 Good morning. Welcome to CMC markets on Friday the 5th of May and this quick look at the week ahead beginning the 8th of May With me Michael Houston. It's been another choppy week for equity markets predominantly negative towards the downside This time last week we were sort of testing testing the high the recent highs of the range This has reversed over the course of the past few days On a combination of factors obviously US banking sector once again is front and center of the catalog of risks facing financial markets. We've also seen a surprise rate hike from the RBA of 25 basis points in the early part of the week followed by expected rate hikes from the Federal Reserve another 25 basis points there and the ECB who stepped down from their 50 basis point hikes to a 25 basis point rate hike of their own So where does that leave us? Well, certainly I think if you look at what the bond markets are doing their pricing in the prospect that perhaps We are closer to the end of the rate hiking cycle than we were and ultimately We could be at the end of the rate hiking cycle Certainly the declines that we saw in the US two-year yield over the course of the past two to three days would appear to suggest that The optionality that the Fed would like us to have with respect to the prospect of the future Rate hikes just isn't there They essentially the markets essentially the bond market doesn't believe That the Fed has anything more left in its tank when it comes to further rate hikes And I would suggest that I'm probably in line with that Given what we're seeing with respect to US banks The the economic data the glide path for US inflation does appear to be on a downward path Having said that If we look at say for example The US labor market it still looks fairly resilient Um and wages are probably Slowly starting to come down or go up at a slightly slower rate So really I think the debate now is really about not so much about How many more rate hikes there are to come? But when does the first rate cut come? And I think there there's I think there's wide scope for broad disagreement I'm I still think it highly unlikely That the Federal Reserve will be cutting rates this year unless something Market breaking happens now you can argue the toss about The US regional banks and the crisis there But ultimately From what I have seen Certainly in respect to some of the routes that we're seeing in banking shares There you know the concerns are more about continued rise in interest rates and ultimately I don't think those concerns are valid anymore. I think we're pretty much we're pretty much Hit peak rates And really it's just a question of how long they stay at current levels If we look at the US two-year yield here, we've been trading in a range pretty much for most of the last two months The top of which is 425 the bottom of which is just above 3.5 Now obviously we've got today's payrolls numbers Should you out in a few hours time? And then we obviously also have the US CPI numbers which are due out next week And I think that's what I will be I think that's one of the key factors that I will be keeping a close eye on because Now that the Fed has indicated that It's probably going to sit on its hands for a while. It's really now all about the data But you know, even if it you know, even if it is about the date of the unemployment rate does appear to Have scoped to probably edge higher the the jolts numbers still around about nine and a half million And the participation rate is heading higher. So I don't think US unemployment is going to go rock rocketing higher And certainly CPI on the headline number could well see A slight moderation on the core level from the 5.6 percent that we saw in march To come down to 5.4 now if that does in fact happen that will certainly feed into the narrative that we've been seeing of um A slow decline in headline inflation But where the likely settling point Is probably going to be a little bit higher than the feds or the central bank's 2% target So That's that's that's the key data item that i've got my key that i've got my eye on for next week US CPI for april We've also got first quarter gdp numbers out of the uk on a monthly and a quarterly level And the bigger decision is really the bank of england Rate decision, which is due on the thursday And it's highly likely that we will see the bank of england to follow the rba the fed and the ecb In hiking rates by 25 basis points and then really it's a question of what comes After that, but certainly I think When we look at what currencies have been doing this week The ozzy has really had its way to bex because it's been by far the best performer Largely on the back of the surprise Interest rate hike from the rba to 3.85 And the yield differentials between australian rates and us rates Have closed in the ozzy's favor, which suggests we could get a move back to the top end of this recent range here at around about 68 cents And I think some of the criticism that was directed at the rba May have had a part to play In the surprise the hawkish surprise that we saw earlier this week The bank was heavily criticized for its guidance pre Pre the time that it started to raise rates by essentially saying that they couldn't see rates going up much any time soon I seem to record at christine legarde at the ecb said something fairly similar and i'm i don't record Her coming in under anywhere the same amount of criticism as philip blow nonetheless I I always I thought that laughable at the time And obviously history since then has proved that central banks across the walk across the world Were woefully behind the game line when it came to raising rates the biggest concern now however is that in their eagerness to Correct their earlier mistake They overcompensate in the other direction And that certainly does appear to be the concern right now if we look at ppi numbers Pretty much across the board They've been coming off quite aggressively From the peaks that we saw in the middle of last year and i've always i've always thought and I know an awful lot of people won't agree with me almost that ppi tends to be a leading indicator to cpi and ppi In europe has been falling quite sharply It's also been falling quite sharply in the us and it's been falling quite sharply In the uk the big question is Where does it baseline where does it where does it find a base? But irrespective of that Still expect headline inflation to come down in the coming months We've already seen what's happening what's happened with crude oil prices over the course of the past week or so That is great news for the consumer for filling up At the fuel pump. We're seeing a little bit of a rally today But if we look at brent crude prices This is probably the bottom Of the recent range when it comes to brent crude in and around 70 dollars a barrel Um, I really can't see too much downside beyond that Simply on the basis of the fact that opec will probably cut production again And certainly I think there are concerns that The demand out of china Which saw a big rebound Post chinese or during chinese new year and them and the months after that Is starting to see a little bit of a slowdown So you've got a little bit of a v-shaped rebound and now you're getting a bit of a plateau and we'll get a better idea of that When we look at the china trade numbers For april now in march We saw the chinese economy start to gain momentum in the aftermath of chinese new year On the back of surging exports which rose by 14.8 percent, which was the first rise since september Now imports declined a little less than expected by minus 1.4 Which suggested that domestic demand was slowly starting to recover after months of lockdown certainly recent sales data was shown Strong demand for luxury goods strong numbers from several european luxury retailers lvmh caring hermes We've got berberies numbers coming up in the next couple of weeks as well But certainly i think in terms of the april trade numbers you could well see a significant improvement in China trade china retail sales chinese industrial production Those latter two numbers are due out the week after the china trade numbers So the wider question i think for me with respect to the chinese economy Is whether the trend is sustainable or simply a case of catch up demand Or rebound spending after months of lockdown recent PMIs are suggested a modest slowdown in april Which might manifest itself In a slowdown elsewhere exports for april expected to slow to 10.1 While imports are expected to come in flat So keep a close eye on Those chinese trade numbers because they could also directly impact how the ozzie performs over the course Of the next week or so Bringing me back to the bank of england let's talk about the bank of england and Andrew bailey bank of england governor chief economist hu pill I don't know where to start really I mean, I think what we're seeing at the moment is cables starting to move back towards 126 127 I'm still fundamentally bullish cable Um remains very much a by the dip trade There's certainly a good chance we can retest this trend line that i've drawn in from the highs all the way back Here in the summer of 2021 So probably over the course of the next month or so we could see a move back to 127 perhaps 128 Largely on the basis of the fact that if you continue to see cooling inflation numbers in the us That is likely to weigh On the u.s. Dollar because it will then feed into the narrative that the Fed is done um I don't think anyone can conceivably argue with inflation at 10.1 percent That the bank of england is done um Yeah, we've heard Over the course of the past 12 months has become abundantly clear That the bank of england's stewardship of monetary policy Has been about as much as about as much use as a chocolate teapot The big question is how do they guide from here on in obviously the may inflation report will get Will give us a decent idea Of how the bank of how the bank of england is thinking when it comes to future inflation Forecasts future GDP Expectations certainly the uk economy is in a much better shape Now than was considered to have thought to have been the case at the end of last year That doesn't mean that it won't continue to struggle over the course of the rest of the six to nine months But nonetheless, it's certainly a much better shape than than i anticipated it would be The only the only fly in the ointment Is the stickiness at the moment of cpi that could well see a sharp drop in the april numbers when the effects of the energy price cap roll off and There are some who are suggesting that Um, we could well see headline inflation drop from 10.1 to around about a and a half in april So if that happens then obviously that could take some of the edge off some of the sterling strength But we're not going to find that out Um for at least the next couple of weeks when we get april cpi numbers out towards the end of the month The here and now uk first quarter gdp expecting to see a modest expansion obviously in january we saw growth Monthly growth of 0.4 percent in january. We saw stagnation in february So it's really about how does he how does the economy fared in march? Will we see a modest expansion? Will we see stagnation or will we see a modest contraction? Because of the banking turmoil that we saw during that month On the best-case scenario, I probably see Hope for an expansion of around about not point one or not point two percent So expecting 25 basis points from the bank of england on thursday um Obviously there will be splits from The doves like tenreiro And dingra but tenreiro tenreiro is leaving the npc in the summer to replace be replaced by Someone who I think is slightly more hawkish megan green. Um, she certainly she certainly doesn't sit As far dovish as tenreiro. So we could get a slightly more hawkish bias to the npc as we head into The summer So that's that's cable still expecting to see fairly decent gains there with a flawed around about 12340 Euro-dollar we're still very much in the range that we've been in over the course of the past few weeks Still capped at 111 anywhere below 111 Still looks a fairly decent area of resistance What we are seeing though is the dips are getting higher having said that I can't I can't imagine that we won't continue to trade 109 111 on the wide of it over the course of The next few weeks and months because I still think there's a degree of uncertainty as to whether or not The ecb is completely done. I think they probably are But the ecb would have you think otherwise and I think that That duality is likely to mean that people are a lot more cautious about being Long or short euros euro sterling pretty much same old same old range trading again Um resistance around about 88 70 decent support anywhere near 87 20 Looks like we're probably going to retest that Over the course of the next couple of days dolly yen That really has squeezed me until the pips have squeaked Um, but again, we had a false breakthrough the 200 day moving average similar to the one that we saw back in march I'm still of the opinion that by the end of this year dolly yen should be a lot lower Of course, the bigger question is how we get there um At the moment, I think it's likely we could well drift back Towards 132 in the short to medium term And head back towards this trend line support from the lows back in january this year But I certainly think the odds of the bank of japan tweaking the monetary policy Are probably increased over the course Of the last few weeks so we could see a tweak to yield curve control Sometimes soon Let's have a quick look at the s and p Again toppy at 4200 Had another drift back plenty of resistance anywhere near through these peaks here For me, I think it's very difficult To articulate a case for A significant move above 4200 in the short to medium term we can see through here how much resistance there is there But by the same token, I don't see us falling off a cliff either So again, I think you really got to play the range when it comes to The s and p in the nasdaq and what have you nasdaq still remains very much in an uptrend Made a marginal new high beginning of this month. But again, it's finding progress difficult And whisper it quietly, but certainly the nasdaq Is acting as a little bit of a haven when it comes to the way markets are trading But it's also important to remember around about 20 25 percent of the nasdaq is made up for about six big tech stock. So Sometimes it's important not to read too much into one particular index. So I know that that is that is the nasdaq the the the dax Again Still looking fairly resilient. And again, this is why despite the recent turmoil. I'm not overly bearish When it comes to equity markets in general. Yeah, we've seen a big fall in the footsie this week But overall, um, I still remain relatively constructive on this index and as long as we hold above This series of this this this low here at around about 7600 of this area here Then but I'm still optimistic that we can see a revisit of the highs It is a little bit worrying. We weren't able to get back close to the highs of 8 000 But again, that's not altogether surprising when you consider what's happening with oil prices And what's happening with banks? both of which The footsie 100 is a heavy weighting towards both sectors. So I think if the banking If the banking problems subside We could start to see a recovery in the bank share prices which We are still we're still seeing underperform even though Lloyd's Posted a very solid set of numbers this week following in the footsteps of net west But again, both of those banks have been punished because of concerns About a weaker outlook and the fact that they didn't raise their guidance even though the q1 numbers be expectations I would suggest the reluctance to raise guidance is just Being understandably cautious when Looking at events over the other side of the Atlantic and that just speaks to me as a sense a very sensible management policy But unfortunately sensible doesn't generally tick too many boxes where markets are concerned More's the pity in terms of gold We are retesting the record highs of Um last year so again 20 70 20 80. That's a big big level keep an eye on that Um to see whether or not we we make any record highs and on the earnings front I've got two of notes to keep a close eye on one of which is the best performer this year on the footsie 100 Rolls Royce shares are up 60 Year to date and certainly I think there is potential for them to go even higher Why do I say that because they're still below the levels they were pre-covid? um When they're around about 200 p it's been a standout performer um They've come a long way since the new ceo Said the company was a burning platform The shares surged higher after the company returned to a modest profit before tax At the end of last year of 206 million pound That was a surprise underlying revenues rose to 12.69 billion Held by a stronger than expected performance in its civil aero space division Which saw revenues rise by 25 to 5.69 billion pounds Now that's going to be the area that should see further gains We've seen a big explosion a big rebound in air travel This year we've seen decent support the decent performances from easy jet Ryan air whiz air even iag hosted better than expected numbers earlier this morning so large engine flying hours According to the last set of four year numbers were at 65 percent of 2019 levels now that number Can only go higher? The company expects this to return to 80 to 90 percent this year China will continue to reopen obviously so again Engine flying hours should get the benefit from that rose Royce has also signed new engine orders from Malaysia Qantas north atlantic airways and air India power systems also doing well new markets Not so much the new electric and small modular reactor operation continues to operate at a loss but given the problems with energy Energy supply you would like to think that that will be an area where rose Royce should continue to do well Anyway in terms of its guidance The company laid out expectancy profits increased between 800 million and 1 billion pounds Now that was above expectations. So this week's q1 numbers Should tell us an awful lot about whether or not rose Royce is on course to do that So keep an eye on the highs that we saw back in march 160p trade sideways since then but if we look at all the way out on how far Rolls Royce has come from where it was back in 2020 2019 there is around about 340p 2019 and this was obviously co vid here I'm just pre coding you get the big drops and obviously the collapse in air travel Air travel is now starting to return to normal. So you would expect that Gap to get filled. So we'll wait and see at the moment the share price is around 150 But certainly I think in the long term And the fact that rose Royce is really drilling down on the cost base This this should be one that could well see further gains in the short to medium term We also have second quarter numbers from disney And you know, this is one particular stock that was really struggled To really hang on to the gains that we saw at the in the early part of the year Bob Iger is back streaming side of the business Um in q1 numbers Actually saw subscriber numbers decline And obviously that's something that Bob Iger won't want to see and ultimately um Continues to lose money on a month on month basis Overall revenues in q1 There was a rise of eight percent In q1 revenues to 23.51 billion dollars The new ceo is looking to Maximize profits as well as cut costs. So he's already announced the loss of 7 000 jobs In an attempt to save up to 5.5 billion dollars The cuts are taking place mainly in the unit That was developing metaverse strategies. Yeah, not surprised probably a complete waste of money that The company will also be split into three divisions Entertainment which will include disney plus and the tv and studios business the ESPN business and the parks and holidays business. So I think the main cost savings will probably come not in front facing roles in the park's business But probably more in admin roles and other cost savings are likely to come in film and tv So share price reaction since then suggests that investors are far from convinced about this turnaround plan So it'll be interesting to see what they make of the revenue numbers And the profits numbers when disney reports on the 10th of may Let's just do a quick trend line on here to see whether or not we've got a nice one there That looks a nice tasty trend line there. So it'll be worth interesting keeping eye on disney next week when they report the second quarter numbers other things to keep an eye out for are um itv's first quarter earnings baleful bt and rivian first quarter earnings Um, other than that That's it for this week's Week ahead. Thank you very much for listening Um, have a long have a nice long bank holiday weekend And speak to you all same time same place next week. Thanks very much