 Hello and welcome to CMC Markets on Friday the 11th of January and this quick look at the week beginning the 14th of January and it's been a very positive start to 2019 for equity markets I think which contrasts quite starkly with the doom and gloom that was prevailing at the end of 2018 US stocks posted their worst quarter worst year in a decade and I think there was a lot of concern that the Federal Reserve after hiking rates in December was determined to continue to do so in 2019 now that doesn't now appear to be the case certainly I think central banks have become alive to the fact that the tightening cycle that was I think the prevailing concern at the end of 2018 they may be starting to resile from we've seen the Chinese central bank talk about cutting well they're saying they're going to cut reserve requirements to free up extra liquidity in the Chinese banking system we've also seen Jerome Powell of the Federal Reserve talk about maybe stepping back a little bit from the rate hiking cycle and the hawkish rhetoric that spooked investors post press conference and this week we've seen a copy of the latest Fed minutes and they were certainly an awful lot they were an awful lot more dovish than I think the tone of the press conference post rate hike would have had us believe we've had a host of Fed speakers this week come out and talk about the fact that they are concerned about low inflation and certainly that does appear to be a determining factor in helping drive this week's equity market rally we've seen Chinese inflation drop quite sharply in December particularly factory good prices which drop from 2.7 to 0.9% so as a forward indicator of what CPI might do over the course of the next few months that's not a good indicator for inflation repressure and we've also seen eurozone inflation drop from 1.9 to 1.6 on a preliminary basis and we'll get a final learn we'll get another indication of that in the upcoming week and inflation is likely to be a key factor going forward in the week ahead for the 14th of January we've got the latest UK inflation numbers we've got EU CPI numbers for December and we've also got Canadian CPI numbers for December as well and the declines that we've seen in oil prices since October are likely to have fed in to a fairly weak inflation re-outlook and that's something that a number of Fed policymakers have expressed a significant concern about over the course of the past few days that signaled a significant drop in US yields it signalled a bit of a decline in the dollar but it's also helped fuel the rebound in equity markets globally that we've seen in this first four week of 2019 so if we look at the FTSE 100 the UK 100 in this chart here we've broken above the 50-day moving average and I think there's a decent chance we could certainly go up towards a 7100 level which is a quite remarkable turnaround when you consider that at the end of December we were trading just above 6500 so we've seen an almost 450 500 point move in the space of two weeks if we look at a weekly chart on the UK 100 we can see that we're certainly on course for the third successive weekly gain after making lows at the end of December now the big question is whether that could continue and I am still a little bit skeptical about that but nonetheless I think the over pessimism that we saw at the end of 2018 was slightly overdone we are certainly I think due a significant rebound oil prices have started to rebound as well which again I think is a little bit overdue because I think the decline that we saw from $85 a barrel in October to the lows that we saw at the end of December again slightly overdone Saudi production cuts slightly more optimism that the overriding pessimism that we saw at the end of 2018 was slightly overdone yes it is quite likely that we're going to see a significant slowdown in 2019 but I think that markets were potentially pricing in maybe a little bit too much a little bit too much pessimism nonetheless there are still things that could go wrong we do have a slightly more optimistic tone now around China and US trade and I think the reason behind that is I think both parties want to come to some form of agreement simply because I think the Chinese economy is slowing down China wants to try and put a floor under that and I think there is some I think there are some indications that despite the bumper payrolls number that we saw for December out of the US that could be as good as it gets for US jobs growth going forward and ultimately I think President Trump was a little bit concerned about the fact that US stock markets posted their worst year in a decade and for ego driven reasons alone he probably wants to put a floor under that and try and generate a rebound in US equity markets because they think he perceives that as a good barometer of his popularity rating so I think helping to put a floor under US stock markets is something that President Trump will want to do which means that they will probably come to some form of accommodation some fudge with China to kick the can down the road and helpfully put a floor under equity markets and obviously the slightly the significant change of tone from the Federal Reserve is certainly helping in that regard as well and I think this slightly more dovish outlook for the Fed I think it's highly unlikely we'll see another rate rise this year I certainly think we won't see one in March and data data data dependency wise I think it's probably unlikely we'll see one in June though they will like they will like they will want to keep that option on the table so for equity markets in general if we look at the S&P 500 we've seen the potential for five successive updates in a row potentially could see six successive updates in a row we have potential on this current rebound and we can see this bullish reversal here to potentially come back to around about 2700 without undermining the bearish scenario I'm still of the opinion that we are in a sell the rally mode as opposed to buy the dip there is potentially a little bit more upside in this we need to get through 2620 I think on the S&P to signal that we could get a wider move higher but now we're back above 2500 I think the shift has changed the potential for a move higher has shifted slightly given that we've moved back above the previous reaction lows from the initial sell-off at the beginning of last year so keeping an eye on the 2600 level on the S&P 500 keep an eye out for the 7,080 level on the FTSE 100 and also keeping an eye on the 11,000 level on the German DAX if we just blow this chart up here we can see that there I've drawn a horizontal line through these lows that we saw in October and November that is acted as resistance thus far on the rebound higher and it'll be interesting to see how the market reacts as we move back towards that level now it's going to be a big week for the pound I talked about it's going to be a big week for inflation we're likely to see much weaker than expected inflation numbers next week which should I think feed into the slightly more positive narrative that we started off to that 2019 with we've got UK inflation coming out on the 16th of January that came out the lowest levels in 2018 in November at 2.3% that could well weaken further for December on the back of lower oil prices and potentially discounting in the shops for UK retail the Christmas trading period was very difficult for retailers so I think that's likely to feed into the inflation basket for December EU CPI flash CPI was also quite weaker was significantly weaker from the 1.9 numbers that we saw in November that came in at 1.6% and is likely to be confirmed as such on the 17th and then we've got Canadian CPI on the 18th and that is likely to follow suit given the fact that we saw those big declines in oil price annualized inflation in Canada fell sharply from 2.4% to 1.7% that's likely to remain fairly weak in December and it's probably behind this week's decision by the Bank of Canada to hold rates and be slightly more dovish on the inflation outlook than was originally expected but I think the main event this week is likely to be the UK Brexit vote in Parliament on Tuesday it's highly unlikely that Theresa May's bill will pass which means that MPs will have to coalesce around an alternative arrangement now that may sound simple in practice it's slightly more difficult in fact because ultimately there is no option in the UK Parliament for any type of alternative there is no majority of a single market customs union or variation thereof there is no majority for a second referendum there is no majority for a maode for a Theresa May's deal so ultimately we know what MPs don't like we unfortunately don't know what they will like so until such times as that deal is rejected which seems quite likely the pound is going to find it very very difficult to move higher 128 20 on the upside is a very key level and I'll be monitoring that quite closely over the course of the next few days to see whether or not we can push through that if we can't and it's quite likely we could well drift back to the lower end of the recent range we've also got just to finish off US bank earnings coming out next week starting on the 14th and then culminating on the 16th we have Citigroup Wells Fargo JP Morgan Goldman Sachs all Q4 numbers they are likely to be disappointing in terms of bond trading because of the flattening of the yield curve but in terms of fixed income equity trading they actually could beat expectations but ultimately it's likely to be a fairly difficult period for bank earnings given the softening of yields that we've seen in the course of the past few weeks and we also have UK retail sales coming out for December that should give us a good indication as to how well the UK economy has done in the fourth quarter so that's it for this week slightly longer video than normal for which I apologize I may have gone on a little bit longer than anticipated but nonetheless thank you very much for listening to Michael Houston talking to you from CMC Markets