 Good morning and welcome to CMC Markets on Friday, the 22nd of May and this quick look at the week ahead with me, Michael Houston, starting the 25th of May. We get started, just go through a number of quick disclaimers before we try and dissect what the markets have done this week and ultimately look forward to what is likely to drive markets over the course of the next week or so, which is a short week next week because the UK has a bank holiday on Monday the next week or so. As we come to the end of May and we start to look ahead towards the last month of Q2, which would be June. So it's been it's been an interesting last few days for equity markets, got off to a real flyer on Monday, if we look at the FTSE 100 to begin with, very strong gains there on the Monday and to a large extent we haven't given back too much of those gains, started on started the week on optimism over the reopening of economies across Europe, as well as the US. I think there is an expectation amongst a lot of investors as economies reopen and the search for a vaccine as well as antibody tests goes on that we may not see a second peak in the short term, simply because obviously the weather is getting warmer and that makes it much more difficult for the virus to be transmitted, that doesn't necessarily mean we won't get one in the autumn, but certainly over the course of the next two or three months I think there's an expectation that some semblance of normal service might resume. However, I think it's run into a little bit of concern, this particular rebound on the back of yet another big rise in US weekly jobless claims, another 2.4 million people lost their jobs or claimed for jobless benefit, bringing the total up to 38 million in the last six weeks, six, seven weeks, and now we're starting to see a sharp rise between the US and China and I certainly think that's something that we can't dismiss as we look towards the November the 3rd presidential election because I think the more damage that the coronavirus crisis does to the US economy the more likely it will be or the more likely it will be that President Trump will look for a scapegoat and a scapegoat is more than likely going to be China and that's why Asia markets to a large extent and markets in general today are sharply lower. I think China's not helping with its more aggressive interventions in Hong Kong's internal governance, talking about a new national security law which could well reignite the unrest that was a hallmark of last year the street protests on the streets of Hong Kong which predated the outbreak of this coronavirus. We can certainly see the way the Hang Seng has reacted to that with respect to this this chart that we've got up here. Two very very big falls over the course of the last couple of days has taken out the lows of the last four to five weeks and as such could start to see some semblance of a revisit of the lows that we saw all the way back in March so Hong Kong markets are getting a little bit nervous. I think it's going to be very very difficult for China to step back from some form of confrontation with the US and vice versa. I think President Trump is likely to raise the volume against China as we head into the summer and we look towards the presidential election at the end of the year. So what investors are having to cope with right now is concerns about a renewal of US-China trade tensions after the positivity of earlier in the week as well as concerns about a second wave as we head into the autumn. So as if life wasn't complicated enough we've also got the prospect of renewed US-China trade tensions. Nonetheless what we've seen and what we continue to see is equity markets continuing to track ever so slightly higher. We can see that here with respect to this UK 100 chart, this FTSE 100 chart. We still haven't taken out the peaks that we saw in April and that's as true of the FTSE as it is here with respect to the German DAX. If we look at the DAX chart here it's a similar sort of story so we just quickly close that down and reopen this chart here. We can see that again we struggle to get through those peaks at the end of April and as such that's likely to act as a decent resistance for any rebounds going forward. Nonetheless we still need to be mindful of the support all the way back down here at 10192. So while all the noise that we're hearing from the news flow points to sharp moves to the downside as well as sharp moves to the upside the bigger picture is we're still in the range albeit at near the highs of that particular range and we do need to bear that in mind and take a step back when we're listening to the news flow because the news flow can overwhelm your senses which is why it's very very important to look at the price action as well. So be mindful of the resistance that we've seen at the end of April. I can draw in a little horizontal line for you there and you can see that it's 11,340 so that's a quite a nice little resistance line to keep an eye out for and the same also applies to the S&P 500 even though we did make a marginal marginal new peak as a result of the up move that we saw this week we didn't really substantially push beyond it and more importantly than that we didn't take out the 200 day moving average. Having said that we still very much remain in by the dips mode when it comes to the current performance that we're seeing in equity markets. I've drawn in a nice little trend line through here. I think it's unlikely that we're going to come crashing off in the short to medium term so if we do get a push lower then we are likely to find buying interest pick up simply because central banks very much remain in the mode to support the recovery. We've heard from Jerome Powell the head of the Fed this week and he's remained very much of the mindset that he will the Federal Reserve will do whatever it takes to support the recovery and that also includes loan programs to smaller medium-sized businesses something that the Bank of Japan this morning also announced that it would do with a new package of $280 billion worth of loans to small businesses. We also seen this week the effects that UK government's fiscal response has had on the borrowing numbers the UK borrowing numbers in April. The UK government borrowed £62 billion on top of a revised upwards figure of £12 billion in March. Now that £62 billion in April obviously was part and parcel of the employee assistance program the furlough program and was also higher than the entire previous years borrowing government borrowing figure so the UK government borrowed more in April than it did in the previous financial year. Given the fact the furlough is likely to be extended into October albeit with some employee assistance that number is only likely to go a lot a lot higher and we've already got some sort of number on it because of the chancellor announcing that the numbers will be in the region of £340-350 billion over the course of the next few months which is around about 15 to 20% of UK GDP and the final bill is likely to be higher than that but we're not we're not alone in this particular leaky boat. The US Federal Reserve the the US government is the US government is already talking about another stimulus a fiscal stimulus program and obviously we also have the European the European agreement between Germany's chancellor Angela Merkel and Emmanuel Macron of France of a 500 billion euro EU recovery fund though whether or not that comes to anything remains to be seen it got an awful lot of headlines but it's not likely to amount to anything much before March next year so as with everything with respect to the EU it's all it's an awful lot of noise and not a lot of substance that being said the euro has seen a decent pickup over the course of the past couple of days but again it's run from foul of the 200 day moving average in this series of previous peaks through here I still can't get enthusiastic about the euro we've got a whole host of numbers coming out next week these are generally confirmatory numbers first quarter GDP final revisions for Germany France and Italy Germany's is coming out on the 25th of May and that is expected to be confirmed at minus 2.2 percent there is a risk that that could be revised that could be revised lower even lower because of the really awful March numbers that we saw with respect to retail sales industrial production and what have you so that could get revised lower we've also got French first quarter GDP in Italian first quarter GDP minus 5.8 percent in the case of France minus 4.8 in the case of Italy so those are confirmation of some really poor numbers on the optimistic side we also have the German IFO business survey now that hit a record low in April of 74.3 no surprises there given the fact that German economy was in lockdown and there's little expectation that things will improve in Q2 however we could see a pickup in that number because of the fact that economies across Europe have started to ease lockdown restrictions so you could see business activity pick up there but you know you have to take your good news where you find it it's going to be an awful number it's just not going to be as bad as the number in April so we could see a little bit of a rebound there on the 25th of May we've also got a whole host of US numbers out next week obviously we have the usual weekly jobless claims numbers which again are probably going to come in in the millions taking the total to around about 40 million that number is due out on the Thursday but what's really drawn my eye I think for the coming week it's going to be the beige book survey of economic activity consumer confidence for May which is coming out on the 26th of May and US personal spending for April so in the context of that we've already looked at the S&P 500 my opinion here is nothing's changed it's likely to remain in this range that we've been in for quite some time pretty much the same as other equity markets until we can find some catalyst that's going to drive it out of that range now we could see an increase in China US tension drive it out of that range towards the downside or we could see the prospect of another big stimulus program from central banks and governments drive it to the upside but ultimately economic reality still has to override stock market valuations and at the moment they are looking a little bit rich but I don't think we're going to come crashing off so let's take a look at US consumer confidence because only a few months ago that was sitting near 20 year highs so the sharp fall that we saw back in April to the levels last seen in 2014 shouldn't really have been too much of a surprise I think the real surprise was that we didn't fall even further back to the levels we saw in February 2009 as we came out of the financial crisis you know it doesn't mean we can't fall further in May and I think it's likely that we will you have to put in the context of where the US economy was in 2009 there was there was so many fewer unemployed so I can't see how US consumer confidence can't fall even more precipitously lower from the levels that it is now which is around the mid 80s so I'll be keeping an eye on that that should come in that should see a fairly big fall and US personal spending for April now in March that number came in at minus 7.5 that was a record low for US personal spending and that was really I think only for half of March when the US economy went into lockdown so when the US economy did go into lockdown as cases started to rise in New York there was still two weeks left to go in March we've got the whole of April now to look at US personal spending and I think that the record low that we saw in March is likely to be surpassed by another record low of minus 12.6 percent we've already seen the effect the lockdown has had in the UK UK retail sales for April minus 18.1 percent a record low not surprising when you consider that half the most non-food shops were closed but again you know there's a negligible negligible reaction to the pound we're in a bit of a downtrend have been in for quite some time the big I think the big level for me in sterling still remains if we go out to the daily chart here this red line here it's around about 1.19.85 1.20 I still think there's way too much pessimism baked in to the sterling price as you know as we head into the rest of the year and may generally tends to be a negative month pound for the pound anyway so I think as long as we can hold above these lows here and I think there's a good chance we could see a decent rebound back through 1.22.5 1.22.70 and back towards 1.24 I'm not nearly anywhere near as optimistic about the euro and we've seen that push higher over the course of the last week or so we can see that in this euro sterling chart that's one call that I really haven't got particularly well I haven't caught particularly well over the course of the past few days I didn't anticipate this breaking higher I can't understand the rationale really for the euro strengthening against the pound when you look at the the the economics of the various economies in the fiscal oversight of Europe relative to the UK you know Europe's a basket case I really cannot see any long-term benefit and being long-term euros when they're completely unable to come up with a coordinated fiscal response to the problems they're about to sweep across the continent over the course of the next six months you know the Spain Italy and Greece their tourist season is gone you know and that's their main that's their main revenue earner in the summer months other than that there's not really much in the way you know in terms of significant revenues that these economies have to keep themselves going so for me I have significant concerns about the southern European economies in the absence of a significant fiscal response from EU authorities and that for me limits the upside we're finding a little finding it a little bit toppy around 90 I think as long as we stay below 90 then we could start to drift back lower again but it's likely to be glacial in its in its speed in terms of other things I'm keeping an eye out for this week there's a couple of there's a couple there's a couple of earnings announcements you've got daily mail latest numbers we've seen reports of lots of job cuts across the across the across the mainstream media in journalism so as a result of the fall in advertising revenues particularly in print which I've seen revenues drop quite sharply as people stop buying newspapers simply because they're not going out so they're doing an awful lot of their media consumption online digitally and we've also got HP's second quarter earnings for the for the year on the 27th so we've got daily mail on the 28th we've got HP Q2 numbers on the 22nd 27th and that's one thing that I think has done fairly well over the course of the past few weeks laptop sales I've just bought myself a new HP laptop but they've certainly found that they've underperformed relative to some of their peers like Lenovo PC shipments in Q1 HP saw a 13.9% decline so they're sort of falling a little bit behind the curve there and they need to really up their game so if they can't up their game in Q2 HP then you really do have to wonder you know what will cause them to see a significant move higher in their share price we have seen a decent rebound over the course of the past few days but we need to take out that $18 level that we see in this particular chart here if I just get rid of those active pointers on the right hand side you can see these series of peaks over here in March they're the next resistance along with the 200 day moving average we look at daily mail trust again we've seen a decent rebound over the course of the past few weeks from the March lows running again into the 200 day moving average so running into a little bit of resistance on the back of the rebound that we've seen since March I got asked to also have a quick look at gold by some clients on my week ahead and this seems an opportune time to do it simply because we've made new seven and a half year highs on the gold price we've broken out of this triangular consolidation here if we adopt a measured move basis for this move is break out of this triangular consolidation which I've done by using the Fibonacci extension feature on the toolbar the draw tools bar here so the Fibonacci extension is there you use that you basically take the distance of this move here project it higher and that gives you a target of 1796 it's run into resistance around about 1765 which is a 61.8 move or measured move from this breakout point here I'm looking for a measured move to $1800 an ounce which remains my end of year target for gold until such times as it reaches that level that will remain my target once it hits that target I will then come up with a new one but for the end of year target for gold remains around about $1800 an ounce if we look at the support levels through here we can draw a line through here also support in and around 1720 just above the breakout level that we saw all the way back on the 14th of May so very much a case of buy the dips when it comes to gold prices also got to another revision of first quarter GDP out of the US economy not really expecting to see any significant changes to that still expecting to see that come in a minus 4.8 percent annualized contraction in Q1 and will include some of the missing data from the final weeks of March so there is a risk actually that minus 4.8 could actually nudge into the minus 5 percent level so that's it I think for this week ladies and gentlemen thank you very much for listening this is Michael Houston signing off here at CMC markets and just going to quickly take you through the final slides for the final disclaimer and I'd like to take this opportunity to wish you all a nice long weekend if you're enjoying it hopefully the weather will be nice and look forward to speaking to you all again same time same place next week thank you