 Good morning welcome to CMC markets on Friday the 7th of May and this quick look at the week ahead beginning at the 10th of May and This week's market events have been a little bit Bipolar in nature if you like we got off to a bit of a rocky start at the beginning of the week a bit of a bit of a technical sell-off in the DAX and the NASDAQ Whether that was as a result of Some negative inputs concerns about higher prices Concerns about tapering I'm not sure we'll ever know because while we saw the big sell-off on Tuesday That was quickly reversed on The Wednesday and I think large part of the reason for the sell-off On Tuesday. It was probably more technical than anything fundamentally changing in terms of the economic Sell-off if we look at the narratives that are in play at the moment They still remain broadly positive earnings are coming in pretty much in line or better Than expectations. We've got commodity prices still looking fairly solid and even though we saw a big sell-off in the NASDAQ and The DAX in the early part of this week The Dow Jones maintain its resilience now. Obviously there are Mixed feelings about how relevant the Dow Jones is Fact of the matter is if you're looking at Dow theory in the way that I do in terms of averages needing to confirm each other or indices And needing to confirm each other. You're not going to get a sustained stock market sell-off if only one or two indices are selling off and the others are not and One of the key takeaways that I took from this week was the fact that even though We saw this technical sell-off in the DAX Through the 15,000 level. It was reversed very very quickly. There's Tuesday's price action Wednesday Thursday Friday, so we quickly we've we've quickly wiped out those losses that we saw on Tuesday And I think a large part of the reason for Tuesday's sell-off While you could argue it was technical in nature was a little bit of a faux pas if you like from Treasury Secretary Janet Yellen when she Appeared to put her old Fed chair hat on when saying that rates might have to rise To prevent an overheating US economy now obviously that didn't help the overall mood but the market move was already Well underway when she said that and while she subsequently walks them back She was merely stating the obvious It is a statement of the bleeding obvious to say that interest rates might rise to prevent a possible overheating of the US Economy and while we did see a little bit of a break lower in terms of the German DAX What was particularly important was that we held above the 50-day moving average and we're still above This broader uptrend line from the lows that we saw back in the early part of this year in mid-January similar sort of move that we saw in the NASDAQ Here as well Decent support all the way through 13,700 which was the previous week's lows You would expect to see a technical sell-off as stops get triggered on a move lower there But what we didn't see was a break of the 50-day moving average and what was important about These two technical breaks Was that in the broader scheme of things if we look at the s&p 500? You would expect to see a similar confirmatory break on the s&p We did not see that 4120 and that's the key support level for me on the s&p 500 until such times As we get at a break of that particular support level I was very suspicious of the break levels that we saw in the DAX and the NASDAQ and As it turns out It was right to be also what was significant was the fact that we weren't we weren't able to close anywhere near the low points of that week and that even of itself Suggests the downward momentum was likely to be limited And that's even more that's even more relevant. For example, if you look at the footsie 100 where We we ran out of steam at around about the 70 40 level and that was a very very key resistance level But now we're above that the road is clear now. I think for the footsie 100 to head towards 7200 there or thereabouts now why am I picking out that particular level or simply because it coincides with this Low here on the 30th of January 2020 So that prompted to be that prompted a little bit of a rebound. It's likely to see Some form of resistance now that we broke it through the 70 40 level. Why is it important? Well, it's important on the basis that we saw it act as support here Here here here Here so it's a very very important level and the overall scheme of things the fact that we've been able to push above it and The footsie 250 is also looking fairly positive should all go well all Things being equal for a move higher in the footsie 100 towards 7,230 now that we've broken above 70 40 So as we look ahead to next week And stock markets broadly still remain fairly well supported very well Tilted towards buying on dips ignoring all the noise about Concerns about asset bubbles. We had Lail Brainerd. I'm speaking on Thursday evening talking about potential concerns that the Very easy nature of monetary policy and obviously fiscal policy as well Was likely to feed asset bubbles in certain areas but for me, I think the real driver behind this market move higher is Commodity prices and they still remain fairly well supported. We only have to look at where copper Currently is it continues to move higher and if you're pushing a renewables narrative Then ultimately anything with a chipboard or a circuit board or anything that runs with a battery Needs copper it needs platinum. It needs palladium. It'll need needs raw materials. So where does that leave us? Well, while copper prices continue to move higher we're really looking back to the levels that we saw all the way back in 2011 and we're already above that so we've now hit record highs on copper prices Over the course of the past week if we look at a monthly or a weekly chart we can see copper is going parabolic and That really I think is predicated on the basis that those Chinese trade numbers that we saw this morning were very very positive Certainly in the overall scheme of things and the likelihood is copper demand is likely to remain fairly strong for quite some time Now that's not to say That We won't see pullbacks. We probably will the big question is where do those pullbacks come in? I mean for as for the last 12 to 24 months. We've seen copper prices More than double they've gone from two dollars all the way up above four dollars and now look as if they're heading to four dollars 80 480 cents and Given given that narrative It's hard to see where copper prices Can can really stop having broken above those previous highs from February or the way back and forth or to be the trend is your friend Ultimately, so we really should be looking to buy dips on copper crude oil prices are also looking fairly solid But again, they're running into a natural barrier on a technical basis all the way back Around about $72 and 50 which coincides is with these series of peaks all the way through here. So even though We're getting a whole raft of Predictions that copper prices are going to go up to 75 80 dollars a barrel I'm not calling for that because there is big technical resistance around about $72 50 I will only start to put my bullish hat on if we move above That that series of key resistance levels there so that we can retarget those levels that we saw back in 2018 but and the thing is you really got to think Look at look at oil prices in the round what OPEC plus doesn't want to do in the overall scheme of things It's choke off demand Because prices are too high. We're already getting concerns about rising inflation repression rising price inflation And that's one narrative that I think will be paying particular attention to Next week when we look at the latest US CPI numbers, which are due out on the 12th of May We've also got UK first-quarter GDP the first print of that Coming out on the 12th of May. In fact, most of the data that we've got coming out over the course of the next few days is Coalescing around two very important dates mainly the 12th 13th and 14th of May Monday and Tuesday is a little bit light on the data side of things But as we approach Wednesday Thursday Friday, we should see Some significant input drivers when it comes to where the markets are likely to go ultimately I don't expect any of it to Undermine the bullish narrative that has been prevalent over the course of the past few days nonetheless If we look at today's payrolls numbers, which obviously I don't have sight of at the moment, but if they come in Anywhere close to Expectations that will shift the focus away from the employment Mandate of the Federal Reserve Which they are very much targeting and I'll be paying particular attention to the participation rate given recent comments From various Fed officials over the course of the past few days It's the participation rate that I think Fed officials are now specifically looking at With respect to The US labor market rather than the headline payrolls number, which is expected to come in around one million jobs for April Jay Powell has already indicated that he wants to see several months of Jobs growth in and around that number given the fact that eight million Americans Still remain out of a job relative to this time Well, not necessarily this time last year, but 14 months ago February last year It's important to remember that the participation rate over a year ago was 63.4% is now 61.5% So it's almost 2% lower. So I think when when we're thinking about tapering asset purchases or Any alteration of monetary policy towards the hawkish side? That's where we need to focus our attention Similar sort of thing came from the Bank of England this week With respect to a modest tapering of asset purchases and again, it's a similar sort of narrative It's dialing back on the stimulus as the economy continues to recover and that probably helps explain why US 10 year yields are lower now than they were a month ago when the March payrolls number came out The Federal Reserve has done a fairly decent job Despite the fact that jobs growth remains very very strong of steering the narrative away From the potential for rate hikes or tightening a monetary policy in the next six to twelve months They may struggle to maintain that narrative if we continue on the path of a million jobs Plus on a month-on-month basis by the end of Q2, but nonetheless We are finding decent support around about 1.5 percent So it'd be interested to see how they're able to maintain that narrative in the face of a rising participation rate and a declining unemployment rate For the here and now the focus will be on the UK economy in the wake of recent political developments when it comes to Scottish and Welsh elections and obviously the recent win of the Conservative Party in the Hartley-Paw by-election where the Labour candidate was pretty much obliterated With the Conservatives getting over 50% of the vote not too sure about the turnout But nonetheless, it's still a significant development and certainly in the overall scheme of things will get a good indication of how well the UK economy is doing as it comes to the end of the first quarter in terms of first quarter GDP and The performance of the pound which has lagged a little bit this week Relative to its peers. It's not had a particularly great week still in a bit of a range but nonetheless Still below that 140 20 area which is on which I'm targeting as a potential breakout point for a move higher Seen a little bit of softness in and around Which has been supported by around about 138 area And I think we can really sort of define our range by the lows around about 138 and the potential for a move higher Bank of England upgraded its growth forecasts for 2021 to 7.5% from 5% that should be broadly supportive of the pound assuming No unexpected surprises people are suggesting that the SNP getting a majority in Scotland could undermine the pound While that may sound that might while that may seem plausible to be quite honest, I just can't buy into it because Ultimately the SMP's raison d'etre is for an independence referendum asking for one and getting one of two totally different things And I still think we remain a long way short of Them getting their wish for an independence referendum and it does appear on the basis of recent opinion polls is that The desire for independence has slipped back a little bit from the levels that we saw at the beginning of this year In terms of the narrative in terms of the economic data That is likely to continue to improve the UK economy is expected to show a modest contraction of 1.7% in the first quarter, but That's not, you know, that's not going to be a surprise to most people What's going to be a particular interest will be the monthly GDP numbers For March in particular and here we're expecting to see an expansion of 1.3% as a result of Restocking of Inventories ahead of the reopening that we've seen and the improvement that we've seen in April and likely continue to see Into May manufacturing production for March is is expected to also see a modest improvement of a rise of 1.5% Manufacturing production and a 1.2% rise in industrial production most particularly important was in April We saw all PMIs the construction manufacturing and services come in above 60 a trifecta of 60s for PMIs in The UK economy when was the last time we saw that it was a very very long time ago And it does all go well despite the fact they are diffusion index is it does all go well for The outlook going forward and a much better Q2 than we've seen in Q1 so The overall narrative for the pound hasn't changed if we draw a trend line through the lows here We can see that the dips are getting shallower The dips are getting shallower that suggests that the pound is building up for a potential Move higher the only thing that would undermine that is for a move below Those two support lines those various support lines that I've drawn in on the chart there Eurostirling still remains very much capped around about 87.30 And that remains the overall narrative here as well Decent support around about 85.80 as well as the 50-day moving average This is very much a range trade, but I'm still of the opinion that sterling needs to be bought on Dips We've also got US retail sales and one of the one of the things that's puzzled me a little bit It's been why the dollar has remained so weak and we and nothing bears that out better than The CMC dollar index, but what's important here is That we haven't taken out the lows of earlier this year and the only reason the dollar is weak is because of Increased expectations of an economic recovery in the UK, which is obviously benefiting the pound But also an expectation that the economic picture in Europe is likely to improve as the vaccination get as the vaccination rollout gathers pace the problem with that narrative is that Europe still remains very much Behind the UK and the US and its vaccination programs and they're trying to open up At a time when infection rates are still quite high Unlike the UK and the US which still haven't fully opened up and infection rates are much much lower So there's a much higher risk premium For Europe opening up and trying to get some form of summer season at a time when infection rates are still much higher Than they are in the UK and the US and that's before we even consider Events that are going on in Asia India particularly specifically with respect to infection rates they're rising and the risk that actually those Variants that we're seeing in India could actually ripple out into other areas of Southeast Asia and that is a real big concern at the moment Turkey is also locked down and that is a concern because it suggests that Southeast Asian countries are finding it much more difficult to rein in the growth of Infection so Brings us on now to the narrative when it comes to the US dollar. We've got US retail sales and US CPI and These two numbers could actually impact what happens with respect to US bonnios specifically US CPI US CPI is due out on the Wednesday and The recent sharp rises in the inflation numbers here have raised concerns in recent weeks That the Federal Reserve might be inclined to tap the brakes when it comes to current levels of monetary stimulus now Not overly concerned about that and I think while we expect to see a big rise in US CPI We've come from 1.4 percent in January to 2.6 in March we're expected to see a rise to 3.6 percent in April Which would be a big big jump But you've also got to put that in the in the context of What inflation was doing a year ago 3.6 percent higher from April last year when the US was Still in partial lockdown and there was a significant deflationary bias to prices then Now oil prices also Were coming off a very very low base a year ago and look at where they are now So while we could get a big big spike in inflation pressures in April in US CPI to 3.6 percent They're likely to be and I hate to use that word and I need to take a drink transitory So the big question is is not whether or not they come in at 3.6 percent in April They will come in an awful lot higher is whether or not that sort of level is sustained Into May June and July and I think that's why Central Bank has been banging the transitory drum because of the base effects that we saw as a result of the commodity price crash 12 to 13 months ago They need to wash out of the numbers and once they do we'll get a good idea of Where inflation levels are but certainly if you look at commodity prices now in terms of it's not just oil prices that are bouncing back You're seeing commodity prices bounce back across the board and that's why we're seeing a little bit of nervousness around about the inflation Outlook going forward bond markets appear fairly sanguine about them at the moment You can see that you've seen the two is the US 10 year yield But if you start to see that start to edge higher or shorter term yields start to edge higher Then we may start to be a little bit concerned We've also got US retail sales for April and we saw a big rise in March of 9.7 percent The April numbers aren't likely to be anywhere near as robust But we're still expecting to see a rise of around about one point one one point three one point four percent For April as the as those can as those those stimulus checks that we saw rolled out in March Continue to get spent in April and May Particularly since the particularly since US theme parks Reopened in April so you could get a boost from that On the back of the partial reopening of the theme parks of the likes of Disney and what have you in the the US retail sales numbers for April okay, so that really sort of rounds up the data that we were looking at over the course of the next Few days So certainly in the context of euro dollar We are continuing to find life difficult anywhere near 2021 We saw that at the end of April come back down. We've since rebounded. We're now Striving to push back up above those sorts of areas and there is a risk that if we do get further dollar weakness That we could see euro dollar push higher, but I'm still struggling with the idea That the euro is likely to gain Against the dollar, but we'll see but at the moment I'm still of the opinion that We're very much sell the rally mode. We haven't really significantly broken above This downtrend line here. Yeah, it's a little bit messy And I'm probably may need to redraw it a little bit But ultimately I think while we're below the highs that we saw here around about 121 50 It's going to find it very very difficult to push Significantly higher given the barriers that we've got 122 here decent support around about 190 80. I Think if euro does go up, it's largely going to be as a result of dollar weakness than any Any significant euro strength if we look at this CMC euro index here I just get rid of that there pop that in there We can see that the 200 day moving average We've seen a little bit of a rebound here, but we still remain very well We still remain some way short of the peaks that we saw at the end of April Certainly on the euro index that we currently have here Okay, so that brings us on to a fairly decent earnings week. That's far. We've seen fairly decent We've seen fairly decent numbers when it comes to the the earnings picture and The ones that I'm going to pay particular attention to are BT group We seem some fairly decent gains over the course of the past few days BT's done a fairly decent job of contending with the competing demands of a tough market market and broadband Mobile hitting its margins in its consumer division Enterprise and global divisions having to cope with rapidly changing business environments. It's also competing with sky For eyeballs with this huge investment in BT sport and where the latest Premier League rights are coming up for a negotiation Obviously open reach has the chance to benefit from the rollout of its high-speed broadband The UK needs but only if it's kept under the BT umbrella posting a little bit of a bearish reversal here It's also got a boost from recent Speculation that it's going to sell its BT sports division And I think that is something that it does really need to do. It can't really compete with sky There's no guarantee that it'll be able to get sort of price that it got For the last set of Premier League rights given the recent Super League shambles Certainly, I think my appetite for Premier League football has certainly taken a hit the fact that we can't watch champions league football or Europa League football without having a BT subscription has put me off Even purchasing it given the fact that you need sky and Amazon to watch Premier League Why would you pay extra for champions league? so I Think given BT's other obligations in terms of 5g 5g and broadband upgrades They don't have the resources to compete with the likes of sky Disney and all the other entrants to the market in terms of football and sport Like Amazon so if they can if they can move BT sport off the balance sheet That's going to give them much more money to invest in 5g and broadband, which is probably where they're strongest So it's four year numbers are likely to reflect that and I'll be looking for particular detail on their plans to spin off BT sport to try and invest money where it is needed in terms of 5g and high-speed broadband But it does look in the short to medium term as if we may have seen a short-term top in the BT share prices We look ahead to their four-year numbers which are due out on the 13th We've also got Rolls Royce now Rolls Royce shares I mean, there's no question Rolls Royce is facing a huge number of challenges It was facing challenges even before the pandemic because of the because of the Problems around its Trent 1000 engines now This I think this this week's first quarter update is unlikely to show much of an improvement in terms of its civil area Aerospace division British Airways I AG Recorded another 1 billion euro loss in its first quarter as flying hours remained fairly subdued. We should see an improvement in the second quarter certainly the The company Rolls Royce has managed to raise an extra 9 billion Pounds of extra liquidity and that should allow it to ride out the current Problems that it faces with in terms of low flying hours. I think there will be an improvement in Q2 I think the domestic carriers will be probably more in favor in terms of Ryan air and easy yet when it comes to flying hours International travel could take a while longer But it does appear to be finding a fairly decent area of support in and around 90 to 100 pence and as long as it can hold on to those lows Then the prospects look good for a move back above 120, but at the moment I think We need to keep our expectations low in terms of what it can offer us in terms of its first quarter numbers And again, they are also due out on the 13th of May We've also got other notable numbers that are due out a coin base Air B&B and Walt Disney and let's look at coin base because coin base. I mean that does not look a particularly positive IPO yes, it came out at An indicative price of 250 dollars It opened at 380 dollars and has gone pretty much one way back since then it's now back close to its indicative price I think the big question is with respect to its last quarterly update is whether or not it was able to match the revenues that it saw in Q1 Q1 now Coin base expects to make around about seven hundred and thirty to eight hundred million dollars in this quarter It's got sixty five sixty five fifty six million verified users and its latest result showed the company turned over $1.8 billion in the first three months of its fiscal year Well, obviously that's more than the that's more than the company generated the whole of 2020 so in terms of trading volumes The last quarter turned over $335 billion. I Think the big question is Can it sustain the targets that it was projecting for Its user base over the course of the rest of the year the company outlined three separate scenarios for the year the most Optimistic was around seven million monthly users Which is slightly higher than its current six point one million monthly transacting users Cryptocurrencies are continuing to look fairly well supported and yet coin base has gone pretty much one way Well, this week's first quarter numbers Signal a base in terms of the recent declines in its share price $250 is significant because that was its direct listing indicative price. Can it hold above there? We've also got numbers for Airbnb. I Think the big question for me with respect to Airbnb is Not whether or not it can actually turn a profit this particular Quarter, but is it worth 94 billion dollars? because that's that share price there To is Essentially Telling us that it is worth 94 billion dollars Revenues in Q4 fell 22% to 859 million dollars now expectations for This first quarter of a revenues of 712 million dollars, which is lower than Q4 And a loss of about 130 million. So the big question for me is Will revenues return to the levels they were in 2019 revenues in 2019 were 4.8 Billion dollars. So you divide that by four. You're essentially looking at 1.2 billion dollars a quarter They're still well short of that So that for me suggests that Airbnb It's probably got more downside than upside, but what do I know? You know when I look at some of these IPOs Some of the valuations really don't bear thinking about in terms of they're actually underlying fundamentals So Airbnb will be very interested to see whether or not they meet expectations for Q2 Q3 and Q4 and what The board expectations are for a return to normal whatever normal is So that's Airbnb and of course we've got Disney now Disney is looking fairly positive their theme parks opened this month That's not likely to be reflected in their numbers for Q2 but nonetheless, we've certainly seen a big uptick in terms of Streaming and they're streaming numbers So I think Yeah, it's going to be hard for Disney to sort of surprise the markets Discord so they surprise the markets in Q1 with a surprise profit Expectations offer a similar profit in Q2 How optimistic are they for Q2 and Q3? I would suggest that they can sustain this move higher because their theme parks are now reopening the US is coming out of It's coming out of a very long Winter hibernation and you've got all that spare cash sloshing around in terms of stimulus checks Which is likely to see a big rebound in theme park spending which could all go well for further gains in the Disney share price when they release their second quarter numbers in on the 13th of May so Summing up the main focus I think for this week is likely to be on US retail sales and US CPI as well as first quarter GDP numbers and manufacturing numbers from the UK economy and obviously any Any spillover effects from today's US payrolls numbers were expecting a fairly decent number So that's it for today. That's it for this week until the same time next week. Thank you very much for listening It's Michael Houston talking to you from CMC markets and thank you for listening