 Good morning. Welcome to CMC Markets on Friday the 18th of February and this quick look at the week ahead beginning the 21st of February. We have me Michael Houston and it's been another week of choppy equity markets, another week of uncertainty market declines, claims and counterclaims between Russia and NATO about the size and movement of Russian forces on the Ukraine border. On Wednesday we saw a market rally on the back of claims by Russia that it was removing some of its forces from the Ukrainian border. This narrative was pushed back on by the US basically saying that that wasn't actually happening and actually the reverse was happening. Russia's continued to deny that it is increasing the size of its forces and then on Thursday we had reports of shelling and firing on a village in eastern Ukraine by pro-Russian forces which hasn't exactly helped sentiment either. Those same forces have blamed Ukraine for the shelling and obviously this is important I think in the overall context of what happens next. It's becoming increasingly clear that the US and NATO appears to think a Russian invasion is only a matter of time whether it comes this week or in a few days. US officials I think want it to be clear that if and when it does happen Russia won't be able to hide behind a force flag event to justify and I think that's what drove an awful lot of the declines that we saw. On Thursday the pro-Russian forces in eastern Ukraine could potentially have been trying to go to response from the Ukrainian army giving the Russians a pretext to invade. So there's an awful lot of propaganda going on obviously it makes it very very difficult to make long-term investment decisions but in terms of trading it does offer opportunity from a trading perspective and certainly if we look at the FTSE 100 this week we have seen some declines some notable some of the some of the more notable things have been a decline in oil prices which does seem a little bit counter-intuitive when the possibility of Russia could invade Ukraine could potentially send oil prices up to $100 a barrel. There has been talk that the talks between Iran and the US are going well with respect to the resumption of Iranian production to the oil market and maybe that is having a downward effect on crude oil prices but inventory still remain tight and even if Iranian crude does come back onto the market that's not going to happen overnight so you know I think while we're seeing a little bit of a decline in oil prices it's probably long overdue we've seen eight successive weeks of gains so at some point we were going to get a decline. $100 a barrel still remains the magnetic force or maintains a magnetic pull I think and some of the inflation data that we've seen this week would appear to suggest that there's no prospect of a slowdown in inflationary pressures going forward UK PPI numbers saw input prices rise again in January to 9.9 percent and there was an expectation that they would fall so upward pressure on UK CPI is expected to continue some of it's going to be self-inflicted in terms of tax rises in April we saw headlines CPI rise to 5.5 percent and in the coming week we've got US core PCA and I think that could be a very important number as we look ahead to next week certainly in terms of looking ahead to next week there are a number of there are a number of items I've got my eye on obviously that's the main macro one we've also got fourth quarter GDP from the US the second iteration we've got flash PMIs from France Germany in the UK and we've also got US personal spending and income as well we also have the beginning of bank earnings UK bank earnings we got off to a very good start today Friday with that West I'm very decent numbers there and your profits is just shy of 3 billion pounds 750 million share buyback and a 7.5 p final dividend so not too shabby that probably won't be the narrative that the media leads with it'll be about bonuses and to be quite honest I find the subject of bonuses you know it's it's a tricky subject it's a tricky subject but I'll come on to them in a minute for the here and now let's have a look at the main indices put see 100 continues to make new highs we saw a high last Thursday 7,680 we have since dropped back we've got fairly decent support in and around 7,480 the bigger support I think for me still remains in and around 7,400 yeah we did see a little bit of a spike below it there but more broadly we've managed to hold above the 50 day moving average in terms of the long-term uptrend and even if we do fall below it we still got the 200 day moving average here but it does appear to be some evidence of a potential pause starting to take place we've seen a marginally higher high and I think as long as we're able to stay above this series of lows through here they could be potentially a bit of a potential head and shoulders starting to form we really want to we really want to take out this peak from early this month from the 10th of February to keep the upward momentum intact so I'd like to see a move back about 7,600 in the retest of these highs otherwise we could see a little bit of a consolidation over the course of the rest of the quarter in terms of the DAX it's the same old story I'm afraid we still we still have fairly decent support in and around these spike lows through here but as you can see from these spike lows through here it's fairly decent demand below 15,000 for German equities that being said the peaks are getting lower so there does appear to be an element of waning momentum and that does make me a little bit cautious in the short to medium term I really want to see a break of this 15,600 have slightly more confidence that we're going to go back higher again so keep an eye on this 15,000 level look for a close below there for potential for further losses but the time being we still remain I still remain probably more broadly positive than negative when it comes to the DAX S&P 500 daily chart same with the NASDAQ we haven't retested the January lows and that is encouraging because it does appear to suggest despite all the volatility that the upside potential still remains intact that being said we've seen US 10-year yields rise even further this week let me pull that in for you but we do appear to be finding a little bit of a top in and around this 2.1% area 206-205 so you know are we seeing a little bit of a top here it's hard to say because we could have made the same argument here so it's a little bit of a top here we traded sideways and then we then we thrust higher so there is potential for us to go higher I think much will depend on this week's core PCE we've heard an awful lot of chatter about inverted yield curves certainly I think the flattening of the curve does appear to suggest that there is a risk that the market fears the Fed could be about to make a policy mistake but on the flip side of that we are still seeing much higher than expected inflation and this week I think this is why this week's core PCE numbers will be extremely important this week's Fed minutes suggested that there was a quorum of Fed policymakers who were reluctant to consider anything other than a 25 basis point hike next month well obviously that seems a fairly reasonable interpretation of the data as it was at the time and that's why we saw a little bit of a softening in US yields yesterday we can see that on this chart here we had a bit of a sell-off now part of that sell-off in yields and that bid in US treasuries was also I think a consequence of a significantly risk-off tone to market so you get a little bit of you had a little bit of a bid in US treasuries and a rotation out of equities into US treasuries on haven buying so there is an element of haven buying going on in US in the US Treasury market which is counteracting the upward pressure on yield so we do need to be aware of that nonetheless the debate has moved on quite a bit when it comes to whether or not the Fed moves in March or whether it moves 25 basis points or 50 basis points now we've heard an awful lot of noise from Saint Louis Fed President James Bullard who's been calling for a 50 basis point rate hike in March and another 50 by July he seems to have got an ordinarily large amount of air time over the course of the past few weeks and as such that means that he's able been able to pretty much put his case without any significant push back apart from say for example Mary daily of the San Francisco Fed now of course much will depend on how events in Ukraine and Russia on the Ukraine Russia border play out over the course of the next week or so but I think there is cause for optimism there and Secretary US Secretary of State Anthony Blinken is due to meet Sergei Lavrov the Russian Foreign Minister sometime next week so if those talks are to go anywhere then the situation on the ground in Ukraine hopefully will calm down over the course of the next few days we've got a US Bank holiday on Monday so that could temper market activity in the early part of the week assuming that we don't get any unexpected surprises over the weekend but overall I think absent any concerns about geopolitics this week's core PC numbers which are due out on the 25th a week today what should give us a good insight as to whether or not the the market could start to price in the possibility of a 50 basis point hike in March now there are plenty of reasons to think that the Fed won't go 50 they won't want to surprise the market but the inflation picture whatever you think of it is starting to become much more ingrained now you can argue the case and many people do that there's not much the Fed can do about rises in commodity prices and that is certainly very true but it certainly needs to send a message that it's not underestimating the challenge that inflation will cause not only to inflation expectations but it's a credibility when it comes to fighting it so that's why when we look at the other data that we've seen since the last Fed minutes we've seen US CPI come in at seven and a half percent we've seen US PPI rise sharply we've seen a fairly decent payrolls report January numbers very very strong US GDP at around about seven percent and a very strong retail sales number so if you're going to shift your thinking from 25 to 50 one or all of them is mountains is bound to make you think well maybe we should go 50 basis points just to send the message see how the market reacts and then see whether or not we need to do another 25 50 going forward there's been plenty of people suggesting that sending a message on 50 could be the way to go now the Fed may not do that but if you get core PCE which is the Fed's preferred major core PC deflator which is the Fed's preferred measure going through five percent which is well over double its target for inflation then I think market thinking could evolve in a manner that could make 50 basis points a real probability a real possibility so we can't rule that out we've also got personal spending an income to January judging by the real strong retail sales number that we saw earlier this week that's likely to see a big jump in US personal spending now the original estimate for that was 0.6% and a rise in personal income by 0.5% if both or either of those are very very strong then of course the calculus will once again shift to the possibility of a 50 basis point rate hike in March so the key levels on the S&P remain the same this 61.8 Fibonacci retracement from this down move here is the big resistance on the upside so it's 4590 4600 it's also the 50 day moving average it's a huge level it's a huge level that that's been the extent of the rebound of the January lows so if we are to move back higher we need to take out that level as long as we stay above the January lows let's look at the NASDAQ again January lows here let's do some Fibonacci retracements on this particular move and do that there we go and again 61.8 quite a bit higher interesting to see that the NASDAQ rebound hasn't been in any way near as significant as the S&P rebound so let's knock out those two don't really need them done there we go so we've got 50% on the NASDAQ 15190 that's a key resistance level going forward so let's knock that out there so those are the key resistances on the major market indices euro dollar same resistance level 114.85 that's the big level on the upside on the downside we've got around about 112.70 and obviously we also have those lows back in late January of around about 111.20 so decent support in and around 112.79 112.80 you can you can catch up on my you can catch up on my analysis on that on the forums button which is there you can see it on the left-hand side I update that on a fairly regular basis at least three or four times a week so that is worth keeping an eye out for cable cable does appear to be finding a bit of a foothold above 136 it is starting to run into resistance around about 136.70 we've also got the 200 day move in average it is starting to look better bid an expectation of a potential rate hike in March from the Bank of England and certainly this week's inflation numbers would have here to suggest that is the direction of travel when it comes for interest rates given the fact that we're probably likely to be above 7% by the time we get to April and the Bank of England may well want to get out in front of that that particular number so 136.70 or above 136 this resistance level here and the 200 day move in average keep an eye out for that particular move there then we've got euro sterling again the direction of travel still remains towards the downside I think it really does depend on whether or not the ECB continues to double down on the expectation that they were reluctant to hike rates this year I think what we do need to get a guidance on is this bond buying program because I think they've come out and said that they will only consider hiking rates after the asset purchase program has finished there is talk of that my end in August or September it'll be interested to see whether or not we get any further clarity on the timeline of the end of the bond buying program but until such times we do it's likely to continue euro sterling is likely to continue to range towards the downside and the lows that we saw back at the end of January in the beginning of February so what are we looking at this week well we've got UK banks that's the big topic for this week big week for UK banks NatWest Group posts its best set of four year numbers in years today last year's profits were weighed down by loan loss provisions and negative interest rate concerns this year has seen those provisions largely unwound and rates go up putting the banks in the strongest position they've been in for over 10 years so I'm going to be looking at Barclays Lloyds and HSBC of course higher profits will inevitably prompt the inevitable pearl clutching about bonuses now obviously it's not particularly good look if banks are paying out huge amounts in bonuses when the cost of living is exactly the worst squeeze on living standards in years you know it's never a good one and it's likely to prompt further calls for windfall taxes on banks but banks already pay higher rates of tax in the form of a tax surcharge on top of the current corporation tax rate anyway so they're already paying a windfall tax and that's before the boost to the Exchequer that higher profits and bonuses bring you know I think myself you know no one likes to see people getting doing well and getting more than they do but ultimately if banks are making profits and bonuses are getting paid that's more tax that's more tax the Exchequer at a time when the US the UK Treasury needs as much as much in the way of tax receipts as it can get and I think it's good that banks are finally acting as a net contributor to the Exchequer rather than being a drain it's about time they paid all that taxpayer funded bailout back and I'm not really that interested in about how they do it as long as they do it and they do it legally of course so we've got we're going to start with Barclays very much in an uptrend we've seen a little bit of weakness in that West share price the last time that I look in the back of their numbers and as we've seen from this year's performance in the Barclays share price we've seen a bit of a pullback here as well so there is a little bit of profit taking heading into the numbers I think that's largely to be expected the performance the decent performance has been priced in and obviously a flat yield curve doesn't exactly help matters when it comes to future bank profitability and maybe there's a perception that while last year is probably going to be a fairly good year for banks they could struggle to match that when it comes to this year so there's certainly a little bit of concern that maybe we could get a little bit of a pullback to this sort of area through here so keep keep an eye on Barclays share price we've got a new CEO now now that Jess Staley has gone new CEO is CS Venkata Krishnan or Venkat as he likes to be known Q3 pretext profits rose to one and a half billion for Barclays adding to the 4.9 billion seen in the first half of this year and the bank announced at the time 500 million shared by back a dividend of 2p per share Q4 profits are expected to come in at a similar level to Q3 pushing full year profits above 8 billion pounds so that's not too shabby looking for impact on business lending that was a little bit weak in that in that West Q4 numbers it's not altogether surprising given the challenges facing businesses over the course of the past 12 months I certainly be looking to see what the outlook is in terms of consumer consumer lending as well but I would imagine that will probably be skewed by mortgage lending so looking looking for fairly decent numbers from Barclays the bigger question is whether or not we'll see a little bit of a pullback in the share price as a consequence of that similarly Lloyds banking group as well done very well with a course of the past 12 months there does appear to be a little bit of a similar pullback in the share price from the highs that we saw earlier this earlier this year has resumed the dividend in July last year Lloyds raised this outlook for the year recordings statuary pretext profits in the first half to 3.9 billion pounds so the hope is that they will be equally as good in the second half the expectation is for 7.2 billion pounds in profits and again it's probably going to raise the temperature when it comes to bonuses as well but a similar sort of narrative when it comes to Lloyds looking at business lending looking at consumer lending and obviously with respect to Lloyds they don't have a big investment banking division so I would imagine the big profits for Lloyds probably aren't going to be susceptible to the same sort of criticism perhaps and maybe Barclays who have a significant investment banking division and are able to diversify their income streams as a consequence of that we've also got four year numbers from HSBC before I do that let's just quickly draw a trend line on this Lloyds chart there we go so it comes in round about the 200 day moving average so we're basically heading back towards our long-term uptrend personally of all the banks Lloyds to me looks the most promising in terms of further upside potential particularly when you consider that it's still well below pre-pandemic levels so for me given the fact that it's done as well as it has it really it really should be back up here somewhere and I'm sort of really struggling to understand why that it isn't but hey oh what do I know HSBC being a significant outperformer those numbers that you are on the 22nd the shares have gone from strength to strength since it reported its Q3 numbers Q3 profits after tax rose to 4.2 billion dollars taking total profits year to date to 12.66 billion dollars so in line with a lot of other banks lending was subdued during Q3 with the fall in net loans and advances to customers now that's a trend that could well have continued in Q4 with the spread of Omicron particularly for a bank that generates half of its profits in Asia current zero COVID approach of Chinese authorities could act as a drag nonetheless profits for this year have already exceeded all of last year when they came in at 8.8 billion so this year's profits are expected to come in and in the region of around about 18 billion dollars which is around about 13 billion pounds so again some fairly decent numbers there but again we're still below the levels we are pre-pandemic but we've come we've come back quite a bit over the course of the past few weeks we're going to finish up with Rolls Royce because that has been basically one of the one of the stocks has been absolutely clobbered the hardest due to the fact that it gets around about 50 percent of its revenues from the airlines for engine flying hours it's struggled to meet its target of 55 percent of engine flying hours of 2019 levels that being said it's slowly been clawing its way back it's found progress a bit tricky over the course of the past few months it is there for year numbers it's done a number of it's managed to bolster its balance sheet it's got it's managed to sell 2 billion pounds of disposals including the sale of itp aero for 1.7 billion euros that's expected to complete in the first half of this year it's managed to leverage its small modular reactor business nuclear reactors mobile reactors getting 210 million pounds from the British government on top of the 145 million pounds of private investment business diversification continued in December with an 85 million pound deal with Qatar to build new low carbon and nuclear power plants and it's also announced the company's power systems unit is developing MTU engines that will be able to use eco-friendly methanol fuel for shipping and it's also signed a defense deal with the Pentagon 1.9 billion pounds for its F-130 engines which will be used to power the B-52 Strato Fortress for the next 30 years so it is making progress in diversifying its business away from civil aviation but it would be a surprise if it hits its four-year target 55% of 2019 levels for 2021 given obviously what happened in January although we have seen the return of Transatlantic travel and Australian travel is set to resume or did resume on the 8th of February so the outlook looks a lot more promising for Rolls-Royce than it did six months ago from the US we've got Home Depot and Madonna but I won't spend too much time talking about them going to finish up with Gold and Crude Oil Gold looks as if it's going to retest its previous peaks of June 2021 around about 1920 it's certainly going to find it very difficult to crack that particular nut and I think I just continue to think that it's likely to continue to range straight now a couple of weeks ago or a week ago I talked about potential for an oil reversal that in fact did not happen but the key thing about this potential reversal is that it was never confirmed we never really broke below the lows of that particular candle there which was $90 a barrel so the fact that we didn't move below $90 a barrel when that potential reversal pattern didn't pan out now we've come back again we posted a marginal new hire here and we've come back down again we've squeezed back up come back down the big I think support level for Brent is likely to be in and around this level here so we're looking if we are going to break lower on Brent we really need to see a confirmed push below $90 a barrel and even if we do we're probably going to go only go back to around about 85 and this sort of area around about here going forward so there does appear to be the beginnings of a potential top in place for Brent but even if we do break lower I can't see us moving much below 85 or 80 dollars a barrel in the short to medium term given how tight inventories are at the moment so sort of brings me neatly back to the end of the presentation once again thank you very much for listening I hope you've um I hope you've all had a profitable week and I hope you all have a profitable weekend it's blowing an absolute gale outside my window right now I'm surprised you actually can't hear the wind howling outside so after what has been a rarely turbulent week and a choppy week the weather outside is probably a good uh a good metaphor of how the markets have been this week let's hope they're a little bit calmer next week I hope you all have a great weekend and speak to you same time same place next week thank you very much for listening