 Good morning. Welcome to CMC Markets on Friday, the 16th of July, 2021. And this quick look at the week ahead beginning the 19th of July, 2021 with me, Michael Husson. Before we get started, I think it's a good idea to look back at the events of the past few days, because I think one thing that we can say is that, despite the fact that we've managed to see new record highs for the likes of the DAX, the stock 600, the NASDAQ and the S&P 500, I sort of get the impression that equity markets are performing a little bit of a dance in the form of two steps forward and one step back. And ultimately, if we actually look at what markets have done over the course of the past few weeks and days for that matter, they're not really going anywhere. We seem to be in what I would call a little bit of a no man's land or a corridor of uncertainty. If we look at the DAX, we look at the FTSE 100, we can see it here with the FTSE 100 chart. We haven't really gone anywhere since April. We've made a marginal new high in June just above 7,200. But more broadly, we've pretty much been trading 7,000, 7,200. You pay your money, you take your choice. And while for a jobbing market, that's quite nice. In terms of overall direction, I think it speaks to an awful lot of uncertainty about what's likely to come next. I think the lack of follow through that we've seen on this week's new highs in Europe, as well as the US, appears to speak to uncertainty about a trifecta of factors. And I've mentioned that in my various notes this week. These factors are continued increase in Delta variant cases, the pace of recovery, which appears to be slowing, and concerns that the rise in inflation may well not be as transitory as central bankers would like. And we've certainly seen that in the underlying inflation numbers. PPI, CPI from the UK and the US this week. UK inflation at 2.5%, well above expectations. US CPI at 5.4. Again, and core prices at the highest level since 1991 in the US. Then we've got PPI, which generally tends to be a forward indicator for CPI, 7.3% in the US final demand, but even with excluding energy and food still above 6%. And I think these concerns that central bankers are underestimating the outlook for inflation. I've seen a little bit of a shift in some central banks this week. The Reserve Bank of New Zealand, for example, has announced its ending its asset purchase program on the 23rd of July. The Bank of Canada has said that it's reducing its asset purchase program. And yet we have Jerome Powell this week saying that the Fed is a long way from seeing substantial progress when thinking about altering a monetary policy. Well, obviously he has to say that, but when you've got inflation trending well north of 5% and likely to go higher, how confident can you really be that all of what we're seeing is transitory and not more persistent? Now, for the time being, bond markets are buying that narrative. We can see that with respect to the US 10 year. What's notable here is though that we haven't seen new lows. So could that be a turning point? If we look at the two year, it's a similar sort of story. When we look at the US two year, we've come off the highs, but we're still around about 0.2, 0.23%. So I think it's also speaks to the truth that what does the Fed mean by substantial further progress? Because substantial further progress can mean different things to different people. What could it mean in terms of a change of circumstances? Central bankers appear to be flying by the seats of their pens and no one is suggesting that they set out a timeline for raising rates. But given where the economy is now, given the fact that both in the US and the UK, the vaccinated outweigh the unvaccinated, there's no reason to suppose that the same levels of stimulus that were needed a year ago when the economies were on their uppers is needed now. And that I think is the important thing that really we have to look at. Bank of England this week, two members of the Bank of England, Deputy Governor Dave Ramstone, and External Monetary Policy Committee member Michael Saunders have articulated their unease at what appears to be happening with inflation, saying that the case for considering the pairing back of some stimulus measures is rising. Well, that puts the August MPC meeting as a live meeting. And it's rather strange that it takes the departure of Andrew Haldane, chief economist, who was way ahead of the curve when it comes to expressing concern about the tapering of asset purchases. Suddenly these two guys, they suddenly pop out of the ether and suddenly express their concerns about rising prices. They are there. You're certainly seeing it particularly in the latest inflation numbers of rising food prices, rising clothing prices, supply chain considerations are starting to feed into an overarching narrative that inflation is starting to move higher. Now, central bankers can ignore it. They can absolutely ignore it. But the fact of the matter is, I think with the UK economy where it is, whether the US economy where it is, I don't think cutting back on the amount of asset purchases would be, you know, would be the wrong thing to do. You can't keep the current pace of monetary policy in place. Now, that brings me neatly on to the European Central Bank. Now, there is one central bank that ain't raising rates or cutting back its asset purchase program anytime soon. But even of itself, that offers problems. And we can certainly see that I think in terms of how the euro could well perform over the course of the next few days and the next few weeks. And the meeting is important. The meeting is important in the context of comments that ECB President Christine Lagarde made earlier this month. We've already heard that the ECB will be changing its inflation mandate and attempt to try and give itself more flexibility over monetary policy. Its previous mandate was to keep inflation at all below 2% over the medium term. Now, its new mandate gives the central bank a more flexible and dovish inflation target of 2% more akin to the Federal Reserve. Though you'll never hear the ECB admit that they're adopting a more Federal Reserve type inflation mandate. For me, I think it's really a change of style over substance. The ECB hasn't been able to hit its inflation target for the last 10 years and isn't likely to. The inflation, the latest inflation numbers at 1.9%. It still remains very subdued. Now, there is very much more of a demand problem in Europe than there is say, for example, in the UK and the US. And that's why I think European inflation is that much lower. But we're going to get a little bit of light shed on comments made by Lagarde earlier this month about the PEP program. The forward guidance, an upcoming policy shift on the forward guidance on the PEP program. Now, currently this sits at $1.85 trillion. It's due to run until at least March 2022. And there's already been significant pushback about the fact that it needs to end there. Lagarde's comments suggest that it's probably going to last an awful lot longer and get pushed out maybe to September 2022. Now, there is likely to be significant pushback on that, given where the European economy is now, given where delta COVID variant cases, how quickly they're rising and how far behind Europe is in terms of the vaccination stakes. And that would mean that we're likely to see pushback to that. And I would suggest that any decision on that is unlikely to be unanimous. So the ECB rate meeting on the 22nd of July is the key item that I have my eye out for this week. We've also got flash PMIs from France and Germany on the 23rd. We've got UK retail sales on the 23rd. We've got UK flash PMIs on the 23rd. So all the key economic data comes at the back end of the week, the 22nd and the 23rd of July. It's also a significant week for earnings. It's been a big week for earnings already. US banks have posted some fairly decent numbers, all with a common theme, disappointing fixed trading. But overall, equities, wealth management has done fairly well. One other factor though has been fairly subdued loan demand. But I think that people are making a big thing of that. And I think certainly in terms of businesses, that is a concern. But I think with US consumers sitting, an awful lot of US consumers still sitting on their stimulus checks. I think the fact that loan demand is low is probably not the big deal that an awful lot of people make it out to be. Just because you're not spending your stimulus money doesn't necessarily mean that the economy is starting to slow. So having said that, retail sales numbers, US retail sales numbers have been patchy over the course of the past few months. So it's difficult to tell where the US economy is right now. We know that the US economy has over 9 million vacancies. We also know that the US participation rate is about 7 million lower than pre-pandemic. Now, a good number of these workers may have well have retired early. They may have dropped out of the labor force completely. The fact is there's probably a little bit of slack in the US labor market, but we really don't know how much there is. We don't know how many people will return to the labor force after the emergency stimulus benefit measures end in September. And I think that's what makes it so difficult to really know what the underlying inflation outlook is with respect to the US economy and where we are in terms of the overall economic recovery story. And that's before we even start to consider the infrastructure plan, the Biden infrastructure stimulus plan and what that could give to the US economy in terms of a significant uplift. So that's the picture over the course of the past few days. And it's a picture that is likely to continue over the course of the next few weeks and months. So what does that mean for stock markets? Well, I've already talked about FTSE 100. We've got a nice little trend line coming in through here. I think there's fairly decent support between 69, 80 and 7000. And I think while we're above that, then I think the range trade is likely to continue. And in essence, I'm still of the opinion that the FTSE 100 can move higher. In terms of the Germany 30 or the DAX as we like to call it, we're probably going to finish the week broadly flat on the week, despite those modest new record highs of earlier this week. But even if we do fall, and this is Thursday's big falls, we still remain well above this series of lows through here in June 2021 and obviously in July as well. So I think the July lows, which correspond with these lows here are likely to be a key support going forward. And as long as we stay above those key levels, then, you know, despite the moves towards the downside that we've seen, they generally tend to get fairly quickly reversed. It's a similar sort of story when it comes to US markets here. You know, we've seen an awful lot of chop from the record highs of earlier this week. But nonetheless, we still are well above that 4,300 area. And I think that for me, I think is going to be the key level 4,300 also coincides with that trend line there. So in terms of keeping an eye on any dips, that is the area that I'm looking for in terms of the S&P, the NASDAQ. That's quite a nice line and it's respected that so far. Three highs around about here, 15,000. The 15,000 level, that's likely to be a bit of a psychological area. But if we can make gains above that, then we could well head towards 15,200. It would be interesting to see how the market reacts back near 15,000 if and when we get back up there. The Nikkei 225 has seen a significant outperformance, underperformance rather. And I think with the Olympics coming up and the fact that I'm still trying to figure out why they're even taking place. Given that there's a state of emergency in Tokyo and a large part of the Japanese population still remains unvaccinated. I just think that's an accident waiting to happen. Nonetheless, the Japanese economy is struggling. The Bank of Japan downgraded their growth forecasts for this year while moderately raising the inflation forecasts. I don't know what I'm more worried about them raising their inflation forecasts or cutting their GDP forecast. Given how benign inflation has been, maybe I should be concerned about inflation. But there we go. It's been a mixed week for currencies. I think the best the best performing currency this week has been the Kiwi. Obviously on the back of that surprise move by the Reserve Bank of New Zealand in ending their asset purchase program starting the 23rd of July. And I'm wondering if that's the first domino in a row of central banks who are considering pairing back their asset purchase program. Certainly the mumblings or the murmurings from Bank of England official officials speak to a direction of travel on that point. That being said, we hasn't really affected the direction of pound. We're still respecting this upward line on the CMC sterling index. We've seen euro sterling make fresh new lows. But what we haven't seen is a significant breakout on euro sterling. And I think a much, much of the reason for that is probably as a consequence of this resistance level through here on the CMC sterling index, which is well worth looking at in the overall, you know, in the overall scheme of things when it comes to looking at sterling strength. And that's no more better borne out by these moves here in euro sterling where we broke below 85 30, but we haven't really followed through that much. And even if we do this still fairly decent supported around 84 80, but I'm still in the mindset that euro sterling line of least resistance is very much a sell the rally mentality. And actually we can probably draw in a trend line through these peaks here to give us a better idea of where we are when it comes to the trend on the euro sterling chart. Okay, so that's that's your sterling euro dollar with the ECB meeting coming up this week was coming week. Again, we've got fairly decent support on euro dollar is bit like watching paint dry this currency. It's certainly not affording us too much in the way of trading opportunities. But what we can tell from this particular chart I think is that there's fairly decent resistance anywhere near 119 and fairly decent support in around 117 and a half. And he said I can't really I don't really see too much happening apart from that. And then looking at the dollar index, CMC dollar index looking fairly well supported above 960 here, likely to see further gains on that over the course of the next few weeks, even as the euro starts to weaken because it's with we're talking about the travel now when it comes to central banks, and given recent narratives that are coming out, the Federal Reserve and the Bank of England look more likely to take precip purchases than does the ECB. So I think that's what you have to bear in mind when you're looking at currency pairs more broadly. Okay, so let's move on to earnings it's been a fairly positive week for earnings all told. And I think the big question, more than anything else is whether or not this is going to be the high watermark when it comes for profits and whether or not q3 is going to be anywhere in anywhere near as positive expectations have been when it comes to q2. I'm going to start, I think, with easy jet. Now airlines have had a rotten week this week, we've got the economic reopening coming up on the 19th of July. I've got to say that the, it's reopening in all but name seems to me that the onus now appears to be on private individuals and businesses to decide what works when it comes to mask wearing and entering an existing premises, rather than the government operating it which seems a little bit of a cop out more than anything else and all it does all it does is it basically, you know, creates a very multilateral way of doing things. Two thirds of the population UK population is now double jabbed. Yet we still have infection rates rising and hospitalization rates are now starting to increase, though not by anywhere near the extent that we saw back in January February, despite the fact that infection rates are probably at similar levels but you've got to remind that we're testing an awful lot more people than we were back in January and February so the real rate of infection in January February was probably an awful lot higher because an awful lot of infected people probably weren't even being tested. So, you know, you have to put the, you have to put the infection rates in the context of how many tests are being administered. And the uncertainty about where to travel, how to travel amber lists, red lists and green lists, seen easy jet shares, get a little bit of a clobbering along with the rest of the sector. Now, there has been some talk that fully vaccinated people might not have to quarantine after traveling and double jabbed people also may not have to self isolate from August 16. But that doesn't change the fact that air passenger numbers are still markedly down from where they were pre pandemic. And all of those hopes of a summer holiday boom appeared to be significantly misplaced and that means that we have to reassess the likelihood of what I would call a return to normal for air travel. Now, for now, easy jets got unrestricted access to 2.9 billion pounds of liquidity. It's raised over 5.5 billion pounds since the start of the pandemic. However, the sector remains a long way from any semblance of return to normal. And really it's just a question of, you know, how well these Q3 numbers are likely to be. They expected to fly around 15% of its 2019 capacity for Q3. That means that the airline will have seen three quarters of capacity below 20%. And it's unlikely the young coming Q4 will probably be any better as we head into winter and the weather gets a bit colder. So, you know, I think there is a risk we could come all the way back here. And really it's just a question I think now, you know, what does 2022 bring us because I think 2021 is going to be a right off. And the markets I think starting to price the prospect that very possibility. And we've also got Royal Mail Group done very, very well this year. As we can see, we're not quite back at the levels that we were back in 2018, but we certainly wiped out all the pandemic losses. That proves a very solid year, fully of profits last year came in 726 million. Higher operating costs have been a concern for Royal Mail. This is a weekly chart we're looking at. Let's look at it daily. Just quickly change that. There we go. Got slightly out over its skis I think in terms of the way the price has moved over since the beginning of the year. So it could be due a little bit of a pullback towards its 200 day moving average as the current move looks slightly over extended. This week's Q1 update is expected to see May volume slow a little as more people venture out as the economy reopens and consumers shop from home less. So you may see less parcel volumes in this quarter, given the fact that the last quarter we are pretty much confined to our homes. So that's Royal Mail. Oops, today's it just put that back there. Okay. I'm going to talk about Netflix. That's going to be a particularly interesting number I feel in terms of subscriber growth, user growth for Netflix. Let me cast your mind back, ladies and gentlemen when Netflix reported its big miss on first quarter user growth in April. Now, you may recall that shares fell back sharply. That's here. This really shouldn't have been a surprise. I think markets were a little bit over optimistic that Netflix could replicate the explosive user growth of the past 12 months over the course of the next 12 months. Revenues have been very good revenues came in much better than expected at $7.16 billion profits came in at $3.75 cents a share well above expectations of 298 Netflix have been able to increase their prices. And it doesn't appear to have affected the growth in the number of users. Netflix is also having to contend with increased competition. Disney plus Apple TV plus the recent merger between Warner media and Discovery. Amazon paying $9 billion for the MGM back catalog the James Bond films and what have you for its prime offering. Okay, so these are all the challenges faced by Netflix. What was particularly disappointing was that the slow down in user growth that we saw in Q1 saw the disappointing user growth user growth estimates for Q2. One million. That's what Netflix is predicting for Q2 one million new users well below the estimates of 4.4 million, which markets had been expecting back in April, certainly sharply down from last year's 10 million. But you're always going to get what I would call a little bit of a consolidation, given the fact that last year's numbers were pumped up because of the various COVID lockdowns. Obviously there's been an awful lot of other things to be distracted by over the quarter tennis cricket Euro 2000 Euro 2020 rather football tournament, particularly how well England did so that's likely to have impacted the Q2 user growth estimates. Nonetheless, still expecting Q2 revenues to come in around about $7.3 billion. And while the next two quarters are likely to slightly slower subscriber growth numbers, the second half is likely to see numbers pick up because we've got a whole host of new content or expecting a whole host of new content in terms of new series of stranger things lost in space. Also, Netflix have just announced a planned move into streaming video games in an attempt to attract a much younger cohort of users. Obviously this announcement hurt the value hurt the share price GameStop, which was quite interesting. So management is still thinking on their feet. They're still looking to grow and diversify. And they also do an awful lot of international content and the market leader there. So I think there are a number of factors to be optimistic about Netflix share price. Having said that, that's in a range as well. We look at the bottom end of this range. We look at the top end of this range. We've pretty much gone sideways and it'll be very interesting as well to note whether or not management still remain of the opinion that the company will be cash flow positive by the end of this year. Another favorite Tesla. That's looking particularly interesting and it's also looking particularly vulnerable. Gross margins on Tesla cars have been falling quarter on quarter. They came in at 19.2% in Q4, which was the lowest in 12 months. There has been positive free cash flow, but they still can't make any money from selling cars. And competition is only going to get fiercer with from the likes of VW, Ford, General Motors, the China love affair. China is falling out of love with Tesla. Chinese authorities have banned Tesla cars from some of their car parks because of the cameras on the Tesla cars. Tesla's had problems at its new Brandenburg plant in Germany, which now looks as if it's not going to open for production till much later than scheduled. Yes, it is expecting to produce a new crossover SUV model in Austin. Brandenburg could well take a while to come on strain. Professors have expected to come in around about 94 cents a share, but Tesla is involved in a price war, which means that we're going to need to pay particular attention to margins. And I think that that could well, you know, if we get we get a disappointment there, then we could see Tesla's share price drop below its 200 day moving average and head back towards the lows that we saw in early May. So maybe Musk is starting to lose his. Oh, maybe investors are starting to lose their order when it comes to Elon Musk. We've also got Twitter's latest announcement as well. Again, the big problem with Twitter is monetizing its users. It is trying new features, it's experimenting with new products. These are struggling to catch on at its last quarterly update results for revenue and monetizable active user growth came in short. Now companies ambitions are to basically generate revenue by 2023 annual revenue by 7.5 billion dollars 7.5 billion dollars they can barely generate a billion dollars a quarter. So how they're going to virtually double that is anyone's guess. So to justify its current valuation, the company will have to really start accelerating how it monetizes its user base. Now, there's been a couple of things that they've done to try and change the way it interacts with clients. Leeds new products like fleets, which was a stories like feature, which to be fair, I have never used and never want to. And Twitter has taken the decision to remove fleets. So it turned out to be rather fleeting. Sorry about that. And there's also a new product called spaces. So I think unless Twitter can harness the holy grail of monetizing as well as growing its user base, investors should be prepared for more disappointment when it comes to Twitter's latest numbers. Okay, so I think that's pretty much it for this week taken slightly longer than normal to do this particular video, but I'd like to thank you once again for listening. I wish you all a pleasant weekend and I hope you have a successful trading week in the coming week. Thanks very much for listening. This is Michael Houston talking to you from CMC Markets.