 And welcome to CMC Markets on Friday the 12th of March and this quick look at the week ahead beginning the 15th of March 2021 with me Michael Hueson before I get started some risk warnings before we get on to the subjects or the subjects of the week ahead But before I before I get on to that I think it's important to look back at the events of the last few days and what's been a fairly by and large positive week or equity markets Coming in the wake of a very positive payrolls report last Friday February payrolls report saw three hundred and seventy three hundred and seventy nine thousand new jobs Added to the US economy and more importantly the January number was revised upwards By a considerable amount as well So I think that really placed an awful lot of emphasis over the passage of this week's one point nine trillion dollar stimulus package US stimulus package Which was signed off by President Biden late on Thursday and prompted new record highs for the likes of the S&P 500 The NASDAQ sorry not the NASDAQ the Dow and the Russell 2000 the NASDAQ Continues to lag behind Albeit, it's still proving to be fairly resilient all told in the face of a US bond market that continues to Push higher. This is the US 10 year yield and as we can see in early trade on this Friday morning that we are at 13 month highs above 1.6% So certainly, I think the passing of the stimulus bill has prompted a certain a fair degree of optimism I would say on the back of President Biden's first televised speech to the US population That he expects to have every single US citizen vaccinated or at least have their first doses By the end of May. So I think that's prompting a significant re-evaluation I mean the evaluation the value the Evaluation was fairly positive in any case in terms of the economic reopening and the pace of The US economic reopening, but I think what it's doing now is it's very much placing the focus on the pace of an economic reopening and when you've got another 1.9 When you've got another When you got another 1.9 trillion dollars of stimulus said to be pumped into the US economy and stimulus checks Set to hit doormats this weekend. I think there is an expectation that you're going to see a significant uptick in consumer spending over the course of the next few months and that's not even Taking into account the possibility that we could see some of that money make its way into the US stock market we've already seen in the way that US equities have been behaving over the course of the past few weeks. We've had one stimulus package In the middle of last year We had another one at the beginning of this year and now we've got yet another one on top of that So essentially over three trillion dollars has made its way Into the pockets of US consumers in the space of the last 12 months That's not an amount to be sniffed at So I think the likelihood here is that we're probably going to head an awful lot higher in The US 10 year and that is once again despite the resilience this week of the Nasdaq Going to really focus attention on a further move higher in US yields. Now. This is where we were a year ago So in the overall scheme of things were just over a year ago US 10 years aren't particularly high relative To where they were and also where they've come from but the big difference now Is the US stock markets are much higher now than they were a year ago and therein lies the rub and that's the trade-off so As we look ahead to the week ahead Coming on the back of this week's European Central Bank rate meeting which saw Christine Lagarde Basically make the case that the bomb buying program the pep bomb buying program could be accelerated Quite significantly over the course of the next few months front-loaded in other words To support the European economy that has given a little bit of a boost I think to sentiment in Europe. We've seen record highs for the DAX This week footsie 100 once again is very underwhelming But you got the footsie 250 which is actually doing fairly well. So in that overall context Let's have a look at what equity markets have done this week starting with obviously the S&P 500 So obviously this is a daily chart Up close to record highs marginal record high What's significant? I think is that even though we've posted a marginal high We actually haven't made a new record close and I think that is significant Nonetheless, there appears to be no indication at the moment that the froth is coming off markets in the US We've got the Dow. Obviously that's doing fairly well, but that's very much big cap stocks So that's always going to outperform Because the vulnerable part of the US market is not your big caps not your really big big caps That are in the Dow it generally tends to be Companies like Peloton, Zoom VocuSign The the smaller Smaller companies that generally aren't able or aren't making a profit Your companies like Apple, Amazon, Alphabet, Facebook, they're still fairly significant You know, they turn over a fair degree of cash and they're profitable So even though what we might see some weakness there The more vulnerable cohort of the likes of Tesla, Peloton, Zoom and what have you and beyond meat You know companies like that who generally when you actually look at their revenue numbers They bear no relation to their market capitalization So that suggests to me that they they're probably likely to be an awful lot more vulnerable That's pretty much borne out by this NASDAQ chart because while we've seen the Dow and the S&P make New record highs NASDAQ You know, it's it's falling well short and it's still below this 50-day moving average And I think that's for me I think is the key line in the sand when it comes to the potential for further upside If we can't get back above this 50-day moving average in this series of peaks Through here in February Then the likelihood is we're probably going to head Lower particularly if US bond yields continue to go higher and there is a correlation here I mean, there's a correlation at the moment. It's not showing much sign of Breaking down, but if US yields go higher Then you use go higher then it's going to be an awful lot harder to make a case for Companies like Tesla and what have you to continue to push higher based on their current value valuations and I think that's that's the key that's the key message here based on their current valuations Doesn't mean that they can't continue to perform well on on a company basis But certainly in terms of their share price value, you know, you questions still need to be Answered in that regard so Looking ahead to the upcoming week much was made of Obviously what madam Lagarde had to say at a press conference on Thursday But all of that is slightly to be for now Head of this week's Federal Reserve rate meeting because that's the key That's one of the key items that I've got my eye out for this week. We've got a Federal Reserve rate meeting We've got a Bank of England rate meeting. We've also got a host of fairly important retail sales Reports to come out US retail sales for February China retail sales for the year to date So and that'll tell us an awful lot About the recovery story particularly the retail sales numbers and consumer spending Because if you look at US consumer spending, we saw we suffered a very poor end to last year In January we saw a fairly decent rebound of around about five point three percent So I think in February you may see a little bit of a pullback in that number for the US But March different story entirely I mean, you know with the stimulus checks scheduled to hit the door mats this weekend and over the course of the next week or so Then the likelihood is you could see a significant end of month bounce in the March numbers So these February retail sales numbers while they're likely to Be probably on the neutral side. They're not really going to give us any indication as to how Resilient the US consumer is as we look towards and the end of the first quarter of this year so Let's look at the way the dollar has performed over the course of the past week or so and what we've seen significantly is A fairly decent rebound a little bit of a pullback a three-day pullback and a subsequent rebound So you could sort of make the case that maybe we could see a little bit of dollar weakness in the interim Certainly, I think in the context of this candle formation here what we've seen Similar to what we saw here three downward thrusts We're getting a bit of a rebound at the moment whether or not we finish up. There is another matter But we traded a little bit sideways before then heading higher again So I think would do a little bit of a consolidation when it comes to the dollar But overall I still think that the dollar has room to move higher and come back Towards this 200-day moving average here. Why do I think well primarily because I don't think the case for a stronger euro has been made And if the euro continues to weaken then by definition the US dollar will get stronger There's also the small matter of this week's upcoming Fed meeting and this week's Fed meeting I think it's going to be very very important in the overall messaging That Jay Powell comes across when he delivers his press conference later this week. So For most of the last few weeks Federal reserve officials Particularly of the likes of Jay Powell, Richard Clarida and Lael Brainard They've gone to great lengths to reinforce the dovish case or federal reserve monetary policy At the beginning of the year cast your mind back to the beginning of the year the consensus wasn't quite as cozy We had the likes of some members including Atlanta Fed president Raphael Bostek Suggesting that the current pace of bond buying might be paired back of inflation start to edge higher There's new fiscal measures started to boost prices now We haven't seen any evidence of that yet, but we were never likely to certainly not in the February February CPI numbers But we might start to see it and potentially April May and June in the wake of this second slug of stimulus that we've heard that That's basically due to be rolled out this year since the beginning of the year So I think well Fed chair Jay Powell has maintained that the recent rise in yields is a natural consequence of optimism over the prospects of a strong economic rebound in The wake of an economic reopening a faster vaccine rollout and another 1.9 trillion dollars of fiscal stimulus That may well be true But ultimately When the Fed comes to make its decision The Fed's relaxed attitude to the current rise in bond yields is likely to be tested and more importantly in terms of the dot plots I think if Fed officials have concerns about higher levels of inflation They may alter their dot plots. Now if they do that and The talk is that some might be tempted to pull their first rate hike forward from 2024 to 2023 That will can that will be considered to be hawkish And if that is considered to be hawkish Then the dollar will go up and yields will rise because the markets will start to price in an Earlier than expected rate rise now at the moment in the two-year yield We haven't seen any evidence of a move higher in yields If the Fed doesn't manage the messaging that this week's meeting properly Then the two-year yield the short end of the yield curve could become unanchored and I think that is the key thing I think if it's fairly comfortable With bond yields Ten-year bond yields at their current levels and probably a little bit higher What they're probably not so comfortable about is if short-term Borrowing costs start to go up two-year yields lesser to extent five-year yields, but ultimately if Fed policy makers Bring forward and only needs one or two If bring forward their expectations of the first rate hike that will be considered to be hawkish And that will present that will present J-pal with some very present very difficult Presentational problems when he delivers his press conference on Wednesday So that's I think for me the key. That's the key Signposting mechanism that we've got coming up for this week How does J-pal navigate a brighter economic outlook the prospect of US policy makers bringing forward their first rate hike predictions at a time When the outlook is probably more bright than dark While at the same time anchoring Short-term rate expectations that for me I think is going to be his biggest tightrope to navigate over the course of The next week or so So that's the Fed meeting so looking at euro dollar here We can see that we continue to trend down a little bit We've got a very nice downward thrusting candle there The key resistance on the upside still remains around about this sort of area here around about 120 Overall, we've seen a bit of a decent rebound off the 50-day moving average But for me the line of least resistance for euro dollar is for a further decline back towards the 200-day rather 200-day moving average And down towards 11760 so we're below the 50-day We're above the 200-day the 200-day is so far acted as a little bit of support I think we're probably going to see another retest of that with resistance up and back around here But 50 with a 50-day moving average and obviously this level here, which was the original breakout point for the move lower So that's euro dollar Let's bring us on now to the Bank of England because the Bank of England Has similar sorts of challenges. I would argue as the Federal Reserve. It's anchoring It's not it's not only anchoring inflation expectations because UK inflation generally tends to be slightly frothier Then say for example, US inflation generally because the weakness of the pound tends to import it And the recent rise that we've seen in the value of the pound is obviously suppressing some of that upward pressure But nonetheless The Bank of England will also want to want to anchor tightening Expectations because UK guilt markets are already pricing in a prospect of a rate hike at some point in the future All the talk all this talk of negative rates very much in the rearview mirror and even though the January GDP number actually came in At minus 2.9 percent, which obviously was very very disappointing Nonetheless UK guilt yields are still looking fairly Prothy positive and likely to go higher likely to go higher. Let's face it. We are now a month away 12th of April from a potential partial economic reopening and There comes with that Given the measures announced in the budget recently potential For a significant economic bounce back Given the fact that the GDP numbers that we saw for January Were a little bit on the soft side of February is not going to be much better But ultimately it's all about pent up demand As cheap economist Andrew Haldane Never fails to continue to remind us of So looking at the pound against the dollar There's a bit of a tug of war going on there with the respective recovery stories, but the vaccination process Is continuing to get rolled out At an excel on an accelerated basis And when the Bank of England last in February The tone was a little different from previous meetings Because of the outlook Rather than the rearview mirror there wasn't any change in policy But you know the tone on negative rates has shifted markedly And one of the reasons for that has obviously been The prospect of an economic rebound and if you look at this daily chart here You can certainly see that the 50 day moving average as identified by this red line here Continues to support the price action so The bank is probably going to continue to hedge its bets around negative rates But ultimately you know and I know that it's very unlikely That they're going to look at going down the negative rate route Even though they're not rolling that possibility out So it's about expectations going forward Now the first quarter GDP here is going to be quite significant. We know that We know that because ultimately for January, February and March the economy is going to be in lockdown But it's about April, May and June So I think while we can expect a 4% contraction um, I think There is a significant divergence of opinion opening up between some MPC members over the strength of any recovery So the recent moves higher and 10 year guilt yields might start to generate some sleepless nights Among some policy makers. So you get you may get A slightly more dovish tilt in terms of trying to keep a little borrowing cost because I think the chance Really, let's check a Rishi Sunak is very concerned the Borrowing costs remain fairly well anchored And I think he will be concerned by the fact that UK guilt yield has risen So sharply in the course of the past few months if you look at where it was at the beginning of this year It was at 0.17 percent on the 4th of January It's now at 0.78 percent. Well, that's the equivalent of almost the equivalent of three rate hikes 25 basis point rate hikes And let's not forget a year ago. It was just under a year ago today um, the bank of england cut rates From 0.25 percent to 0.1 percent. Well, I actually slashed them from 0.75 percent As low as 0.1 percent just over a year ago So at the beginning of last year they're at 0.75 and then two rate hikes in succession took them down to 0.1 So the market's priced in um, a rebound to pretty much where we were Just over a year ago 19th of march. So we're back where we were just over a year ago as if the As if the pandemic hadn't happened. So certainly in that context The the prognosis still looks fairly positive for the pound War above this key support level here around about 137 10 137 20 Which sort of brings me into euro sterling, which I still remain fairly bearish on No reason to suppose otherwise given the fact that some German officials are now talking about a third wave. Italy's announced new lockdown restrictions as well So, you know in terms of euro sterling the line of least resistance here is I think for further losses back to 85 and then 84 over the course of the next few days So so very much bear that in mind We've also got the latest uk public finances figures out on the 19th again Not likely to be Particularly positive. It's no secret that rishi sunak would rather rain back on some of the support measures That he's rolled out sooner rather than later. Unfortunately economic circumstances don't allow him That luxury But ultimately I think while borrowing costs remain low I don't think it's going to really be too much of a problem And in january when tax revenue normally puts government expenditure into surplus The government actually borrowed eight billion pounds compared to a surplus of 12.4 billion pounds in january 2020 February also tends to be a fairly decent month on a historical basis again This time it's likely to be different. The economy is still set to be um in The economy is still in some form of lockdown So I think the headline number for this year will continue to be sort of in the region of 300 billion pounds in borrowings And I think february is likely to add to that albeit probably not In the same way as previous months, but nonetheless, we can still expect to see another 10 billion pounds Of borrowing or so for february due to late year-end tax payments after the end of year tax deadline Okay, so in terms of the in terms of the german DAX here we have Continued move higher in the DAX new record highs We see new record highs this week after we broke above this series of peaks through here That would suggest that we're probably well on course to 14 800 and even 15 000 By the end of the year overall these breakouts would appear to suggest That momentum continues to be positive if I stick this horizontal Support and resistance line in through here We can see that now this area should become a fairly decent area of support on any pullback in the DAX index in terms of the footsie 100 it's been really disappointing Really struggling to maintain any sort of traction But now that we've we've it's been a really messy move higher And I think for me. I think the most important Part of this particular move higher is that we haven't been able to get through 6 800 So if I draw in a horizontal line here Then for me the key level Key resistance level we need to get through is 6805 In the short to medium term to really punch on And head towards the peaks that we saw at the very start of this year when When optimism ultimately was it was at its highest since then obviously we've come off But overall, you know the outlook still I think appears to be fairly positive For the footsie 100 notwithstanding the fact that it's lagging behind pretty much everything else Um, so I think even if we do continue to see moves higher in bond yields ladies and gentlemen I still think that the there's potential there is still potential further upside in european markets On the basis on the valuation basis alone US bond yields aren't going to erode the case For putting money in european or uk equity simply because valuations aren't anywhere near as high Now you can certainly make the case for the nasdaq coming back down Um, but all your all your c is money coming out of those more richly valued areas And going into some of the more cheaply valued areas and I think the nearer we get to an unlocking The nearer the more optimism will start to see around companies like travel companies retailers and pubs um and on that note We'll segue nicely into um, a card over and with the spoons and gregs and companies like that I mean a card are probably not so much because it's had a very very good pandemic and may suffer Once the economy starts to reopen, but certainly in the context of say for example weather spoon um You know, they've they've been able to um See some fairly decent share price gains over the course of the past few weeks on reopening optimism and we're getting closer to that april the 12th date when they can reopen um outside And the company has gone to great lengths to raise extra capital In january it raised weather spoons raised 93.7 million in the form of inequity placing On top of 139 million in liquidity available on the 14th of january um, it's still benefiting from the business rate extensions and the continued extension of the vat tax cuts And the shares are currently over 60 from the september lows. So the big level for me, I think is not so much How bad This month's numbers this this these latest numbers will be because essentially it's about You know moderating the cash burn It's how they perceive they will do on an economic reopening. And I think that's that's the key question here um Greg's has also got four-year numbers out jd's weather spoons the first half numbers and they're not particularly great And then we've got thg holdings, which is the hut group ipo um They're full year numbers for this year Going to be a big test for the optimism that we saw um at the end of last year when they ipo'd in september as to whether or not they continue to um push up From the initial premium that we saw when they launched all the way back in september So therefore year numbers are out on the 15th So that'll be an interesting bell weather for whether or not we can continue to see a push higher in those particular shares So okado's first quarter numbers are due out on the 18th This is an interesting chart very interesting chart for okado because it would appear to suggest That momentum is starting to taper off. We broke below This key little trend line that I drew in here and we're below the 200 day moving average so Even though last year's four four year numbers beat expectations I think the big question here is What are the future growth prospects for okado? And what are the benefits from the deals? It's recently signed with the likes of marx and spencers How much more? Um, are these deals likely to add a current place of revenue growth? Um, so this week's q1 numbers will be an early indication Of how well the business is shaping up for a new fiscal year In terms of us earnings, we've got fedex always a fairly decent bell weather of the u.s economy logistics And what have you certainly what we've seen with respect to these particular this particular chart suggests That there is a fairly degree of support in and around 240 With the rebound in retail sales that we saw at the beginning of the year that does bode well Um at its last set of numbers in q2 Um, they were much better than expected coming in at 20.6 billion dollars almost 1.2 billion dollars above expectations Obviously the shares hit record highs in december Despite the fact that um the last the most recent call to solve very weak retail sales Towards the year end and yet they still beat expectations. So I think in terms of q3 um Expectations are for q3 profits to come in slightly below the levels Are from what we saw in q2, but as I say The the the price action here would appear to suggest that there's potential for a little bit more upside in this particular um share We've also got third quarter numbers from nike And williams sonoma both very Both both reads both of which have done very very well over the course of the past 12 months williams sonoma um Bakeware firm with a chain of firms like pottery barn and what have you shares at all time highs Um, their online digital operation has really meant that they haven't really missed out Through the closure of their stores. So in summing up I think the key things that I have got my eye on this week Obviously the fed meeting That's going to be I think probably the most important Item on the agenda, but obviously we also have us retail sales. So the fed meeting on the 17th of march us retail sales on the 16th chinese retail sales A year to date on the 15th of march And that'll be a very key bellwether of the chinese consumer And how how they how they're doing and obviously that number will also include Chinese new year wedge retail consumer spending tends to pick up Obviously there will be slightly more different comparatives given the fact that last february the chinese economy was in lockdown So you could actually see A slight a significant uplift because of comparatives and what have you But also the bank of england rate meeting on the 18th of march as well So as I say that's it for this week. Thank you very much for listening This is michael hueson wishing you a nice weekend and I'll speak to you all same time same place a week from now Thank you very much