current six point four percent Rolling three-month number for December. So it's UK CPI for January It's the unemployment and wages rates for these rolling three-month period to the end of next year We've also got US retail sales As well as UK retail sales got US retail sales January on the 15th And after declines of one percent and one point one percent respectively in November in December With the December numbers, I think affected by the cold weather We are expecting to see a bit of a rebound a new year bounce in January for US retail sales of one point seven percent So I think if we do see that and we see a fairly resilient CPI number that will reinforce the narrative of Higher yields or stickier yields in the US and potentially go further to undermining The idea that the S&P and the NASDAQ continues to rally in the way that they have been over the course of the past couple of weeks UK retail sales January It's hard to make a positive case Obviously, we've still got strike disruption. We still got rail strikes We've we've got NHS strikes. We've got ambulance strikes. We've got border force strikes Civil servants are going on strike. The teachers are going on strike I think it'd be easier to list the people who aren't going on strike than the ones that are Having said that the last quarter of 2022 was a poor one for UK consumers With November and December retail sales seeing sharp declines of naught point five and minus one percent respectively It's a little bit surprising that the the December one was so steep because Even if you can't go to the shops, you can always order online being said that with with Royal Mail on strike You're limited in the number of options that you have when it comes to delivery, but nonetheless, there are third party delivery services out there that you can use And the GDP numbers do show that We the services sector Did certainly save the UK economy in queue for certainly I think as we head into the new year The the economic environment is going to continue to to remain challenging. So I'm not really expecting anything Mind-blowing or earthshattering when it comes to UK retail sales for January On the earnings numbers, there's only really a couple of items of note to speak of We've got Barclays in that West Group as they announced their full-year numbers on Barclays on the 15th now West on the 17th now costume. I'm back three months ago and the profits that these banks were making were prompting Calls for potential windfall taxes on banks not contempt of your companies They're now looking to look at the banks now that the interest margins are improving And the banks are now after a decade of underperformance and now starting to turn their business models around now There are plenty of reasons why You know banks invite criticism but ultimately without the forbearance of banks during the pandemic The UK economy probably wouldn't have come through it perhaps as well as it did do and Ultimately banks still have to pay their staff So they need to be able to make a decent amount of profit and let's not forget now West Group is still 48 owned by 48% owned by the government. So dividends will benefit the Exchequer so We need to be a little bit careful and banks also pay higher rates of tax than the rest of the business only the oil Only the oil patch pays more you've got Corporation tax going up in April to 25% and there's a banking levy on top of that of 8% So you've got an effective tax rate next year of 33% at the moment. It's 27. So Barclays four-year numbers Let's have a quick pre-see of the buck or preview of the Barclays share price And we can see here that we may well Have seen a bit of a short-term top in the Barclays share price. That's only looks like a doji candle Thursday on Thursday actually. Yeah, it was yesterday and it's been a bit of a mixed bag the last 12 months of Barclays The shares dropped to an 18 months low last October since then we've seen a fairly decent rebound It's face challenges over litigation as well as governance issues Operating expenses is going to be a key metric. They're set to rise to 16.7 billion pounds operating costs We're up 14% during the last quarter q3 and profits after tax for q3 rose by 9% to 1.7 billion Year-to-date Barclays profits are down 19% Largely due to the fact that last year saw profits boosted by the release of loan loss provisions Which flattered the numbers now an awful lot of banks now are adding these back over concerns of Debt defaults and late payments and what have you so that's certainly something to keep an eye on but certainly their interest margins have improved and Certainly, there's been no indication Obviously apart from the mortgage wobble back in October that banks have been underperforming. In fact, Alison Rose CEO of now Wests Actually made a point of saying that at the moment the banks weren't seeing any significant evidence of consumer distress so That's going to be interesting to see whether or not that messaging changes When they released their four-year numbers on Friday next week Q3 numbers were a little bit disappointing Because now West reported an increase in loan loss provisions As well as concerns that a further windfall tax might be levied on profit So as I say keep it keep it keep an ear out for that net interest margin has improved significantly to 2.99 in q3 Bringing the net interest margin year-to-date up to 2.73 Percent from 2.59 percent on the business side of things net loans have looked steady throughout the year They were up to 192.8 billion in q3 from 188.7 billion in q2 That was mainly down to new mortgage lending now new mortgage lending is likely to be a dragging q4 We're certainly seeing that played out in a slowdown in the housing market for The full year now west that they expect total income to be around 12.8 billion pounds With net interest margin expected to rise to 2.8 for the full year But certainly if we look at this there's a nice trend higher Fairly decent support in and around 295 300p here But again, you've got to be a little bit careful of the chairs. Maybe a little bit toppy Certainly that was the that was the big drop In october and then we had the earnings drop back at the end of october there, but it was very short lived And now we're quite a bit higher from the lows back into 10 so Yeah bank bank bank earnings bank profits outlook for q1 q2 likely to be more challenging but certainly profit margins are looking better and we to finally finish off we got centric who upgraded their profits twice in the last six months They're certainly on the basis of the increase in oil and gas prices They up their eps forecast from 10 10 pence A share to 30 pence a share so it'll be interesting to see what sort of What sort of picture they they they they paint against a backdrop Of um some really negative headlines about the forced prepayment the forced installation of prepayment meters So their profits are likely to come under scrutiny as well when they release their full year numbers on the 16th So that's it for this week as I said just a quick summary uk uscpi uk wages uk and us retail sales Going to be I think the key um potentially key market moves when it comes to yields and what have you and particularly us markets relative to european markets but I don't I don't think anything much has really changed in the wider scheme of things more constructive european markets than us markets and um so the key macro items this week uk uk um uk inflation us inflation and and bank earnings so that's it for this week. Thank you very much For listening, this is michael hueson talking to you from cmc markets. Thank you for listening