 Good morning and welcome to CMC Markets on Friday the 19th of January and this quick look at the week ahead, getting the 22nd of January with me, Michael Houston. It's certainly been quite a week for equity markets in general, fairly choppy, got off to a poor start, European markets posted three successive daily declines. In the wake of obviously the pre-Christmas euphoria, what was perceived as a December rate pivot from the Federal Reserve? Obviously 100 even had its worst day since August, sliding to its lowest level since late November on the Wednesday. Since then we've seen a modest recovery not only in Europe but US markets have outperformed the NASDAQ 100, posting another record high and I think if we could sum up this week, I think it's really central bankers have reset the narrative around rate cut timings and that's certainly no better borne out than in the performance in the bond market. We look at German two-year yields, they've rallied quite strongly from levels of around about 2.5% at the end of last week to be currently 18 to 19 basis points higher. This week we've heard from the likes of the Bundesbank's Jochen Nagel, Austria's Robert Holtzmann and ECB President Christine Lagarde, all of them have pushed back on the idea of an early rate cut although Lagarde did hold open the possibility of a summer rate reduction as she looked to keep the doves on the side and there are doves on the ECB governing council and it's not hard to see why when you look at goods price inflation which is very much in deflationary territory but it's not goods price inflation that central bankers are concerned about at this point in time, hence the reluctance of them I think to hander to market expectations of a March rate cut and I think that's what's really I think driven the volatility that we've seen so far this week. No one is disputing that we will see rate cuts this year. I think it's really the timings of those rate cuts and that's what's seen a market reset. We've certainly seen it in the US two-year yield as well which has seen a sharp rebound from the lows of last week when we were around about 14.14 and now 4.35 so again 20 basis points has been priced out of the two-year if we look at the UK guilt slightly more modest repricing after the shocking retail sales numbers this morning minus 3.2% decline in UK retail sales in December. Now November was revised slightly higher at 1.4% but what is that number tell us? It tells us that an awful lot of consumers got in early when it came to spending for Christmas with the various Black Friday deals discounting that we saw in November and the bad weather in December the rail strikes at the beginning of the month obviously tempered some of the spending that we saw in that month which was also a very wet month. Nonetheless I don't think anything has changed in terms of the trajectory when it comes to the possibility of lower rates heading into 2024. I think the bigger question is when we start to see that first cut because when we start to see that first cut markets will be very very much of the mindset is how many more are coming after that and I think that is what is tempering I think central bankers in terms of they don't want to guide the market too early because we've seen what happens when that happens and certainly if we look at where guilt yields were in the summer we're still 125 basis points off those highs so there's still a significant easing of monetary policy when it comes to mortgage rates and when it comes to overall rates even though the base rate is still at 5.25 percent. We haven't seen such a big decline in German bonds yields German two-year bond yields or the shats but nonetheless we have still seen a significant repricing there and we've seen a significant repricing in the US. For me I think if we look at the inflation numbers we look at the inflation the wages numbers and the inflation numbers this week the UK still has an inflation problem services CAPI is at 6.1 percent wages is at 6.6 yes they are slowing but ultimately I think if you're look if you're the Bank of England and you were slow to tighten on the way in you're probably going to be slow to ease on the way out so I don't see the Bank of England cutting rates much before May of this year. Now the ECB on the other hand the data could prompt them to cut sooner certainly the hawkishness that we've seen this week would appear to suggest that they're in no rush I would argue that they may be forced into an earlier cut and I'd still think of all the central banks the ECB will probably cut first federal reserve again the data doesn't really support a rate cut you look at the weekly jobless claims that we saw this week 187 000 lowest numbers since September 2022 you know the the federal reserve does have slightly more flexibility in terms of the economic numbers what else have we seen this week week China data retail sales were disappointing fourth quarter GDP I mean does anyone really believe those numbers I don't but certainly I think what we do know from the numbers that we saw out of China this week is the economy is struggling and we could see stimulus there what we have seen do well this week is the Nikkei 225 and that's quite timely in the context of what's coming up next week I've got a Bank of Japan rate decision now dolly yen is something that I haven't really got a good track record of over the course of the past 12 months this time a year ago I was expecting to see dolly yen a lot lower hasn't really turned out the way I had hoped but I'm not the only one you know what they say misery loves company but um nonetheless um dolly again will the Bank of Japan will the Bank of Japan tighten monetary policy this year probably well but they're not going to be tightening it by much see the their benchmark rate is minus 0.1 percent that we could see it move back into positive territory but we're talking very very small steps here and that's what is supporting the Nikkei the Nikkei is here 34 year high this week and could well retest those record highs back in 1990 of 38,957 we're not close to that yet but certainly if we go all the way back my chart here only goes back to the mid 90s but the record high is all the way back in 1989 1990 and that's 38957 and I see no reason on current momentum why we can't continue to push higher because I think next week's Bank of Japan rate decision is likely to be a damn squib since November the Japanese 10 year JGB has seen yields fall from a peak of 0.97 to fall below 0.6 percent at the start of this year in fact if I just look at the Japanese 10 year now on my Bloomberg we'll get a better idea of where it is 10 year JGB where are you pull that up there we go it's right here and a line chart so we've seen a fairly decent rebound in the past couple of days from those lows around about 0.55 it's probably not going to go below 0.5 because that was the previous cap on the yield curve control and now it's probably going to trade between 0.5 and 1% and good well aged back towards 0.75 if the Bank of Japan keeps its options open about tightening policy going forward there's certainly not offering much in the way of guidance as to their future intentions on the two year we're back at 0% having been as high as 0.15 so I think we can see a modest rebound is that going to undermine what we're seeing with respect to the Nikkei unlikely I still think there's potential further upside there just on the basis of a slightly weaker yen and that's certainly what we've seen so far this week the dolly yen has moved back through our cloud resistance and it was well as the 50 day moving average this area is now likely to act as a little bit of support we're running into a little bit of thin air up around 148 80 but certainly I think this area around about 146 50 should act as a support going forward we do look a little bit stretched and also 150 is going to be a fairly decent barrier so we could probably trade 145 150 on dolly yen for the foreseeable future certainly the trend on that does appear to be for a higher dollar and a weaker yen if we look at the FTSE 100 this week we can see the damage done over the course of the past few days I think we could well stabilise we broke we broken this up trend line here but what was important was we didn't take out those lows back in November so 7400 likely to act as a little bit of support going to remove that line now don't need it but again these two moving averages here could act as a little bit of resistance on the way up but I think what we what we can say is we're still very much range bound when it comes to the FTSE 100 so there's not really too much to get excited about there so it's still a still very much a range trade German DAX seen a little bit of a fallback from the highs back in December we did trade below these lows here found support the 50 day moving average the next key resistance is going to be this trend line here but also these peaks that we saw back at the beginning of the month in January at around about 16840 so we really need to push through this 16800 area to suggest a revisit of the record highs of back in December so certainly keep an eye on that but still I don't think there's much much to get excited about still very much playing the range when it comes to the German DAX NASDAQ record highs this week or in the past couple of days after a pretty choppy start to the week we've seen an awful lot we've got long shadows on these candles which suggests that markets really haven't got a clear idea of where they want to take the market yes we saw that strong breakout yesterday on the back of the Magnificent 7 Taiwan semiconductors revised up their guidance for 2024 targeting 20 plus increase in four-year revenue on the basis of AI chip sales that pushed Nvidia and advanced micro devices AMD up to new record highs and it looks to me as if the NASDAQ is going to continue to push higher so 17,000 to 100 in the short term potentially even higher certainly the 50-day moving average looks a fairly decent area to look at buying dips on that particular market S&P 500 retesting the record highs of back in 2022 it continues to want to flirt with that particular 4820 area bigger question is does it have the momentum on this occasion to take that level out hard to say given that is a fairly small cohort of markets or stocks that's driving this rally higher if we look at say for example the Dow Jones the gains have been slightly more tempered what I think has been important as far as the Dow is concerned there's fairly decent support in and around this 36,950 area 37,000 area so that's certainly worth keeping an eye out for over the course of the next few days so as we look ahead to the week ahead we've got another central bank decision which I think is going to be fairly interesting given some of the commentary that's come out of Davos this week from the likes of Lagarde, Holtzman, Nagel, Villaroy and all the other minor players in the UCB we've got the UCB rate decision on the 25th and when you look at the economic performance of Europe you sort of look at it and think surely they've got to be cutting rates at some point we certainly haven't seen anything in the way of growth since the third quarter of 2022 that's right 2020-22 not 2023-22 inflation has been slowing sharply yet for all this economic weakness the ECB has been insistent it is not close to considering exact rates having hiked as recently as last September in November headline CPI slowed to 2.4 but it has picked up against the 2.9%. Core prices are at 3.4 so while the rebound in headline inflation is no doubt been driven by base effects and will be used as evidence by the Hawks that rates need to stay high we're already seeing some evidence that the consensus about rates where they are is starting to diverge shall we say so while we can expect no more rate hikes the economic data certainly supports the idea of cuts sooner rather than later I think the bigger question is whether it comes before June given the pushback that we've seen this week now obviously we've also seen the market reprice and Fed rate cuts this year as well and the market was pricing six rate cuts from the Federal Reserve which is quite farcical and Christopher Waller reset that narrative earlier this week with his comments I think it was Wednesday when he was talking about the need to be cautious when it comes to cutting rates and saw no need to rush in to rate cuts so I think that has also helped reset market expectations on that so let's look at euro dollar euro dollars found support two days in a row at around about 108 40 also coincides with the 200 day moving average so I think that's going to be a fairly decent area of support I've talked about that in my daily updates 108 30 40 if we can hold above that then we could well start to reach back towards 109 40 and 110 but there's not really that much to get excited about and we are still pretty much in the border uptrend that we've been in since those October lows so I see no reason to change my view that euro dollar is likely to be very much a case of buying the dips similarly on cable now you can argue that this could be or does appear to be forming some form of topping pattern we've got three sets of highs at 128 but we've also got three sets of lows at 125 90 126 so it's really a question of playing that I think if you get a break below the 50 day moving average year and 125 80 then you could see a little bit of selling all the way back to 124 and a half but overall this again looks pretty much a range trade and let's not forget that while we've got the ECB the Bank of Japan next week we've got the Bank of England and the Federal Reserve the week after so it'll be very interesting in the context as far as the Bank of England is concerned what their forecasts are for inflation and GDP going forward for the rest of 2024 when they publish the February projections for the UK economy but certainly based on the data rate cuts for the Bank of England could come in June but at the moment the market is pricing sometime in August that is actually having a fairly decent effect on euro sterling euro sterling is weaker but again we've broken this trend line here but we haven't been able to take out those lows down there so again this appears to be very much a range trade and probably will continue to be so so we're looking 84 85 85 50 85 40 85 30 on the downside 86 87 on the upside very much playing the range on euro sterling we've also got next week US fourth quarter GDP and while the UK consumer is on its knees given those retail sales numbers that we saw this morning there they are right over here right there um the US consumer on the other hand is looking much more resilient and retail sales spending did pick up towards the end of last year after a week October and consequently I think this week's Q4 personal consumption number because we also got US core PCE so that's going to be very in that's going to be I think instructive in terms of the debate about a March rate cut which I think is pretty much done you know we're not getting it it's not going to happen and I think core PCE is likely for December is unlikely to shed too much light on that but fourth quarter GDP might that's been revised up in the past few days we're expected to see something in the region of about 2% that was revised up from one and a half percent which you know while it would be the weakest quarter of 2023 it certainly wouldn't be by much so um the resilience of the US consumer likely to give a boost to the personal consumption of US GDP and likely to keep prices while slightly weaker still around to two and a half percent for US fourth quarter GDP on the earnings front we're really starting to kick into gear now in the wake of the earnings numbers that we saw from the US bank and we've got not only have we got Netflix and Tesla but the week after we'll start to get the big guns of Microsoft as well so um next few days next few weeks are likely to be key in the context of US earnings looking at Netflix seen a really strong rally over the course of the past couple of years if we looked at the daily chart and the rallies that was the rebound back in October when they when they published the Q3 numbers and there's the crackdown and password sharing haven't really prompted a slowdown in subscriber numbers we saw Q3 subscribers surge to 8.76 million the ads business has done really well free cash flow rose to 1.89 billion dollars obviously payment for new content was lower due to the right as an active strike and actually what they did do in Q3 was start to hedge or announce a hedging program given that 60 percent of the revenue was non-US dollar based and likely to increase over time so that's welcome so that should help boost profits if it's done correctly Q4 Netflix as it expects to see revenues of 8.7 billion um a rise of 11 percent with net additions in line with Q3 profits expected to come in at $2.15 a share which will be a big increase on the 12 cents a share from the same quarter last year this is due to the lower spending content and we just helped improve cash flow so it does appear to be resistance up here at around about 505 we can break above 510 we should we could well see further gains going forward I think the big one and this is the one I'm particularly interested in it's Tesla because that is looking a little bit weak um on the price action in front we are starting to run out a little bit of steam after the really strong rally from the 2022 lows and trading sideways pretty much for the most of the last six months and did fall to five months lows in the aftermath of its Q3 numbers back in october it is selling more cars than ever before sold 440 484 500 in um it's most recent quarter in Q4 most of these being the model three and the model y um but in china it's having its it's basically having its lunch eaten by BYD they managed to sell 526 000 vehicles over the same quarter so uh operating expenses is going to be the key factor here as well as margins um given the price cuts that they've announced not only in china but also in europe and I think that is going to be a key component going forward total automotive revenues have been rising but the main growth area has been its telegeist has been its energy generation business which has seen revenues increase over time albeit it's only 1.4 it was only 1.56 billion dollars um in Q3 margins a year ago were 17 17.2 percent they're 7.6 percent now so it's going to be a very key area going forward how much impact is tesla going to have to take on margins to try and shift the same number of vehicles it sold 1.8 million vehicles last year and musk will be hoping to sell and hit that 2 million barrier in fairly short order the only question is at what expense would it be when it comes to its margins so I think that's going to be the key area for tesla consensus forecast for q4 revenues are in the region of around about 25.6 billion dollars so what are their projections going forward obviously we've seen what we've heard about the shutdown of the berlin factory for two weeks due to a lack of parts caused by the disruption in the red sea so that could impact revenues in q1 and deliveries in q1 and your revenues it's better to come in at 97.3 million dollars okay listen I've rambled on long enough so I think we can pretty much say that's pretty much it for this week once again thanks very much for listening I hope you all have a great weekend stay warm stay dry speak to you all same time same place next week thank you very much for listening