 Good morning. Welcome to CMC markets on Friday the 14th of July and this quick look at the week ahead with me Michael Houston got quite a lot to get through today Largely on the basis of the fact that this week ahead will actually be a look two weeks Head given the fact that I'm I've got a I've got a week's holiday coming. So consequently What I didn't want to do is not cover The Federal Reserve Rate meeting the ECB rate meeting and the Bank of Japan rate meetings as a Jew on the week beginning the 24th of July so not only are we going to be covering the week beginning the 17th of July Because we've got some important data coming out In in the week ahead But also the week after is going to be equally important particularly in light of the price action that we've seen So far this week Now last week this time last week. I Basically was scratching my head as to why we saw the big declines that we did in the latter part of the week and I postulated at the time that it was largely as a consequence of those really hawkish Fed minutes Coming on top of obviously a very strong ADP payrolls report and some strong service ISM data and ultimately the the minutes showed that Fed policy makers We're looking at at least another two or three Fed rate rises US rate rises between now and the end of the year Now obviously The things have moved on since then quite a bit I you know at the time We were talking about, you know the potential for we saw a big spike in yields UK guilt yields Went over five and a half percent We also saw a similar rise in US two-year yields, which made marginal new 16 year highs and I noted at the time there was that big spike up there now consequently since then we've seen a really big correction in those moves higher that we saw in the middle of last week and Large part of the reason for that and actually I think for me I was always skeptical about this idea that the Federal Reserve was going to hike by more than say Two times between now and the end of the year. In fact, I was skeptical that we're going to be able to do to at all Which is why those minutes were such a surprise now since then obviously the the debate has moved on at the beginning of the week we saw Chinese inflation Come in at naught point one percent year-on-year Moved further into deflation in the PPI numbers to minus five point four and Consequently, we've also seen US CPI Fall from four percent to three percent But what was particularly interesting was that actually core prices fell more than expected They fell below five percent four point eight and then we had PPI The day after and if you recall what I said in my video last week I suggested that PPI could actually be even more important and consequential in the context of what to expect from the Fed over the course of the next few months and So it proved because you have PPI Year-on-year came in at naught point one percent. So within You know within touching distance of def deflation and core prices actually fell more than expected as well They thought it fell to two point six so Whatever Fed officials would have you believe About their desire To hike rates more than once and July is going to be just July is going to happen We're going to get a rate hike in July The biggest challenge that chair Powell will face I think at the press conference Will be how to convince the markets The Fed is serious About the prospect of keeping another rate hike on the table when all of the data points to inflation falling sharply and It being highly unlikely That they will be able to hike again We've also bear in mind that Between the July hike and there will be two payrolls reports to CPI reports and Given the fact that PPI is almost on the verge of deflation You're not seriously telling me that by the time September comes round The data will support the prospect of another rate hike. I talked to a great length last week about Terminal rates and the likelihood of the Federal Reserve Hiking by another two or three basis points and the Bank of England in particular That you know the prospect that they could actually hike rates as far as six and a half percent in a sense This week's decline in the dollar and declining yields Makes the Bank of England's job a hell of a lot easier when it comes to their own fight against inflation And the reason for that is obviously cables higher So that has a disinflation reimpulse on imports coming into the country and makes them cheaper The more important than that it acts in a way a higher pound axe as a rate hike anyway By virtue of the exchange rate what we've also seen is a big rebound in equity markets Almost like a relief rally After the fears that we saw at the end of last week and the relief rally sort of started on Friday And it's continued this week and the FTSE 100 is held above that 61.8 So financial retracement level 7,200 It's also a GAN number. So it's a really really big support level Around about 7,200 and we've held it and that's a big big relief because ultimately it keeps the the prospect of Further FTSE 100 gains very much on the table and a move back to 7,500 and the highs that we saw at the start of this month the FTSE is still under performed Obviously the Chinese economy There are still concerns around that And as we look ahead to next week, we've got second quarter GDP numbers out of China As well as retail sales and industrial production and obviously the trade numbers that we saw this week were extremely Disappointing nonetheless the fact that they were disappointing would appear to suggest that at some point the People's Bank of China and Chinese authorities will Bring in some form of fiscal stimulus Or monetary policy stimulus to try and support the economy at the moment They're bringing in measures to support the property sector, but I have a feeling while we we won't see Large-scale stimulus. We will see some form of measures to support the economy And given the fact that this week's data out of the US has been broadly supportive in terms of the labor market And falling inflation. We've got a little bit of a Goldilocks scenario when it comes to the US economy Now the next few weeks are going to be a key test of that narrative Because obviously we now have we are now starting to move into earnings season Today we've got the latest numbers from JP Morgan Chase City Group and Wells Fargo They should give us a decent insight into the health of the US consumer more importantly How these banks feel about the health of the US consumer? What some loan demand is like and whether or not we see further provisions in respect of non-performing loans as we look ahead to? next week we also have Further earnings numbers from the likes of Netflix and Tesla and Goldman Sachs As we get underway in earnest, but overall the rebound that we've seen thus far in equity markets Hopefully Will continue on the basis of the fact that the dollar should remain weak yields will continue to come down and really then It's just a question of how positive or not The earnings numbers from the various companies that are due to release over the course of the next few weeks in terms of the week coming up Obviously, I talked about Tesla. I've talked about Netflix But before I get on to them I want to talk about I just want to have a quick look at the the various indices that I covered last week So we got this little bit of a break lower. It turned out to be a false break Or last week the end of last week we're now back above and within this key support line and We could we'll see or look for a bit of a retest of the highs back in June We're seeing a bit of a pullback today That's entirely expected Given the fact that we've we've risen for five days in a row You're gonna get a little bit of a pullback given the fact we're heading into the weekend But what's more important is the range more or less of the last few weeks and months has remained intact Similarly the cat which I showed you last week Managed to hold above This support area here and also we're still above the 200 day moving average. So again here I Think for me we might need to get rid of this trend line completely because it's not really helping We've got a fairly decent resistance level through these peaks through here. We've managed to rebound quite nicely if we do get If we do get some form of stimulus out of China Obviously luxury stocks will fill the benefit of that you would hope Retail sales numbers out of China next week should give us a decent indication as to how the the Chinese consumer is Performing but I would argue they're not going to be particularly positive given the fact that we saw Some fairly poor trade numbers out of China earlier this week. So for the China GDP We have an expectation that the economy will slow on A quarterly basis to 0.6 percent as a reminder The economy the Chinese economy expanded or rebounded in Q1 to the tune of 2.2 percent as the economy reopened at the end of last year Came out of COVID and you've got a little bit of a rebound a Chinese new year rebound That has slow so 2.2 to 0.6 Now Chinese retail sales That's going to be a slightly trickier one I think the expectations are fairly low We're expecting to see a rise of three percent Now when you consider that may rebounded by twelve point seven That's a really significant slowdown and it's it's more marked by the fact that a year ago The Chinese economy was still under various states of restrictions and lockdown So, you know three percent rise in retail sales in June is pretty poor. It's pitiful if I'm honest And industrial production is also expected to slow from three point five percent to two point five percent So those numbers are out on the 17th of July So keep an eye on them because I think if they are weak Counter-intuitively the market may greet them fairly positively because it means that we could well get Some more easing from the Chinese central bank It's also a big week for The pound the United Kingdom now we've seen some we've seen some Middling shall we say economic data this week may GDP Was disappointing like we saw a contraction in the UK economy in May But we only saw a 0.1 percent contraction and I think many people have been expecting a bigger one of around about 0.3 So that would suggest that we did see some growth in the second quarter Obviously, we've only seen April is a maze and but April a major GDP June Is likely to be better? Obviously may was weighed down by the three bank holidays that we saw they made the additional one because of the coronation Also, so we also saw an awful lot of strike days in May as well and the way the UK measures GDP It basically takes numbers from the health care health health and education. So there was an awful lot of public sector disruption there Which would have impacted those numbers The strikes haven't been as prevalent in June So you should see a little bit of a rebound there But the big numbers for the UK CPI they are the numbers that will dictate Whether or not we get a 50 basis points rate hike from the Bank of England in August or 25 Now certainly the wages numbers that we saw Earlier this week would appear to suggest that we are leaning towards 50 But it could be 50 and done or it could be 50 and 25 Now I talked last week extensively about my skepticism about a Bank of England terminal rate of above six percent I think if the Fed stops hiking Then the Bank of England May only hike one more time or two more times after that. There's certainly no more than 75 And the bigger question is whether or not they do 25 or 50 in August. So that for me Is the big question now obviously in In May we saw headline CPI coming at 8.7 percent We've seen cable break higher on the basis that the Bank of England is probably going to be hiking more than the Fed I mean, well, yeah, they are. I mean, I think the Fed is going to do 25 in July The Bank of England is probably going to need them to to do another 50 at least. So if they do do if they do 25 In August then it's highly likely that they could do 20 another 25 in September I personally think that they need to do 50 In August and then see where the land lies in September because in September Inflation could and should be an awful lot lower. What are we expecting for this week? Um A slowdown to around about 8.3 is what markets have got priced in I think that's entirely sensible The energy price cap falls in July So it won't be in the June numbers. So you could see a big drop In headline CPI and we would hope to see a big drop In August when the July numbers are released. Unfortunately, the Bank of England won't have cited Of next month. I think what's more important obviously is core core CPI because that's at 7.1 percent You know, we want to see that come down We want to see it come down back with seven back into and have another six handle But even of itself it won't change the calculus about further rate hikes But I certainly think it will add confidence that we won't see a terminal rate of above six So you could see pricing there start to come down because if we look at the way UK Two-year guilt yields have behaved over the course of the past few days We can certainly see that that move higher that we saw At the end of last week Has given way quite significantly over the course of the past few days. That is good news If that continues, which I think that it will Then we could well see Those that that rate pricing come in quite a lot I think an awful lot of people will be hoping so as as as will I Because it certainly feeds into my narrative the Irrespective of what happens. I still see the pound going higher Because UK rates will need to stay longer So we'll need to stay higher longer than say for example the u.s That should be supportive of sterling If the economy holds up and yes, the UK economy faces enormous challenges We've also got retail sales on the 21st. So we've got cpi on wednesday and We've got retail sales on the friday. We've also got us retail sales coming up this week They should be fairly supportive of The u.s economy not expecting too many surprises there but certainly the I can certainly see potential for cable to go higher now or above 130 head towards 133 Potentially even 135. I think we've hit A period of significant dollar weakness Which brings me on to dolly end. Let's quickly cover that because this is important in the context of what the bank of japan might be looking to do Over the course of the next few weeks now Obviously the week after next i'm not doing a video next week because I will be off next week and for the first couple of days the week after The bank of japan there are some there is some chatter that they could look to tweak The yield curve control When they meet at the end of july on the 28th of july got the federal reserve We've got the ecb and we've got the bank of japan Expecting a rate hike from the fed expecting 25 from the ecb So you're getting Rate markets between the u.s and japan starting to diverge because if that is in fact the fed's last hike Which I think it will be markets will start pricing rate cuts. They won't come this year They'll probably come at the end of first quarter next year because the u.s economy still remains fairly resilient The unemployment rate is 3.6 percent. So there's no need For them to start loosening monetary policy So the you know the bigger question is when is the next when is when are the rate cuts coming if the fed does in fact Go on pause for an extended period not much before Beginning a queue too. So whatever that, you know, however you slice and dice that That essentially means that you're going to get um, u.s rates Start to come in and that should be supported with the yen Consequently you should see dolly yen start to come down. It's held above its 200 day moving average I really don't know why that is Red and blue. So i'm just going to make it red. There we go So we've rebounded off the 200 day moving average Got some fairly decent support there. We're in the cloud now But I would expect that to continue to come down over the course Of the next few weeks, we could see a bit of a squeeze back to 140 But I think the direction of travel is set We saw a bearish engulfing week last week. We've seen further declines this week You could see a little bit of a consolidation Could even squeeze back to 142 But I think the die is cast in the context of dollar weakness over the course of the rest of this year That should be fairly supportive Of equity markets going forward and the bigger question is whether or not people are talking about u.s markets retesting their record highs Yeah, maybe maybe not. I mean to be quite honest, you've got to go with the trend when it comes to that So certainly I think if we look at the s&p and we look at the nasdaq The trend still remains higher So, you know, can we retest those highs? Well, the The s&p's got a long long way to go before we even get close to that But certainly I think April highs back 46 20 That's that's that's entirely possible If we look at the nasdaq the nasdaq is very much outperformed Over the course and it's now back above 15,500 which I must admit. I didn't see coming but again Back here One of the key takeaways and one thing that you guys do need to be aware of Is they're rebalancing the nasdaq on the 24th of july So the magnificent seven those big seven meta mega stocks of meta amazon microsoft apple tesla Nvidia They are all they they basically make up over 50 of the nasdaq 100 So nasdaq have decided to rebalance the index So that those numbers come down to around about just below 40 So there's not as much of a bigger weighting So you could see the nasdaq affected by the fact that those big seven They're waiting is being shaved by about 20% Off the nasdaq from 50 to just below 40 So you could see a little bit of a headwind there, but overall still remain very much in an uptrend for all of those Okay, so in terms of the earnings numbers, obviously we've got tesla out this coming week So I'll quickly cover that and then of course the week after next we've got um Apart from the fed decision the ecb decision and the bank of japan decision We've all got we've also got numbers first half numbers from Lloyd's banking group barclays vodafone shell That west group microsoft meta platforms an alphabet. So a big big two weeks coming up Let's first and foremost look at tesla another record quarter in terms of the number of vehicles sold Coming back to 280 obviously the next target here is around about 300 which is in september highs I think the big question for me is Yeah, they sold all of these cars But what impact of those sales had on their margins because one of the notable things about this particular quarter has been the number of price changes that tesla has announced over the course of the past three months having said that there have been some big wins in terms of Reports that many of its peers like ford gm box wagon and Mercedes would adopt its use us charging standard So that could Certainly help it in terms of Price of use teslas four-year production guidance Is currently 1.8 million vehicles that would be interesting to see whether or not they revise that up netflix Password sharing given it a really big boost, but the big big chart point here on netflix for me Well, it's this gap It's this gap from january 2022 we gap down from here to here because of a profits warning We've we retrace some of it, but there's still this big gap between here and here So the big test I think this week When they announced their q2 numbers Will be whether or not They are able to deliver q2 revenues of 8.24 billion dollars With an expectation of profits of around about 1.28 billion dollars or two dollars And 84 cents a share now We could see a drop in subscriber numbers, but that's not the issue the issue is because obviously If the crackdown on password sharing will incur what I would call is a little bit of subscriber shrinkage but will Will the crackdown increase the revenue that Netflix has managed to accrue over the second quarter more importantly What does it mean for its q3 numbers going forward? So 456 is going to be a big test for netflix when it releases its third quarter numbers Okay, so I've got on for long enough as I say I see the next two weeks I'm going to be big weeks for financial markets got a whole host of stuff to get through Which is why I've tried to basically cover as much as I can given the fact that I'm off next week, but I hope you all have a good good weekend and profitable week next week until Same time in a couple of weeks time. This is Michael Houston talking to you from cmc markets. Thank you very much for listening