 Good afternoon and welcome to CMC Markets on Monday the 4th of July and this week's Monday market webinar with me Michael Houston. I'll be giving you a quick run-through of some of the key events this week but before I get started I have to display the Obligatory risk warning which applies to all of these types of event just quickly work our way through those and Then we can get started because despite the fact that today is likely to be fairly quiet due to the US 4th of July holiday this week promises to be a fairly fairly busy week certainly in the context of economic data and Event risk going forward In the wake of last week's Rather volatile Market price action a week ago I looked at US markets and we'll start with them because there was good a place to start as any in the wake of the Brexit fallout now last week I spoke to you about the correlative effect of the S&P in the Dow and talked and warned about warned about the prospect of Break lower in one Not getting confirmed by a break lower in the other so we're going to start with that and As we can see here. We did get a break lower in the S&P below 2000 But what we didn't get was a correlative breakout below 17,000 in the Dow Jones and that caused us to fail to follow through on the downside in the S&P and the Dow and Since then we've we've seen a very very strong rebound Higher so all of those All of those are warnings about a collapse in financial markets in the wake of a Brexit vote Turned out to be fairly short-lived and that's not to that's not to underscore the effect That this Brexit vote will have it will have significant Significant effects on the UK economy and that's really why we saw Mark Carney come out At the towards the end of last week and announce those further measures or perspective further measures to ease monetary policy for the UK economy but again that wasn't a surprise I indicated as such in My video last week when or this this this time last week when I suggested that the market was pricing in the prospect of further easing from The MPC something that might mr. Carney pretty much alluded to in his comments on Thursday afternoon last week and that's really why I think the pound despite the fact that it did dip lower in the aftermath of those comments hasn't really Made new lows Against the US dollar in the short to medium term and that's not to say that it won't Subsequently do so But what we've seen with respect to the reaction of the pound is We've seen it retest the lows on its broad weighted index over the course of the past few days But it hasn't actually made new four-year lows It's pretty much down towards the lows that we saw around about 2012 2013 on a trade-weighted basis So what does that mean going forward was certainly in the context of equity markets We're now retesting the highs that we saw earlier this year with respect to US markets As investors start to price out the prospect of an imminent Fed rate rise We'll certainly get a little bit more color on that later this week when we get the publication of the latest FOMC minutes which are due out later this week on Wednesday, I think it's Wednesday evening Now I Think it'll be particularly interesting as to whether or not the US policy makers Fed policy makers downgrade Or upgrade their inflation and growth forecasts for the US economy. Certainly. I think What will be paying particular attention to in the wake of those minutes is non-farm payrolls on Friday That's really the big big event for this week. It's going to be non-farm payrolls now We will be hosting a webcast on the 8th of July between with with myself and My colleague in Canada Colin Cezynski at 1 15 On Friday feel free to sign up to that event. You can find it in the learning section of the CMC markets website We will cover the numbers live as they come out. I'm going to briefly cover what expectations are for those numbers expecting a recovery of 181,000 new jobs in June Which would be a significant pickup on the numbers that we saw in May? Let me just quickly remind you of those numbers We saw 38,000 new jobs added in May and we saw a net revision downwards of 59,000 to March and April so economists are predicting a significant pickup in jobs growth in June Ultimately though, I'm not sure it will change the mathematics or the dynamics Of whether or not the Fed will raise rates this year because ultimately I think any any potential for a rate rise pretty much went out the window um in the wake of The brexit vote certainly I think if us policy makers were looking for an excuse not to raise rates Then they've got it now given the political uncertainty. What has also been rather telling And those of you who've got a fairly long memory will know This is that the the dollar against the chinese rim nimby has also Started to push back the levels that we saw in the wake of the original plunge in stock markets at the beginning of this year so The chinese are looking to devalue their currency the uk Is devaluing its currency That is likely to push a bit of a deflationary shock out across the global economy You've also got a strengthening japanese yen Which japanese policy makers are not likely to be particularly happy with And that's going to make it that much more difficult for u.s policy makers to even contemplate A rate rise when pretty much every other central bank around the world major central bank around the world Is looking at potentially easing monetary policy further And I think that's that's one of the reasons why when people talk or when us policy makers talk about the potential for raising rates That's why you have to be skeptical because ultimately monetary policy doesn't operate in a vacuum You can't have a u.s federal reserve operating one set of monetary policy In complete isolation to everybody else because you will widen the the spread differentials Between the various bond markets and certainly if you look at u.s bond markets They have been going up along with uk guilt markets along with every other bond market in in the world Yes, there is an attraction for us treasury yields There's certainly a lot higher than pretty much everyone else But ultimately they will Be constrained by the by similar factors that are driving uk monetary policy chinese monetary policy japanese monetary policy And european central bank monetary policy and that's why you haven't seen a significant rebound in the dollar This is the dollar index since those peaks in Uh in the middle of june, we've pretty much gone one way in terms of the dollar index And it does appear to be the line of least resistance Certainly in the context of dolly yen I think it's quite important that we look at dolly yen in the context of the future direction of the dollar and ultimately I think in the context of this particular discussion the line of least resistance is a lower dollar And a stronger yen irrespective of what Japanese policy makers try and do We saw a little bit of a move below 100 in the wake of The brexit vote that we saw on the 23rd of june. We are now I think in a new trading paradigm with respect to dolly yen The initial resistance level that we're looking at was the previous lows at 103 50, which we can highlight here It's this series of lows down here. We rallied off 103 50 We rallied back to around about 106 70 and then we've come back Traded below it 107 100.75 is the very key level Let's blow that all the way out and we can see that it's a significant Fibonacci retracement level of 50 of the entire up move that we saw from the lows at 75 65 in 2011 to 125 85 the highs That we saw in 2015. We've seen the breakout lower We've continued to push and we've also broken below the 200 week moving average We've broken away from that and that suggests to me that in the context of dolly yen Any rally towards 103 55 Could find significant selling interest And we could start to tip over back towards that 100 level over the course of the next few trading sessions Now word of warning The bank of japan will be reluctant To let dolly yen move much below that 100 level and that could Significantly prompt some form of intervention on the back of the g7 But ultimately the die is cast in terms of dolly yen at the moment That does appear to be a significant downward pressure being placed upon it And as a result that's going to be make it that's going to make it very very difficult For it to rally because even though we've seen a significant rebound in stock markets Over the course of the last few trading sessions We haven't actually seen a similar rebound in dolly yen and usually they tend to correlate quite well There's also the fact that what we've got here is a significant rebound In risk aversion in terms of gold and silver prices And I think this is actually quite telling if we look at silver here last week I talked about that resistance level at $18 Around about that $18 mark and suggested that while we're below that be very very very Very reluctant to buy it. We've subsequently broken above it And once we broke above that it was pretty much one-way traffic all the way up to $21 That does seem to be starting to ratchet higher rather Exponentially if we go all the way back in this chart here We can see now that we're above the 200 week moving average If we close above that 200 week moving average it'll be the first time we've done that Since 2013 momentum now does appear to be turning in silver's favor But in the case of this particular move here, we've moved way beyond What I would call a safe buying zone for silver Then the move the move has now happened. We're away from it And ultimately what we want to see now or what I'm looking to see now Is a test towards the 2000 these 2014 levels that we saw middle there around about $21 And 55 56 cents really we're looking at $22 now as the next target for a move higher in silver prices It's a similar sort of story for gold again I suggested last week in last week's video that the line of least resistance for gold was towards the upside Now the next target there is a 2014 highs around about $1392 $1400 This sort of area here again like silver we're now above the 200 week moving average And that for me is significant. That means that we could potentially go Quite a bit higher. What's quite interesting here more than anything else in terms of the Technicals is the fact that we closed above the 200 week moving average We've stayed above the 200 week moving average and ultimately now The next key test is a break of 1360, which was the highs that we saw two weeks ago And a potential move higher towards those 2014 highs at the moment silver does appear to be leading it does appear to be a bit of a leading indicator And as such This this This risk aversion trade given the fact that yields are moving more and more negative Means that the attractions of gold and silver are that much greater because ultimately People if you're looking at gold and you and you sort of buy into the theory that ultimately Gold has no intrinsic value. Well, it has more of a value than holding something which has a negative interest rate And I think that's what's driving the move into gold and silver at this point in time In terms of the footsie 100 What has been significant over the course of the past few days Is the fact that we've broken above that 6450 area that had basically capped the price action Since october last year those peaks all those series of peaks all the way through here We've now pretty much Blasted all the way through This area here 6450. Yeah, we did have take a little bit of a peak up there The in the middle of october, but ultimately that's 6450 level. That was the key level for me We have we have broken higher We could retrace Some of the gains that we've seen in the past couple of days and come all the way back To around about this 6450 level, but while we're above it The momentum I think has changed and I think the next key test for the footsie 100 is 6765 Now other markets have lagged behind the rebound that we've seen in the footsie 100 That's not really surprising given how many companies in the footsie 100 get an awful lot of their Earnings in us dollars and that's helped drive some of the rebound The footsie 100 in dollar terms hasn't rebounded anywhere near as much. I've heard that argument an awful lot There is some merit to it But ultimately the reason I think also why the footsie 100 has recovered as much as it has Relative to other equity markets is simply because of the average dividend yield that the footsie 100 has It has an average dividend yield even at these levels of well above 4% So when you look at it in that context the rebound in the footsie 100 is not altogether Surprising when you look at the s&p 500 which has an average dividend yield of just in excess of over 2 So the attractions of buying footsie 100 as opposed to the s&p 500 You get double the dividend yield and you just hope that the pound doesn't collapse too much Certainly that is a concern particularly against the dollar and that's why I'm keeping a close eye On this cable chart here because I think this cable chart We've had a bit of a pause for breath here Now you can argue that this could potentially be a little bit of a flag Building up here after a strong move down Now that would worry me if we got a move down here from 149 to 135 If we did break below 131 then if you measure 14 big figures down there Then you're looking at potentially 115 Which is not really a scenario that I'd really want to entertain Going forward but certainly looking at the way the pound is trading at the moment We can see from this consolidation progress this consolidation process here I can draw a couple of trend lines through here There we go and then to draw this one Potentially through here It's not an ideal process, but ultimately I think If we're looking for a potential breakout on cable what we don't want to see Is a break below 130 120 because if we do get a break below 130 120 it could get very ugly very quickly So I'm I'm keeping a very close eye on this this price action consolidation here at the moment what we haven't really seen is A move back above 135 That was pretty much the level that we saw On Thursday in the wake of mr. Carney's comments We saw it sell off after it looked as if we were going to try and fill this gap Between 136 and a half and 135 ultimately we haven't seen that gap close yet and as such When you actually look at some of the bearish bets that are being put on the pound against the dollar I always get a little bit twitchy when everyone is so one way Because it does suggest that we could be susceptible some to some Significant short squeezes, but certainly in the context of what's going on here I'm keeping a very close eye on this 130 120 area because if we do break that We could get a significant load of stop losses getting triggered and further downside risk unwine So what does that mean for euro sterling? Euro sterling We've seen a massive move higher at the moment. We're struggling to get through that 84 area But ultimately the momentum trade does appear to suggest Given that we've broken this long-term downtrend that we've seen since the peaks that we saw in 2008 That we could potentially head towards this 8706 area Which is the 61.8 percent Fibonacci retracement level of this entire down move Now you may have you may find it hard to think that the euro could benefit that's to To sterling's detriment, but ultimately that does appear to Be the line of least resistance at the moment But what I would want to see is a move through 84 10 to suggest that we could get a move towards 85 and subsequently 8706 there still remains significant risk of Further sterling weakness in the short to medium term Now I've been asked I've just been asked about a rate cut on sterling The next rate meeting for the Bank of England Is july 14th So mr. Carney's comments last week would appear to suggest That july may be too soon. Certainly. I think in the context of where uk guilt yields are Markets surprising in 50 basis points over the course of the next few months. I think the big question is is when that first rate Cut comes in I would suggest And this is just me Thinking out loud that july is potentially too soon wouldn't surprise me if it did happen then But it's certainly not my base case scenario Um, the argument would be and certainly in the context of this morning's construction pmi data There is a possibility that it could happen in july, but I'm more minded to think it would happen in august And the reason I think it would brought more likely to happen in august is because ultimately that's when the bank of england publish Is his latest inflation report Where we're going to get to hear its latest growth forecast. It's close gdp forecast just as a reminder 2016 gdp forecast the bank of england has for the uk economy is two percent Well, given the fact that we saw q1 coming at 0.4 And the fact that q2 is likely to come in probably Flat to 0.1 at best That leaves us with a significant shortfall for q3 and q4 So I would expect to see a significant slashing of that uk growth forecast in august And that would be the best time I think to do a rate cut and potentially Some more qe Mr. Carney's already ruled out. Well, he's I don't think he's completely ruled out He's he's already expressed skepticism about the Potential for negative interest rates Ultimately, we've already seen from japan The negative effect that actually had when they did it in january this year They surprisingly went to negative rates and the yen went up. It didn't go down So I think the jury's out on the efficacy Or otherwise of negative interest rates Ultimately what we want to see I think in the short to medium term is Accommodative monetary policy from the bank of england now tomorrow. Mr. Carney will be giving a speech on behalf of the fpc for the financial financial stability committee So we could get some color on further measures that the bank of england could do with respect to the banking sector And additional liquidity there, but ultimately he did say that monetary policy can only do so much ultimately the sooner we get a Government a stable government better Which is why I think it would be unwise to talk about or even contemplate a general election because ultimately we would be then Rerunning the referendum campaign all over again And I think most of us are sick and tired of political campaigning. We've had about two or three months of it The last thing we want is another referendum On the eu vote on the back of the eu vote that we've just had So some of you may have a different view on that, but I certainly think that The prospect of another election and more political campaign Is likely to have me reaching for the whiskey bottle That being said so Ultimately bank of england is likely to remain fairly accommodative Sterling is likely to remain under pressure But that's not to say that the euro is likely to strengthen anytime soon Last week I talked about the Weakness in the european banking sector that has not changed The italian banking sector remains a basket case to give you a case in point Monti di Pasci One of its weakest banks Has a market cap of one billion euros. That's one billion euros Okay, it has non performing loans of 48 billion euros So if anyone thinks that mr. Renzi is going to be able to recapitalize or Bail out the european banking sector Then I think we really need to take a little bit of a reality check on that the italian banking sector Still remains under an enormous amount of pressure That is a boil that hasn't as yet been launched and that's before you even talk about The german banking sector and that pressure point there. Deutsche Bank. I talked about this last week Deutsche bank is a problem that is not going to go away Any time soon and this is the worry that us That european policymakers have at the moment keep an ear out to the ground with respect to european action for The european banking sector because this chart here on deuter does appear to suggest that the downside remains the weak side On deuter bank shares 13 euros keep an eye on that because On the basis of this chart here We could well see further weakness on deuter bank chart And a move potentially towards the downside We've already seen or heard from mr. Soros that he had a massive short on deuter bank Big question is has he taken his profit? difficult to say at the moment But ultimately the line of least resistance on deuter bank shares and the european banking sector as a whole in the lack Of a coherent european policy response would appear to suggest that the line of least resistance for european banking shares remains towards the downside Okay, so that's um Gold silver we've done us payrolls. We've done Dollar yen. We've done euro dollar. Have we done euro dollar? I don't think we have let's have a quick look at that Again, what we've got here is this 200 day moving average that hasn't really done us any favors thus far Euro dollar. I think is pretty much uninteresting at the moment now holding back above the 200 day moving average Slowly ratcheting higher. I think ultimately euro dollars in a range I can't see what would drive it out of the range that it's been in over the course of the past few weeks and months Seems to be well supported away on 109 Seems to be well This seems to be significant resistance around 112 and 113 ultimately I see nothing interesting on euro dollar at the moment and it's very very difficult to suggest where we go From here if you have any questions Let me just send you a chat message please direct them Yeah, there we go. One other thing. We had Australian elections over the weekend Another more political gridlock on another On another political process the Aussie dollar has actually gone up now Just shows goes to show that basically people generally don't tend to pay that much attention to politicians They pay more attention to central banks The rba is due to meet later this week. In fact, I think they're due to meet tomorrow morning It's unlikely. I think that We will see the rba act on interest rates tomorrow tomorrow morning Rates are already at a record low of 1.75 percent. They've only just cut them from 2 percent We could see further Aussie strength towards 76 but ultimately be aware that we have strong downtrend resistance coming in From the April highs. So we could see a little bit of Aussie strength, but overall I think we're still in the range Good buy is around about 73 And with resistance around the previous peaks and that trend line resistance through there Just been asked about the DAX The DAX has underperformed quite significantly over the course of the past few days and weeks we have rebounded quite strongly from the Rally that we saw in the lead up to the brexit vote and we are slowly edging higher what I would want to see I still think we can probably see further gains The one thing that might drag on that is if euro dollar continues to push higher If the DAX is to push higher, then I think the euro needs to really stay below 112 113 We do need to fill this gap that we saw from the sell-off On the thursday to the move on the friday, but ultimately I think we're in a range on the DAX I think we can potentially move back to 9900 Potentially 10 000, but ultimately Again, I think with the DAX we're in a range. It's very very difficult to articulate a move one way or the other At the moment we're finding resistance around about 9800. We can see those three peaks here one two three It's finding a little bit of resistance there But ultimately the DAX is very it's a tough one to call at the moment We're slap bang in the middle of the range that we've been in for the last two or three months Ultimately if it goes up towards here, then I would look to sell into it If it comes back down here, I'd look to buy into it. Ultimately. It's in a bit of a no man's land here With with a bit of resistance Around about 9,820 and support support lower down. It's a bit of a it's a bit of a no man's land at the moment I'm sorry to say Not really Not really giving me any clues as to where it's going to go to next but ultimately it is finding support at high levels And could and could well slowly Ratchet higher but it is looking very overboard at the moment Which suggests that it probably needs to trade sideways for a bit before going higher again So those are the technicals on the DAX bit of resistance at 9,820 good support around about 9,600 It's a similar sort of story on the euro stocks 50. I think really if you're looking at the DAX You also need to look at the euro stocks 50 as well good support around about the 2700 area and again here on the four hour chart on the daily chart here We can see that there's good resistance between 2900 and that that this this series of highs through here European stocks unfortunately are trading sideways of being act as a drag over concerns about the the banking system in europe and that's no matter illustrated by the um The italian footsie mib and this chart here significant weakness there Does anyone else have any more questions on anything that I haven't covered thus far? Okay, all right. Well, if that's the case ladies and gents, um quick reminder about friday's non-farm payrolls webinar Once again, I would like to thank you for your attendance. I will be posting this on youtube Later today Otherwise, I'll look forward to oh oil. Someone's just mentioned oil Good shout Right. Here's one I saved earlier Consolidation here guys on crude oil. I think what we've got here Is it's a good resistance around about 51 a barrel. We do appear to be trading in a broad Consolidative pattern Bias does appear towards a slight move to the downside However, if we do break about 51 dollars Then I certainly think there's potential for us to move higher at the moment I think the bias remains For a little bit of a drift down towards this series of lows around about 46, but certainly be looking at the highs for Sorry, the lows rather that we saw on friday because we can see this through here if we look at wednesday And we look at thursday and we look at friday this decent support around about 48 dollars a barrel Significant resistance around about here Looking to trade that sort of range I think probably over the course of the next few trading sessions if we change the two hour chart That makes it much more obvious. We can see that we're We're significantly overboard at the moment Certainly potential for us to come back down Towards the mid 40s and just below 49 48 dollars a barrel Before another move higher. It's a similar sort of story on us crude as well And again, this is where the correlation needs to be taken into account as well We look at the four hour chart. We can see a similar sort of process coming in Significant resistance just above 49 dollars a barrel Nice little resistance around about 47 47 So it's a nice nice support around about 47 and a half 47 dollars a barrel, but certainly With us markets off. I don't with us markets off today. I don't expect us crude or Brent crude to really do that to do that much today So that's oil Okay, so hopefully that's um all your questions answered if you do have any further questions Please feel free to treat treat treat tweet Me at m hueson underscore cmc. Otherwise, I'll talk to you again On friday. Well when I'll be hosting along with my colleague collin susinski non-farm payrolls friday 152 145 Otherwise, thanks very much for listening This is michael hueson signing off at cmc markets