# (110) The Week Ahead: US CPI; Tesco, Sainsbury's and US banks' earnings - w/c 9 January 2023 - YouTube
## Transcript:
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good morning and happy New Year welcome to this first week ahead of 2023 on Friday the 6th of January with me Michael Houston as we look ahead to the week beginning the 9th of January and what is so far shaping up to be a fairly positive start to the week one and the year for European markets um U.
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S markets have found I think progress the opening few days of this week slightly more tricky um I think there are a number of key questions that uh need to be looked at um when we look ahead to how markets may look to shape up over the course of the next 12 months I think um looking 12 months ahead is probably a little bit optimistic I don't think we can really look more than say three months ahead um I think the key questions that we need to ask ourselves as we look ahead to this new year and having looked back at a year which has seen the likes of
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the S P 500 and the NASDAQ um lose quite a lot of ground from the record highs that we saw pretty much a year ago this week since those those record highs um the NASDAQ and the s p are pretty much gone one way so the big question now I think as we look ahead to 2023 is whether or not we've actually seen the lows um back in October um and whether or not we're in a position to potentially see a little bit of a rebound as we head into 2023 and certainly on the basis of these charts here that doesn't look particularly likely
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I think when you think about where we were a year ago when the FED funds rate was at 0.25 percent and is now currently at 4.5 percent the ecdp the ECB deposit rate a year ago was minus 0.5 it's now at two percent the bank of England base rate a year ago was 0.25 and is now a 3.5 the big question is where is the terminal rate you know what do I mean by that the terminal rate is ultimately where the central banks decide to stop hiking leave rates where they are and potentially look up when the next rate cut is likely to occur
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so markets at the moment are pricing in the possibility that the the First Rate cut could come sometime this year now certainly on the basis of some of the inflation data that we've been seeing over the course of the past two or three months you there is a case to be made that inflation has peaked the big question is whether that Peak and subsequent decline or disinflation will be enough to prompt central banks to start pulling rates lower I'm skeptical about that um I think a lot will depend by and large on the labor market
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particularly in the US and with today's non-farm payrolls numbers due out for December and this week's ADP reports much better than expected and weekly jobless claims back at their lowest levels um back at the lowest levels since um the middle of the summer last year I don't think the FED has really any incentive to dial back the hawkish rhetoric quite yet that's not to say that there aren't concerns about the aggressiveness of the tightening cycle that's taking place over the last 12 months but I think the
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least we can expect rather than a halt to rate hikes is just simply a slower pace obviously the next fed meeting is at the end of this month beginning of next month first of February there's a next Fed rate decision at the moment with the direction of travel that we've seen with yields this week and the dollar markets are pricing in the possibility that we'll get another 50 basis point rate hike on the 1st of February um on the back of the 50 basis point rate hike that we got back in December um so certainly I don't think we're
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going to get a further dialing back to 25 basis points at this point in time simply on the basis of the fact that inflation is still very high even though it is coming down and this week's U.S CPI number or next week's U.S CPI number should offer further close on that but what's particularly I think interesting in The Wider scheme of things is while the uscpi is coming down and has been coming down since June last year wage growth particularly when we saw the ADP report in some areas is trending at around
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between seven and ten percent so it's actually trending the private sector wage growth is trending above headline inflation in the US and I don't think the FED is going to be overly happy about that so I think the expectation is we could well see a little bit of a stronger Dollar in the first quarter of this year or an attempt to rebound but I do not think we will see or revisit the highs in the dollar that we saw um during um the last part of last year um so looking looking at the S P 500 chart we're still very much in a
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downtrend for the s p this is the weekly chart that we're looking at here if I change that to a daily chart we can see that we got a little bit of a break above that but what was significant was we weren't able to close above it and consequently the weakness that we've been seeing in U.
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S Equity markets is likely to Prevail in the short to medium term I think the NASDAQ 100 in particular is very instructive in that Con in that context because if we look at a daily chart here we can see that there's been virtually no Rebound in the NASDAQ 100 and that's not really altogether surprising when you consider that some of the valuations that we're seeing on the NASDAQ are still very rich indeed um declines in the share price of companies like Tesla for example have been very very sharp and yet despite these declines Tesla has still got a
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valuation of in excess of 350 billion dollars which seems very very high for a company that generally um delivers just over a million electric vehicles per year way below the levels of production of some of the big um more traditional auto makers so a big question I think heading forward is whether or not we are in danger of seeing an imminent Rebound in the NASDAQ and based on this chart here the lows the lows are very key here 10 400 the the Peaks that we've been seeing from the rebounds are continuing to struggle
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below the trend line from the highs um last year and also the 200-day moving average the trend is still very much towards lower NASDAQ and a lower S P 500 until that trend is broken then you really have to play along with the overall price action so um the key questions that I think people are going to be asking this year where's the terminal rate for central banks um at the last ECB meeting Christine Lagarde suggested that it was around about three percent and yet with the current ECB rate at around two percent
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and the fact that the intention is to hike great successive meetings by at least 50 basis points for the next three meetings would suggest that the terminal rate for the ECB is not three percent but it's above that so there is no clear idea and I don't think anyone has any clear idea of where the terminal rate is for the ECB is it three percent is it three and a half same applies to the bank of England what's the terminal rate for the bank of England the current bank of England right 3.
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5 percent um the UK economy is probably now already in recession having contracted in Q3 this quite likely we will have seen a contraction in Q4 as well so I think the big question going forward is how much more room has the bank of England got to hike rates as we head into 2023 I suspect that they won't be able to be any more aggressive is likely to be or could be over the course of the next few months so as we look back at this week's price action it's been a fairly positive start of the year four markets in Europe we can see that
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with the Dax here seeing fairly decent gains for the past two three days near the top end of the range around about 14 576 what's particularly interesting is that we haven't been able to move above that yet which suggests that there may be some natural resistance there so we'll need to keep an eye on that to see whether or not that is sustainable uh the ftse 100 has got off to an absolute flyer uh this week looking at the weekly chart here we can see there's big resistance at 76.86 we're pretty much
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close to that now and also the highs from last year at 76.89 so we're at the top end of the range on the ftse 100 the bigger question is whether or not we can make new record highs um from the levels that we saw all the way back um in 2018 when we got as high as 7 900 I'm of the opinion particularly given the fact that growth um growth stocks are likely to have a very very hard time of it this year I'm of the opinion that we could well see the ftse 108 000 by the end of this year and potentially beyond that
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um I see no reason why we shouldn't given the fact that value I think value is going to be a theme for this year overgrowth when you've got U.S treasury yields of 4.5 or there or thereabouts um you know why would you be investing in Growth Store in growth stocks at a time when the global economy is probably going to struggle this year yes we have seen oil prices come down we've seen natural natural gas prices come down but consumers are going to find it very very difficult this year even accounting
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for the fact that we might see um we might see a milder recession that is currently and is currently being priced in I think now that money has a value I think some of the more frothy areas of the market May well struggle and certainly I would include the NASDAQ in that description as being one of the frothy areas of the market we're probably going to see further potential bankruptcies um we've got the start of U.
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S earnings season this coming week with U.S Bank earnings we've also got UK retail announcing their latest numbers in the upcoming week as well and we've certainly got off to a good start this week with the likes of next b m European retail um posted some fairly decent numbers for the pre-Christmas trading period I think the bigger question is whether or not those retailers can sustain that into 2023 and I think on that but the jury is very much out certainly in terms of the pre-Christmas trading statements I'll be
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keeping a particular eye on Sainsbury's um this week we've seen a fairly decent rebound over the course of the past few days on the back of the positivity that we've seen from the likes of Aldi and little which posted some very fairly decent pre-Christmas numbers as well as obviously as I mentioned earlier next um and B and M European value retail um so potentially there is there is scope for arguing that perhaps Sainsbury's and the likes of Marx and Spencer potentially the good news on that is probably already priced in I'm
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looking at marks and Spencer there again we've got a fairly decent lift earlier this week on the back of the next numbers so msq3 numbers I've written about them in my week ahead update which you can find on the website I've written about Tesco's Q3 numbers they're also due out on the 12th and as I mentioned earlier Sainsbury's are due out on the 11th so it's a big week for a further big week for UK retail we've also got the latest quarterly numbers from Premier owner Whitbread on
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the 12th of January as well and then of course on the 13th on Friday we've got Q4 numbers from the likes of JP Morgan Chase Citigroup Bank of America where we could get a fairly decent idea of how the U.S consumer is feeling and whether or not these banks have seen fit to set aside further loan loss Provisions in the same way that they did in Q3 in in in the in the Q3 numbers so it'll be as I say JP Morgan will be particularly interesting given the fact that the U.
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S banking sector had a fairly disappointing year last year if we go back to so for example here we go here that we did see a little bit of a rebound from the lows but we are finding a fairly decent area of resistance for JP Morgan in and around this one 38 140 dollar area so it'll be interesting to know whether or not we're able to crack through that resistance level on the public occasion of the JPMorgan Chase numbers again I've written about those numbers on the news and Analysis section of the CMC Markets website and you can find
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that under learn news and Analysis and that will be there later this afternoon so that'll give you a good indication as to what the expectations are with respect to those numbers we've also got Bed Bath and Beyond they file for chapter 11 or there's reports they're filing for chapter 11 so that could be um their their numbers on the 10th for Q3 numbers on the 10th could well be um another us company another U.
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S retailer that could well be going to the wall in terms of currencies next week we've talked about has the dollar peaked certainly in terms of euro dollar uscpi um well I think the debate or the discussion over the course of the past few weeks is whether or not we'll see a dollar rebound and if we do we still seem likely at the moment how far do do we rebound certainly I think in in the context of euro dollar here we struggled at around about 107.
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40 and there is the probability in the event of a decent payrolls report um that we could see further dollar strength further weakness in U.S Equity markets and potentially see euro dollar come back down towards 104 and 103. we have seen the 50 day moving average in the 200-day moving average crossover positively but we saw that happen a few days ago and since then we've tracked back lower that is a potential um that is a potential Golden Cross and people have said that when the 50-day moving averages crosses the 200-day
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moving average that generally portends to be a bullish sign um that is true to a point the point being is that the 200-day moving average and the 50-day new moving average need to be pointing in the same direction and they're not the 200-day moving average is still falling so that suggests that the long-term Trend Still Remains down for euro dollar even as the short-term trend is starting to show signs of positivity so for me yeah you can argue that's a golden cross but the fact the 200-day moving average
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is still declining on a day-to-day basis dilutes the value of it as a credible signal and certainly is a signal on its own it's not particularly reliable it needs to be used in conjunction with other signals as well so the key support on euro dollar here is around about 105 if we break below 105 then we could we'll see euro dollar slip back down towards this Nexus of two moving averages here which should act as support in the short to medium term so in this case the Golden Cross I'm ignoring it because it doesn't have that
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much of a value in terms of the overall price that I'm seeing and the fact that we broke below this series of lows through here on euro dollar which does suggest that we've got the potential for further weakness in the short to medium term I think this is important I think when people listen and talk and listen to people and they talk about Golden crosses and death crosses and what have you yeah they're all well and good but you need to actually put them in a context and given the fact that 200-day
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moving average is still falling then that dilutes the effectiveness of any signal crossover on the moving average you've got to look at the overall direction of the moving average as well and the price action that precedes it so on that basis alone I don't trust that that Golden Cross on euro dollar anyway as for cable similarly we've broken below 120 which is disappointing and undermines the bullish case in the short to medium term it also means that we could potentially slip all the way back to 116 in the event of a fairly decent
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U.S payrolls report and and obviously uscpi for December which is coming up next week as well I think the CPI numbers for next week are likely to point to an additional Narrative of further weakening U.S core inflation expecting core prices to subside from six percent in November to 5.
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7 and the headline CPI number to also drop sharply as well for back into these back to around about six and a half percent from 7.1 so certainly U.S inflation is falling but it's still well above the 32 Target which leads me to believe that they will still want to keep their foot hard on the floor when it comes to hiking rates or it's also particularly interesting in terms of the dollar bullish narrative is that we've seen a fairly decent Rebound in dollar yen um certainly could well see having hit a low of 129.50 we could will see a move
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back all the way back to the 200-day moving average now that we've broken below it and which we broke below and broke below aggressively back in December we could we'll see a short squeeze all the way back to as high as around about 137 and a half on the dollar Yen and what's particularly interesting here is I'll be interested to see how this weekly candle plays out because if we get a bullish reversal here then we could actually see him move all the way back to 142 and a half if we get a very strong weekly
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close on this weekly Dolly end on this on this weekly Dolly end chart so keep an eye on the weekly Coastal and Dolly and it could give you a bullish reversal which could signal or move all the way back to the 50-day moving average in the short to medium term as well as obviously the Peaks that we saw here at 138.
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20 and more broadly a return to these Peaks at 142.20 if we work out what the Fibonacci retracements are for this down move here that can also give us a potential Target and again around about 140 is probably I think the least we can expect in the short to medium term of any dollar rebound but I do not think that we will see a move back um much above 140 250 in the short to medium term but certainly I think the the the the dollar has I think the dollar has peaked but the bigger question is how big this current rebound
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becomes before we start to turn lower again um okay so that's um so just to quickly recap I think I pretty much done everything that I need to do also Brent crude we're down towards the lows and this again reinforces the disinflationary narrative that is likely to feed through in the headline numbers when it comes to headline inflation but unfortunately the feds the Central Bank focus is now shifting towards wages and services cost inflation and core prices more than the headline number so I think when we're
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looking at inflation over the course of the next few months we need to be focusing on core Services inflation and worry less about the headline number because I think that's where most of the Central Bank attention will be when it comes to looking at the data we've also got the latest China trade numbers which are dual next week as well for December um China has obviously really it has has dropped an awful lot of it's zero covered policy and an attempt to try and reopen its economy but that in effect
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will also have significant downside um consequences as a result of um people isolating hospitals being overrun as infection rates saw and that's likely to keep Chinese demand fairly subdued into the first quarter of next year and then really it's a question of how quickly the Chinese economy rebounds in Q2 and Q3 again for me I think that's still um remains uh remains a fairly significant unknown in the short to medium term in any case that's it for the first week ahead of 2023 once again I'd like to wish you all a happy and
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profitable New Year and I'll speak to you all the same time same place um this time next week
WATTT
Transcript:
Good morning and happy New Year. Welcome to this first week ahead of 2023, on Friday the 6th of January, with me Michael Houston as we look ahead to the week beginning the 9th of January and what is so far shaping up to be a fairly positive start to the week one and the year for European markets. US markets have found, I think, progress the opening few days of this week slightly more tricky. I think there are a number of key questions that need to be looked at when we look ahead to how markets may look to shape up over the course of the next 12 months. I think looking 12 months ahead is probably a little bit optimistic - I don't think we can really look more than say three months ahead. I think the key questions that we need to ask ourselves as we look ahead to this new year and having looked back at a year which has seen the likes of the S&P 500 and the NASDAQ lose quite a lot of ground from the record highs that we saw pretty much a year ago this week, since those record highs, the NASDAQ and the S&P are pretty much gone one way. So, the big question now I think, as we look ahead to 2023, is whether or not we've actually seen the lows back in October and whether or not we're in a position to potentially see a little bit of a rebound as we head into 2023. And certainly, on the basis of these charts here, that doesn't look particularly likely.
I think when you think about where we were a year ago, when the FED funds rate was at 0.25 percent and is now currently at 4.5 percent, the ECB deposit rate a year ago was -0.5, it's now at two percent, the Bank of England base rate a year ago was 0.25 and is now at 3.5. The big question is where is the terminal rate? What do I mean by that? The terminal rate is ultimately where the central banks decide to stop hiking rates, leave rates where they are and potentially look up when the next rate cut is likely to occur. So, markets at the moment are pricing in the possibility that the first rate cut could come sometime this year. Now, certainly, on the basis of some of the inflation data that we've been seeing over the course of the past two or three months, there is a case to be made that inflation has peaked. The big question is whether that peak and subsequent decline or disinflation will be enough to prompt central banks to start pulling rates lower. I'm skeptical about that. I think a lot will depend, by and large, on the labour market, particularly in the US, and with today's non-farm payrolls numbers due out for December and this week's ADP reports much better than expected, and weekly jobless claims back at their lowest levels since the middle of the summer last year, I don't think the FED has really any incentive to dial back the hawkish rhetoric quite yet. That's not to say that there aren't concerns about the aggressiveness of the tightening cycle that's taking place over the last 12 months, but I think the least we can expect, rather than a halt to rate hikes, is just simply a slower pace. Obviously, the next FED meeting is at the end of this month/beginning of next month, first of February, there's a next FED rate decision. At the moment, with the direction of travel that we've seen with yields this week and the dollar markets, are pricing in the possibility that we'll get another 50 basis point rate hike on the 1st of February, on the back of the 50 basis point rate hike that we got back in December. So, certainly, I don't think we're going to get a further dialing back to 25 basis points at this point in time, simply on the basis of the fact that inflation is still very high, even though it is coming down, and this week's US CPI number, or next week's US CPI number, should offer further close on that.
But what's particularly interesting, in the wider scheme of things, is while the US CPI is coming down and has been coming down since June last year, wage growth, particularly when we saw the ADP report, in some areas, is trending at between seven and ten percent. So, it's actually trending the private sector wage growth is trending above headline inflation in the US, and I don't think the FED is going to be overly happy about that. So, I think the expectation is we could well see a little bit of a stronger dollar in the first