 Good morning. Welcome to CMC markets on Friday the 3rd of February and this quick look at the week ahead with me Michael Houston It's certainly been an interesting week for markets been very strongly positive week which sort Run slightly counter to the narrative that we've heard from central bankers on Wednesday and Thursday. We started with the Federal Reserve on Wednesday and as expected we got a step down from the 50 basis points that we saw in December to 25 basis points Jay Powell was very insistent that The job is far from done when it comes to Interest rate hikes and it was a narrative that was echoed yesterday by Christine Lagarde of the ECB in fact the ECB even pre-committed not only to a 50 basis point rate hike which we saw yesterday which took the headline rate to 3% but they pre-committed to another 50 basis point rate hike in March We also saw another 50 basis point Rate hike from the Bank of England which put the headline bank rate at 4% ECB headline rate 3% Fed headline rate 4.75% but to look at a bond market reaction and To look at the equity market reaction the market sort of pretty much thumb their nose That the central bankers the DAX closed at a new 11 month high 100 didn't perform as well, but it still remains within touching distance of the record highs that we saw back in 2018 at 7900 as the speakers at 7840 and US markets also saw a strong session with the NASDAQ 100 leading the way with gains of over 3% although The Dow actually finished the day lower So What is that market reaction telling us? Well, well central banks would like to give the impression they are further to go When it comes to more rate rises Markets are taking the opposite view. They're actually pricing in rate cuts and to give an indication I think of how the market is perceiving the central bank rhetoric. You've only really got a look at what us UK Five-year guilt yields did yesterday. They fell off a cliff and they are now back below the levels. They were Pre-emergency budget and that in the sense in the in essence is actually good news for fixed-rate mortgage holders because five year of five year rates now back below the levels they were In September when we saw that really strong move higher As a result of the emergency budget the move up to close to 4.7 8% They are now almost 2 percentage points lower So good news. We saw a similar sort of downward move in two-year yields As well as 10 year yields and we saw a similar down move in the price of German two-year yields and the move in Italian yields was even Sharper a very sharp move lower. So while Central bankers are basically Pushing forward one message and they're still doing it this morning With the ECB Simcus saying that even after a 50 basis point rate like in March We could we'll see another 50 basis points in May and yet markets are going. Yeah, whatever Well, we won't take your word for it given the fact that you're wrong about inflation being transitory So you're probably wrong about this and ultimately you'll probably be cutting rates by the end of the year now While I would potentially argue that we are closer to the end of the rate-hiking cycle and probably Have probably seen the peaks. I'm still sitting on the fence when We are thinking about the prospect of rate cuts this year inflation is still very very high Particularly when you look at the headline rates 4.75 on the Fed the Fed funds rate 3% on the ECB the Bank of England at 4% when you've got UK inflation at 10 and a half percent You know, is it really credible to be thinking about rate cuts in the book, you know by the end of this year? I think that's doubtful. I mean, I certainly think the Rates can stay high and certainly the the rate hikes are probably near the peak We probably may get one more from the Bank of England We probably will get one more From the Federal Reserve. I certainly think we'll see 5% as a terminal rate particularly if this afternoon's payroll numbers Come in Fairly strong weekly jobless claims are still very very low 183,000 at the most recent count Which would appear to suggest that the US labor market is still very very tight Also wage growth in the UK and Europe is in and around seven or eight percent So I can't imagine the central bankers will be cutting rates when wage growth is still well above core headline inflation which currently in the UK six was above six percent and sits at fairly similar levels in the European Union. So Essentially, what are we looking at going forward for equity markets over the course of the next week or so Over the next few days. Well, I'm still fairly bullish on European markets I still think there's potential for us to move higher on the FTSE 100 take out those record highs of 70,900 of 2018 and obviously also the peaks that we saw earlier this year It's interesting that even though we retreated from those peaks at 78 75 We haven't as yet been able to take out the previous peaks from last year 7689 we've fallen well short of that. So I think while we're within this channel here. I Think the buyer still remains very much for buying the dips certainly with respect to European markets if we look at say for example the DAX the DAX has once again kicked on It's made another new 11 month high this week on course for another strong week Finding support just below 15,000. I think they're still likely to remain the fairly key support area You know and the first rule of trading as I see it is to keep it simple Three words. That's what I got asked the other day. How would you sum up your trading style in three words? Keep it simple don't over complicate it if the markets going up by the dips if the markets going down sell the rallies It's really just a question of your skill in identifying where the support levels and the resistance levels are The easiest way to do that is by looking at a daily chart or a hourly chart or a four hourly chart And then trade accordingly according to what's going on there. So for me, I still think the DAX Has potential to head towards 16,000 Certainly while it's above 15,000 no reason to change my view on that now my view on US markets has evolved and I think you have to evolve it when your base case gets undermined by a technical breakout of the type of the type that we've seen on the S&P 500 and there's nothing wrong with that when the facts change I change my mind and I've modified my view ever so slightly when it comes to US markets because I Still think That while European markets are likely to outperform US markets We have seen significant breaks of some to key technical indicators first and foremost The break of the downtrend line on the S&P 500 from the lows last year Also the break above the 50 and the 200 day moving average as well We are starting to see what has the makings of a potential bullish golden cross It's still not particularly powerful signal because the 200 day moving average is It's still falling on a day-to-day basis and generally a golden cross works better When both moving averages are pointing in the same direction i.e. are trending higher The S&P the 200 day is not doing that nonetheless You can't hide the fact that the lows are getting higher and the highs are getting higher So there was certainly potential while we're above This four thousand level on the NASDAQ of Further incremental gains towards 4,310 but I'm certainly not expecting significant outperformance one of the main reasons why The NASDAQ and the S&P 500 have rallied so strongly Is this perception that US has hit peak rates When it comes to the prospect of potential rate cuts by the end of this year that means that It still remains very much By the dip mentality Similarly, we've broken through the downtrend from the from the peaks here. We are now breaking higher We're above the 200 day moving average and we're also above the 50 day moving average You can certainly draw a trend line through these lows here. It is quite steep We're starting to run into a bit of resistance here at the 38.2 Fibonacci retracement level of the the of the move lower to from the From the lows here this down move here So we're hitting 38.2 also coincides with those peaks back in september So the september peaks are acting as a bit of a resistance level On the NASDAQ 100. So i'm going to keep an eye on that for evidence of whether or not we can see further gains The recent earnings numbers from apple amazon and alphabets are disappointing So we could see a bit of a modest pullback when us markets open later today I'm going forward. I think in terms of what we're looking ahead for next week It's predominantly Another interest rate decision this time from the rba We are likely to get or we are pricing in A 25 basis point rate hike from the rba That being said There is a risk again Like we saw with the bank of england the ecb and the federal reserve that While the rba could issue some fairly hawkish guidance Simply because The january cpi Um, or the sorry to the september cpi numbers showed a bigger than expected jump To 8.4 percent from 7.3 percent in november. There was a big jump there And q4 cpi pushed the average rate to 7.8 from 7.3 So this raised some concerns the rba might have to be slightly more hawkish in terms of what to do On the 7th of february when it comes to looking tighten policy further they slowed down Their rate hiking cycle back in november they stepped down early They were one of the first central banks to do that Along with the bank of canada the danger is in doing that You're sending a slightly Confusing message to the markets and that's but i think borne out slightly by the market reaction to what central banks have said this week My central banks have unanimously pretty much said That they have further to go When it comes to raising rates and markets have unanimously said we don't care so How the rba manages that particular message on tuesday Is anybody's guess but certainly the ozzy dollar is starting to show signs of topping out We could see a bit of a pullback To this red line here 69 90 But we still remain very much of the opinion that Australian dollar is in an uptrend and if we look at the reaction of that particular candle there which Showed a very strong impulsive move lower But we closed pretty much On the highs of the day There does appear to be fairly decent demand for australian dollars In and around between the 69 80 and the 69 90 area So any weakness there probably could we'll see Some decent buying interest obviously if we dip below that then we'll probably head back towards the next support Which is around about 68 90 on the ozzy dollar We've also got a uk fourth quarter gdp And certainly i think what we saw last week with respect to Sorry a lot last week. Yeah last week or earlier this last month rather with some of the economic data that's That's Recently been released When it when it comes out for the uk economy in november and december it's been slightly better than expected Now we saw the uk economy contract in q3 to the tune of minus 0.3 percent There have been a widespread expectation that q4 would see a similar contraction Obviously then that would put the uk economy Into a recession Now some of the data Since then has probably been slightly better than expected Which is which is encouraging in some respects because it suggests that maybe we might not see a contraction in q4 And a lot of the reason for the q3 contraction Was a collapse in economic activity in september To due to the funeral of queen elizabeth second Now this slowdown saw a big rebound in the october gdp numbers We saw a monthly expansion of 0.5 percent This was then followed by a 0.1 percent monthly expansion in november Which confounded expectations of a 0.1 percent contraction And one the reason for this improvement or this better than expected performance In november was a resilience in the services sector because of the football world cup and guitar Which saw decent performances from the pubs bars hospitality people went out supported england We also saw a big jump Inter operators and reservation services Which were also positive contributors to the gdp numbers with gains of 3.7 percent as people booked holidays For next year. We've also seen that in the bookings numbers from airlines And the tour operators easy jet ryan air And tui So working on a rather unscientific basis and this is unscientific I'll grant you that the world cup ended on the 18th of december and england went out on the 10th There is the prospect that we might have avoided a q4 contraction and thus avoided the r word Even when taking into account the disruptive nature of the recent strike action that an awful lot of businesses have had to contend with over the course of the past few weeks Certainly recent retail updates have offered encouragement that consumers are still spending albeit more cautiously And according to the obr the uk economy is already in recession However, as is often the case the rba is the rba the obr is usually wrong So on that basis, I would expect um On that basis alone, I would expect the uk economy to be much better than perhaps people are thinking also the september decline on the rolling three-month gdp number is Is likely to drop out of that number which suggests that we could well see a bit of an uplift So I would argue that given the fact that we saw a 0.5 percent Rebound in october 0.1 positive in november December is going to have to be mightily bad Whether to be a contraction in q4 I mean, whatever your whatever your view in it the the the outcome of the gdp numbers the nuance is likely to be lost on an awful lot of people because Finances are very much under strain when it comes to the consumer. So You know, I think politically it'll be more important that the uk economy avoids a contraction in q4 Rather than anything else. What we do know Is that any growth is likely to be pretty anemic and 2023 this year is likely to be very challenging but nonetheless I think some of the worst case scenarios might just be avoided Given the declines that we've seen not only In energy prices, but we also are starting to see slightly more positivity come out when it comes to Inflation and inflationary pressures in business. So what does that mean for cable? Well, I had the cable charred up there and we have seen a bit of a roll-off from the 124 and a half highs and There is potential that we could see further weakness, but again There is potential For cable to continue to move higher And I certainly think if u.s. Economic data continues to hold up reasonably well Then perhaps The economic outlook more globally is likely to be generally more positive than perhaps is currently being priced in Certainly, there's an awful lot of bad news priced in and that would suggest that the potential for upside surprise is greater Than downside surprise. Certainly. I think When it comes to sterling weakness It's been no more apparent Than in euro sterling this week where we've broken above the recent highs in in the euro At around about 88 95 and could well head Towards 90 over the course of the next few sessions overall Still very much a case of euro sterling could well continue to ratchet higher Why well, essentially, I think there's this perception the ecb potentially has probably got Maybe one or two more hikes in it than perhaps the bank of england has but nonetheless Euro sterling remains very much a range trade Dolly end slightly more easier to call Still remains very much sell the rally on dolly end The current resistance level is at these peaks at 131 20 through here I still think there's potential for us to move back to these lows 127 20 in january head towards this trend line But also this support level here for some reason I have lost my Fibonacci retracement levels on this particular chart. So let's just put them back in And these are there So that then puts in the next support level at 126 50 Which is a 50 replacement of that move which also happens to go inside of this trend line support here So that for me. I think is the next target for dolly end Look to sell weakness lower highs lower lows. So it looks to sell strength rather Lower highs lower lows So the current resistance level is these two peaks at around about 131 20 But overall the bias remains for a strong again And a weaker dollar going forward On the earnings front. We have got BP In the wake of shells really strong numbers this week BP shares still look fairly strong Despite all the noise Over windfall taxes and what have you certainly BP have set aside an extra 800 million dollars in respect of the increase in windfall taxes You're going to get the usual political noise about They need to be paying more. Well, they're already paying 75 of the uk profits and we've already heard BP announced or suggest that they will need to increase the amount of spending on fossil fuels natural gas And really it's it's generally a case of you know supply and demand. There is not enough supply You know and politicians can scream and shout all they like You can't change the political reality that the energy backdrop has changed With the recent surge in energy prices and with energy security in higher prices now front of mind for ordinary people The only way to reduce prices is to add extra capacity ExxonMobil did that in 2017 to 2019 Pushing back against the biden administration who said they shouldn't be doing that And they've they've benefited from those higher prices But can you imagine how much higher prices would have been if they hadn't done that in 2017 and 2019? So now you've got the biden administration screaming and shouting at them saying you should be spending more on adding extra capacity We're not hearing that from uk politicians and we really should be because the The transition to renewables is still going to require extra lng capacity as well as extra spending in renewables Um and also returns from renewables are well below those of gas and aren't reliable enough. So But BP does need to spend more on renewables that that very much is true The total spend on low carbon this year for BP is $447 million out of a total spend of 2.64 billion dollars but ultimately BP's numbers aren't Likely to be anywhere near as good as shells because of the big write down that they took on their rosnef stake at the beginning Of this financial year, which was a quite hefty 3 billion dollars so I think yeah, I think it's very important not to get too caught up In the high political hyperbole the trend for BP still remains fairly positive And when you actually look at the share price and take it all the way back It still will below the record highs Or the peaks Not so much the record highs but the peaks that we saw back in 2018 when it was around about 200p So sometimes a bit of perspective is needed to step back and take a look at what the share price is actually doing Similarly, we've got numbers from unilever Been a serial underperformer for quite some time, but it has actually been doing quite well in recent weeks um, Alan jope the CEO is leaving um And it's a good job that they didn't buy that highly didn't buy haleon from Glaxo smith kline and that room that marks the turning point a year ago for the shares and they are continuing to move slowly higher Certainly, I think new management We could well see a much increased focus over the course of the next few months on margins and costs and what have you and perhaps Some disposals They really need to get rid of ben and jerry's because ultimately the noise around that is becoming a distraction We've also got numbers from disney or disney now What's interesting about an awful lot of these u.s Markets is how many of the stocks are now breaking above the 200 days 200 day moving average Seen it with disney. We've seen it with amazon Or actually we haven't seen it with amazon. It's on its 200 day moving average But we've seen it with apple and we've seen it with alphabet So that does appear to be a little bit of a shift change in some of The more heavily oversold parts of the u.s. Market particularly in tech just because You're back above your 200 day moving average doesn't necessarily mean you have further to go. Certainly disney Is starting to see a little bit of a turnaround bob iger is back in the hot seat You've got nelson pelts active as shareholder urging significant amounts of change as well as An increased focus on the fox part of the business which still remains a little bit of a cash drain Also, there'll be a particular focus on the number of The streaming business disney plus and how to effectively monetize that better because that is still operating at a hefty loss So that'll be interesting in terms of their first quarter numbers and how they perform there as well as obviously the parks business And holiday business as well We've also got uber which again has also seen some decent gains over the course of the past few weeks And certainly does appear to be looking to retest these highs Back in september So evidence of potential move higher in uber's share price now that the delivery business and their rides business They're almost 50 50 in terms of revenues that the various divisions both bring in so that's pretty much it for This week ladies and gentlemen quite a lot to get through. Hopefully you haven't gone on for too long. Thank you very much for listening um So we've got non-farm payrolls lately today So it'll be interesting to see how those numbers come out and I can talk a little bit about them in next week's video Thanks for listening. Have a great weekend and speak to you all same time same place next week