 Good morning. Welcome to CMC markets on Friday the 14th of April and let's quick look at the week ahead with me Michael Houston, it's been Another positive week for equity markets Lower than expected inflation numbers out of the US has prompted some optimism that We will See rate cuts by the Federal Reserve or from the Federal Reserve By the end of this year me myself. I think that's highly optimistic And certainly I think if you look at the way US bond markets in the two-year yield, which is a fairly decent proxy for Whether or not we're going to get rate cuts by the end of this year Yields on the two-year haven't really moved that much over the course of the last week or so And I think that's very sick. I think that's I think that's extremely significant Even though we've seen headline CPI in the US come down in March from six to five six from six percent to five percent Core price is actually edged up to five point six percent from five point five So there's still an element of stickiness in core inflation particularly around on the CPI measure On the other hand though the day after we got PPI And PPI we saw a big fall in March final demand headline fell from four point four percent 2.7 in March and core prices also Slipped back by more than expected. So there's certainly elements When it comes to factory gate prices that would suggest that inflationary pressure is subsiding That's really borne out in the manufacturing ISM numbers and where price is paid is In contraction territory in the services sector We are still very much in Expansionary territory or in the mid sixties there. So while manufacturing inflation PPI may be subsiding service sector inflation food inflation still remains very much towards the upside and and and the payrolls numbers that we saw Last Friday also would appear to suggest that the employment The labor market still remains fairly resilient. So there's that and I think when you've got a Labor market where the unemployment rate has fallen and a participation rate is starting to rise Back to the levels back not quite back to the levels. We were pre-pandemic, but it's certainly heading back in that direction And you still got just under 10 million vacancies the feds going to find it very very difficult To justify a rate cut when the unemployment rate is still well below the end of year target rate that the Fed has a four and a half percent The unemployment rate in the U.S. is around about three point four three point five percent. So There's still quite some way to go on the unemployment front And while employment is low one and while unemployment is low that suggests Personal spending personal consumption is likely to remain fairly resilient and that will probably keep Inflation underpinned If we look at where inflation was in the summer last summer nine point one percent We're now into March nine months later. There's only back to five percent So it's still got quite some way to go. So I think the discussion of rate cuts Is slightly premature? And certainly that's certainly true in Europe and it's certainly true in the UK Let's look at some of the key movers this this week We've seen the FTSE 100 Heading back higher again fairly seen seen some fairly decent gains as we're back above the 50 day moving average We're not quite back to the levels that we were on the 8th of March When we closed at 7,900 Um, but we're not far off the main lags there are in banks commercial real estate and in Oil and gas they haven't fully rebounded from the losses that we saw in March. So Still got some time to go there been slightly more positive for the likes of the DAX Where we've seen a move Back above the previous highs in March Now we're looking to potentially retest that 16,000 level that we last saw back in January 2022 So the 2022 highs are still very much a focus Around about 6,285 And the cat Caron has actually made new record highs this week on the back of a luxury lift LVMH and Hermes posted very strong Asia sales numbers in Japan and in China Which neatly segues me on to next week's China first quarter GDP numbers China retail sales numbers Given the fact that we've seen such strong numbers from those luxury providers Then March retail sales China should round off a fairly positive quarter or China GDP expecting a expansion of 2.1 percent as a result of Chinese New Year Chinese New Year should have seen a big rebound in demand that was certainly borne out by the Chinese trade numbers we saw earlier this week which saw exports jump quite sharply into positive territory But also imports rebounded more than expected So that would suggest that we're getting a little bit of a China reopening lift Of course, whether or not that's sustained into Q2 Is anybody's guess but certainly the guidance offered by LVMH and by Hermes Would suggest that they are optimistic that that will continue So that's That's the European markets the NASDAQ Is rebounding somewhat on the back of optimism that The Fed is close to the end of its rate-hiking cycle. I certainly think that's true There's certainly potential for another 25 basis points in March in March in May But and of course, it's really a question of what comes after that at the moment The market is pricing in the prospect of rate cuts by The end of Q2 potentially beginning at Q3 I struggle with that if I'm honest, I really do As I pointed out earlier while while unemployment Well, the unemployment rate is still down around about three and a half three and a half four percent Why would the Fed why would the Fed look at cutting rates? That would suggest that the labor market is still fairly tight. Yeah weekly jobless claims have jumped They're near around about 235 But they're still at the very low end of where they've been And and continuing claims actually fell back last week for to just over 1.8 million So I don't think there's any horror any rush For the Fed to start considering cutting rates at the moment the market seems to think we will see that I struggle with that We are still below the peaks that we saw in early Feb on the S&P 500 currently captor between Captured around 4200 fairly well supported at 3800. I think that's the range of it At the time being and obviously we've got the start of bank earnings season later today, which could Be a catalyst for a move lower nasdaq again We are Seeing a fairly decent rebound on the back of some really big declines Mind you from the highs that we saw in late 2021 One of the things that was also driven the rebound in the nasdaq and the s&p It's been a cohort or about five or ten tech stocks Four or five of which include meta platforms um tesla in video and um And a couple of other Big hitters like microsoft So it's very much the rebound has been driven very much By a cohort of around about five or ten Big caps big cap tech stocks while the rest of the market has been left behind to a certain extent So be paying particular attention to whether or not the durability of this nasdaq bounce above support At 12850 which was the previous highs is sustainable and we can kick on to the highs that we saw Back in august 2022 around about 13600 So 12850 on the downside is a fairly decent support 13600 on the top side is a potential target if we're able to sustain and move higher We've also seen a much weaker dollar Over the course of the past few weeks and that's that's no better manifested In the way that your dollar has broken towards the upside the next the next level here is 111 111 05 111 10 or these these these two peaks back in march 2022 So we're approaching one year highs around about 111 85 Can we close in on that to be quite honest? There's no reason why we shouldn't if you work on the premise That the ecb is likely to hike by another 50 basis points in may And the Fed is probably going to be another one and then done Um, the bigger question is is whether or not the ecb can follow through with any more Another 50 basis points and at the moment the mood music out of um frankfort And northern europe is that 50 basis points is the minimum That we can expect in may and we could we'll see another 25 or 50 Thereafter remains to be seen whether or not of course that is sustainable But for the time being that should support euro dollar to the Disadvantage of the u.s. Dollar similarly with cable We I think can still expect another 25 basis points from the bank of england in may The bigger question will be whether or not we see anything after that. Are we near a peak? Are we in near terminal rate of 4.5 percent? Um, certainly that would probably be my terminal rate But that was predicated on inflation being back below 10 percent And that and we aren't there yet. We bumped up to 10.4 percent in february The big question is we look ahead to this week's Or this coming week's march cpi numbers from the uk The unemployment and wages data from the uk And also The retail sales numbers from the uk is whether or not um We start to see a material slowing of inflationary pressure um The most recent gdp numbers february showed the economy stagnated in february much of that was down to industrial action pay disputes and what have you That would suggest to me that inflation is likely to remain sticky for a while Notwithstanding the price increases that we're starting to see and we'll come through in april when it comes to council tax Um, and depending on where you live. That's anything between 5 and 15 percent We've got retail. So we've got rpi price increases from the likes of skyo 2 virgin media bt And what have you which is likely to impact in consumer spending patterns and obviously we've also got the fact that the energy support Top up from the government, um, is no longer is no longer available That was available in And has been and was available over the course of the last 12 months that rolls off 67 per month top up your energy bills. So That's not happening now. So that's likely to be a further headwind for consumer spending As we look ahead to obviously march retail sales for the uk We saw fairly decent numbers in january february 0.9 percent in january 1.2 percent in february Stands to reason that march will probably see a little bit of a setback But nonetheless, we should still see gdp growth for q1 in the uk economy So that could well help support pound Going forward particularly given the fact that if the bank of england does finish At four and a half percent with inflation In and around 10 percent and core prices around about six percent They're not going to be cutting anytime soon Whereas the fed is pricing the markets are pricing fed cuts. They're certainly not pricing bank of england will not yet anyway um, so those that those are the key those are the key, um uh economic numbers for next week to sum up we've got cpi for cpi from the uk wages unemployment And retail sales and we've got china retail sales and chinese first quarter gdp on the earnings front We've got easy jet tesla and netflix's notable standouts Obviously, we've got golden sacks which we'll build on and morgan stanley Which builds on today's jp morgan's city group and was fargo numbers Which could give us an insight and will give us an insight into the fallout of the silicon valley bank and signature bank um fallout that we saw in march What does that tell us about? Blown demand not only from consumers, but also from businesses per se consumer confidence mortgage demand obviously as well and Whether or not these big banks saw a significant amount of deposit inflow as a result of the problems that we saw as in in us regional banks, so let's start on the earnings front and let's start with one of our client favorites tesla seen a fairly decent rebound from the lows that we saw um Back in january lowest level since august 2020 a combination of concerns over rising costs increased competition and the focus of elon must Given his problems with twitter um Saw the shares plunged from picks of 400 dollars at the start of 2022 um to loads of 102 dollars at the start of 2023 So that's a big that's a big drop now obviously the share price has doubled since then And the 200 day moving averages acting as a barrier to further gains for the time being The company is still selling record numbers of new cars um, it delivered 422 875 vehicles in the first quarter of this year Which was only a modest increase on the 405 278 delivered in q4 Now elon musk Said at the start of this year That while the aim for tesla was to make 1.8 million vehicles this year this fiscal year A figure of 2 million was possible um now That would then mean that you've got to deliver around about 500 000 vehicles deliver 500 000 vehicles per quarter So at the moment they're short of that on their first quarter Um musk has gone to great lengths to assure investors that demand is strong Orders are coming in at twice the rate of production Since the recent price cuts were announced And that's the rub I think when it comes to deliveries Is musk able to generate the number of deliveries without impacting margins and therefore profits and revenues And I think that's the big unknown at the moment on automated gross margins It's expected they should stay above 20% um, but This forecast does have a huge element of uncertainty around it and only today um That tesla has announced price cuts in germany so In the face of increasing competition in the face of rising costs of raw materials Will tesla be able to deliver and if it is able to deliver will it be able to deliver revenues and profits That investors hope that they will be able to do so keep an eye On the 200 day moving average keep an eye on the support around about 165 Um because that should determine where we go to next but it is struggling anywhere near those elevated levels there we've also got netflix is q1 numbers and You know netflix has has actually been been doing reasonably well Does appear that it's ad supported tear is performing fairly well As indicated in the q3 shareholder letter netflix is no longer offering guidance on its subscriber numbers And that it would be rolling out its page sharing In the first quarter of this year the numbers that we're currently Well, that we'll be currently looking at um this week It's looking to crack down on password sharing and in order having to cut costs netflix has announced Netflix announced last month that will be cutting its film output and streamlining its business model and that does appear to suggest that rather than focusing on subscriber numbers It's now starting to focus on revenues margins and cash flow in the q4 of last year It was cash flow positive for the first time in that particular quarter and it's now very much about being able to Generate a return Jen and push those returns into New content and more important more high quality content In an environment where companies like disney are now looking to cut costs um become disney plus become less of a lost leader Having to also compete with the likes of amazon prime as well and paramount plus So there's an awful lot of fare out there And netflix needs to make sure that it has a strong handle and costs as it looks to recover The losses that we saw on the pigs back in november 2021 We still remain some way short that Half the levels that we were then those numbers are due out on the 18th of april tesla's the due out on the 20th of april And last but by no means least going to be looking at easy jet um Because since they issued their first quarter update Um three months ago at the start of the year the share price has pretty much gone sideways um, they posted a first quarter loss of 133 million pounds before tax easy jet holidays is adding strength to the bottom line It would posted a 13 million profit during during the first quarter of this year Guidance here was raised from 30 growth to circa 50 year on year for easy jet holidays with bookings for it and the airline delivering a record revenue days during January the first half Easy jet says it still expects to book a loss albeit it should be significantly lower than the same period a year ago Well, you would think so wouldn't you guidance was kept unchanged for the first half um With the with the airline saying it expects to fly around 38 million seats in the first half of this year and 56 million seats In the second half of this year a nine percent increase I think investors will be hoping that it's able to generate a profit Thus far it's been unable to do so Unlike its sector peer Ryan air If you look at where the share price was back in may 2021 It's still got quite some way to go before it gets even close to those sorts of levels So I think this week's second quarter numbers should be a key test of that aspiration So that's it for This week ladies and gentlemen once again. Thank you very much for listening This is Michael Houston talking to you from cmc markets. Have a great weekend