 Good morning. Welcome to CMC Markets on Friday the 28th of July and this quicker look quick look at the week ahead beginning 31st of July 2023 with me, Michael Houston. Well after a one week break back in back in the seat and it seems to me that normal service has been resumed when it comes to equity markets. We've seen some fairly decent gains over the course of the past couple of weeks. We look at the FTSE 100, it's back above 7,700. Certainly starting to claw its way back slowly but surely on this daily chart that we've got here. Still well below the record highs that we saw earlier this year, but nonetheless there does appear to be some momentum behind this current move. If we just put in a trendline wrong one just put in a trendline here and see where the top of that line comes in. We've certainly got potential to head a little bit higher. Rebounded quite nicely off that 7,200 area that I identified a couple of weeks ago at the beginning of July as a key support area. So we've managed to hold above that and I think the big question now is whether or not we can sustain a move higher back towards this downtrend line here because that I think for me is the next key barrier for the FTSE 100. Now we appear to edge back towards 7,000 and above 7,700. We need to sustain that move. The DAX retesting the record highs of earlier this year come to within touching distance of that yesterday at around about 16,430. So that's going to be a key barrier for further gains going forward. And we've also seen a fairly decent bounce back in the cat current particularly led by the luxury sector companies like LVMH, Hermes and what have you which have undergone quite a choppy last few days but we do appear to be looking to head back towards 7,500. So European markets are sort of just shy of some key resistance levels and I think really how we react around those levels will determine whether we hang on to these particular gains or whether we start to roll over. Everyone's talking about the risk that we could see a market crash. Again, yes, that is the narrative that's being spun by an awful lot of people but ultimately what it boils down to me for me is price action. Price action is still positive. We're still above. We're still in an uptrend. We're still above the 50 moving average. You know until such times as I see some significant evidence of a change of sentiment a significant change of sentiment then really I think the bias is likely to continue to remain towards buying the dip. We saw the S&P briefly tick above 4,600 yesterday in the wake of those US second quarter GDP numbers which were very solid also solid set of durable goods numbers and weekly jobless claims fell to 221,000 so and continuing claims fell below 1.7 million. So I think despite the fact that we've seen the Federal Reserve hike rates this week again to a 22 year high, the ECB do the same thing, hike rates to a 22 year high, markets still remain remarkably resilient. I think what has been notable in the past two weeks obviously UK guilt yields have fallen back from the peaks that we saw earlier this year. We're still around about 5%. I think the perception still is that the Bank of England has quite a bit more to go when it comes to raising rates but certainly I think the more pessimistic scenarios that had the terminal rate at around about 6.5% have been pared back somewhat and quite rightly so I think that anyone who thinks the Bank of England is going to want to push rates to that sort of levels, that simply doesn't stand up to scrutiny. So swap rates for the expectations for the terminal rate have fallen back below 6% and I think that's quite right. I think the terminal rate is probably at 5.5% at the most and we've got the Bank of England rate decision coming up in the next week or so. We've also got US non-farm payrolls. We've got flash CPI for July from the EU and we've got the RBA rate decision and once again the main discussion I think is how many more rate hikes have central banks got left in the tank. We've seen the Bank of Japan this morning tweak or not tweak, it's your curve control policy. Bank of Japan Governor Kazuo Ueda has basically said that the ceiling for your curve control continues to remain at 0.5% but in the same breath the Bank of Japan has also said that it will be buying JGBs at a yield of 1% on a daily basis so which is it? Have they moved your curve control or have they not? I certainly think they're setting the groundwork for another policy tweak at their October meeting but certainly the direction of travel does remain. It seems clear that the Bank of Japan's current policy settings aren't sustainable when core CPI is at around about 4% in Japan so while the ECB, the Bank of England and the Federal Reserve, you could argue that they are coming to the end of their rate hiking cycles. The Bank of Japan has barely got started and I think that is going to be a risk going forward. That should put downward pressure on dollar yen. However, you can see that Ueda rowing back on the policy tweak that we saw earlier this morning has seen dollar yen trade in a very wide range, 141.08, 138.06. Interestingly, it's held currently holding below the 50-day moving average but also the series of highs here and I think that as long as we stay below 142 and these highs here then dollar yen is likely to remain fairly choppy but overall I would still argue that the likelihood is that we will see it continue to trend lower over the course of the next few sessions. So I think for me the bias for dollar yen remains towards the downside as long as we're able to hold below the series of highs through here which is around about 142.20. RETEST the bottom end of this Hichimoku Cloud channel head back towards the 200-day moving average which managed to act as support for the dollar earlier this month back in July. So the bigger question I think that needs to be answered with respect to this week is was the rate hike that we saw this week from the Federal Reserve the last one? Well, we now focus on the Jackson Hole annual symposium at the end of August and the next meeting, the next Fed meeting is in September. We have two payrolls reports in the time between now and the next Fed meeting. We also have two CPI reports. CPI is has fallen back once again it slowed down quite significantly and core prices also slowed at the last at the June reading. So I think the bias is for a pause from here on in. Similarly for the ECB GDP numbers are showing that the economy is struggling in Europe particularly Germany which I just saw a manufacturing PMI come in at 38 which is you know it's just so poor it's not funny and that would suggest that the German economy could well contract in Q3 as well as following on from the contractions in Q1 and Q2. So I think it's unlikely that the ECB will want to put even further upward pressure on rates at a time when inflation is slowing but growth is also slowing and that's why we've seen euro-dollar slow in the way or fall quite sharply in the way that it did yesterday in the wake of those comments from Christine Lagarde when she said that there was a possibility that all the heavy lifting had been done on rates and potentially that could mean that yesterday's rate hike could well have been the last but again again central banks have insisted the data dependent but overall I think the risk now is not so much pricing in rate cuts because I don't think they're likely at this point in time it's really a question now of how long do rates stay at the levels that they currently are and I don't think that is something that markets have fully got their heads around I think over the last 15 years markets have got used to lower rates and an expectation that as soon as things get difficult central banks cut rates quickly I think that particular mindset is mistaken I think rates are likely to remain high for probably longer than most people think and that rate cuts are likely to come much more slowly and I don't think that's something that markets are fully factored in rates are likely to remain more normalized now than has been the case for quite some time so let's look at euro-dollar we're looking at it at the moment let's quickly draw a quick line through here see where we are with respect to this particular trend line not much to see there but certainly I think the bias does remain for a move back to the 50 day moving average this series of lows down here at around about 108.50 that's the next key support level on euro-dollar but certainly the bias does appear to suggest that US rates are likely to remain higher for longer given the relative resilience of the US economy relative to the European economy that's why the euro's falling the market's surprising in a much slower rate of fall for US rates given the fact that the jobs market still remains fairly tight now and we got payrolls on Friday the 4th of August and and again here the July report is not going to be particular I don't think it's going to be particularly noteworthy I certainly don't think that we're going to see a significant amount of weakness in the jobs report next week I certainly think it's unlikely I think we're unlikely to see the type of ADP jobs report that we saw in June when we saw 497,000 jobs added to the US economy we could well see a little bit of a tempered reaction for the July one markets are pricing 185,000 jobs for July for the ADP but they're also pricing in 190,000 jobs for non-farm payrolls and we saw 209 in the June numbers unemployment is at 3.6 percent average hourly earnings year on year is revised up to 4.4 so certainly those sorts of numbers certainly don't lend myself to think that the Fed will be hiking again but they certainly don't think I don't certainly don't think they'll be lending to the idea they'll be cussing either so we are where we are with respect to the Fed and I think we've probably hit peak Fed we'll just have to wait and see what the numbers tell us going forward but that should mean that the dollar will probably remain slightly more resilient than say for example the euro against a pound I'm more on the fence I'm on the fence on this basis this chart here we're still very much in the uptrend that we've been in since early March decent support in and around 127.5 the Bank of England is set to raise rates this coming week by another 25 basis points at the very least we might see 50 I'm dubious as to whether we will we did see inflation slow slightly more than expected in June to 7.9 and it could be argued that the pressure for the Bank of England to hike by 50 is ease somewhat core CPI also slowed more than expected to 6.9 percent so again that's good news but it's still eye-wateringly high and you know it does mean that obviously expectations market expectations of whether terminal rate is likely to be has slipped from 6.5 percent to below six so I think with inflation for July expected to slow even more markedly as the effects of the energy price cap get adjusted lower over time there is an argument to suggest we might be close to the end of the cycle for the Bank of England so we could see 25 next week but we could see a hawkish 25 so given the fact that we've got the CPI numbers out on the 18th of August there or thereabouts the MPC could say we're going to hike by 25 we're going to shadow the ECB and the Federal Reserve but unless we see much more progress tangible progress on inflation we're going to go again in the meeting afterwards and I think that will probably be the sensible thing to do go by a hawkish 25 so that essentially you're being cautious about the effects and the pass through effects of past rate hikes which probably haven't hit the UK economy quite yet this will also be the first meeting for new MPC member Megan Green she replaces Silvana Tenreiro who's one of the more dovish members of the MPC and who voted to keep rates on hold along with Swati Dingra at the last meeting I would expect another split decision and the meeting this week but I would expect but I am expecting to see a hawkish 25 basis points I think that would be more effective than a dovish 50 so we'll have to wait and see how that goes certainly Bank of England decision going to be a key staging post for how the pound performs over the course of the next few sessions we've also got the RBA next week going to probably skip over that to a certain extent we've seen a little bit of a sell-off in the Aussie dollar over the course of the past few days and I think there is an expectation given some of the softening in Australian CPI that the RBA could well be done as well now the 25 basis points later this week we saw Q2 CPI suggests that the heavy lifting has been done when it comes to inflation even though what an annual basis inflation is much higher and trending lower it is proving to be sticky you know it's set back to 5.4 percent from 5.5 percent in the June numbers but unemployment again still low at 3.5 percent they might be tempted to nudge rates a little bit higher from 4.1 to 4.35 they could they could do a dovish hold you know or a dovish hike even or a hawkish hold we'll have to wait and see but certainly the key support on the Aussie is around about 66 but we've also got trend line support here and I think that consolidation will continue so I think it's 50 50 as to what the RBA will do this coming week but whether they do put 25 or whether they hold it's probably neither here nor there in terms of earnings it's been a busy week this week we've seen Shell post some underwhelming set of numbers largely on the back of lower oil prices lower natural gas prices higher margins that would suggest that this week's BP numbers are likely to be similarly along similar lines certainly we are seeing evidence that the progress that we're seeing or the uptrend that we've been seeing when it comes to oil and gas is starting to run out of steam maybe I need to redraw that line a bit there so let's go and do that with that low there and through that low there and we've got that we've got that nice little trend line from the lows back in August last year which we are looking we could well test over the course of the next few days unless we see further upticks in the prices of oil and gas we've seen some fairly decent progress in the price of oil over the last two to three weeks certainly near the highest levels they've been for over a month now but that hasn't really given much of an impetus in terms of the BP share price which is starting or does appear to be showing signs of finding a little bit of a top draw line through that there you have a nice little trend line there we've also got the moving averages starting to roll over on the 100 and the 200 day so that is not a death cross by the way if anyone is asking because the 200 is still pointing upwards in that but they both need to be pointing down and then not so that's BP next week probably going to be a similar trend to the Shell ones this week this week we saw Rolls Royce up their guidance for this year they will be reporting their second quarter numbers on the 3rd of August earlier this week it's Rolls Royce revealed that it was trading ahead of expectations it upgraded its four-year guidance raising its four-year underlying profits to between 800 million from 800 million and 1 billion pounds to between 1.2 and 1.4 billion also raising its cash the free cash flow forecast the key thing for me will be large engine flying hours at the end of Q1 they were currently at 65% of 2019 levels and while they're not likely to go back to those 100% of those levels Rolls Royce is targeting a return to around about 85-90% of those levels over the course of the coming year the announcement has pushed the Rolls Royce share price back to the levels it was just before the COVID lockdown all the way back in March 2020 so it does appear to have found its level and I think now that we've seen the low hanging fruit picked off any further progress it's likely to depend on how the rest of the business performs defense power systems and what have you and small modular reactors but we are heading in the right direction and that is positive if you're a Rolls Royce shareholder we've also got apples numbers coming out third quarter numbers one of the few standouts I think Apple has been three trillion dollar company has seen a little bit of a has seen a little bit of a top out just below 200 dollars 195 dollars 193 dollars at the moment so it's just about hanging on to that three three trillion dollar market cap level this week's Q3 numbers are likely to be key in the context of whether or not we can continue the progress that we've seen since the start of the year if I put years of date on there we can see how well Apple has performed relative to its peers seen some fairly decent gains and it's up by 48 percent nearly 49 percent years of date based on as you can see that there in the in the in the value box there change up 63 dollars 48.71 percent so that's a neat little feature there telling you how much progress that particular share has made so I think the big question I think will be how well is iPhone demand holding up it has its new has its new savings account continued to attract track savers currently has a savings account rate of 4.15 percent I don't know whether or not they've actually adjusted that higher in light of the recent Fed rate hike certainly in the last quarter they saw inflows of almost one billion dollars in the first three day first few days of launching with 240,000 accounts signing up to the service although you do need to have an Apple credit card to qualify for an Apple savings account what was also particularly notable in the last set of numbers was on a regional basis the rest of Asia Pacific was a notable outperformers seeing revenues of 8.12 billion dollars which was an 18.55 percent beat on forecasts as well as a big jump from last year with India driving a lot of those gains the Americas were the one area of disappointment in their Q2 numbers with revenues of 37.78 billion dollars which was a big drop from last year's 40.89 billion more than seven percent decline so you know can can Apple prevent itself from seeing another revenue decline quarter on quarter in Q2 it was the second quarter in succession that Apple have been able to grow its revenues and that was the first time this has happened since 2016 but the fall of three percent was below the five percent Apple are predicted when they reported in Q1 so you know can can Apple stave off another quarterly fall in earnings growth so that's pretty much it I think for this week ladies and gentlemen once again thank you very much for listening hope you all have a great weekend don't forget to join me next week for the non-farm payrolls webinar it starts just after one o'clock and goes over the numbers and finishes at around about quarter to two so that's it thanks very much for listening it's Michael Houston talking to you from CMC Markets