 Good morning. Welcome to CMC markets on Friday the 2nd of June and this quick look at the week ahead beginning the 5th of June with me, Michael Houston. It's been a rather divergent week this week for global equity markets we've seen outperformance from the S&P and the NASDAQ largely driven by fairly resilient performance in tech or an AI bounce if you like. But looking away from that equity market performance has been much less positive. And a large part of the reason for that I think has been concerned about how the global economy is doing we've put the saga of the US debt ceiling behind us. That is now in the rear view mirror and the US can now focus on or policymakers can now focus on how well the economy the US economy is doing payrolls which is due out later today. We've already seen this week that the US labor market still looks pretty resilient. A bumper ADP payrolls report. An increase in job openings jolts went back above 10 million again and weekly jobless claims around about 230,000 so I think today's payrolls report. It's unlikely to shift the narrative of a US economy that is still looking relatively resilient. However, what has shifted over the course of the past few days has been expectations about central bank rate hikes. There's much more discussion now about where the top is where the terminal rate is. Certainly some of the data that we've seen out from the manufacturing sector. Particularly in China where there has been concern about the fact that the rebound the post COVID rebound is already running on fumes. Looking a little bit below the hood. We'll get a better idea of how that's playing out in the coming days with the latest China trade numbers for May. Which are due out on the 7th of June, but then the week after that we also have retail sales and industrial production. And earlier this week we saw China manufacturing PMI slow more than was expected by markets and that prompted a little bit of a route on Wednesday. When it came to particularly the FTSE 100 or Tuesday and Wednesday, we can see that in this particular chart here really sharp falls in the UK benchmark index. We also saw that play out in the cat Quran as well the the France 40. And that's largely because of the fact that the French index has a very high component, if you like, of luxury good stocks and they've done very, very well over the course of the past few weeks. As a consequence of very bump, you know, very solid earnings from the likes of LVMH Hermes, carrying reach more and the like and but Burberry has also done fairly well but over the past few weeks we've all fast few days. We've seen a significant amount of profit taking from the record highs that we saw back in April the re attempt in May which failed. And now we're starting to drift back down again. So the bigger question is, you know, how much of how much of a China rebound is left. Will China actually hit its GDP target of 5% we're seeing weakness not only in the data, particularly when it comes to manufacturing but we're also seeing a softening in terms of prices paid we saw that this week in the US prices, the manufacturing prices paid component for May, which saw a nine, nine point drop from around about 52 to 43 42.4 from 52.9 in it in the manufacturing prices paid numbers so there is this week's economic data has prompted a modest reassessment of the rate path or the likely rate path when it comes to what headline inflation is doing. If you actually look at China factory gate prices, they've been in negative territory since October last year. And China has a habit of exporting its deflation and its inflation to the rest of the global economy. So is this what's coming our way. This week we saw Spanish inflation numbers we saw German inflation numbers we saw Italian inflation numbers all come in. Slowly below expectations and what was particularly encouraging was the sharp falls in headline inflation but we also saw slowdowns in core inflation they came in much, but they slowed much more than was expected. So the debate now is revolving around what happens with the Fed meeting later this month and that comes on the 14th of June we've already seen two influential US policymakers. Raise the prospect of a skip in the June meeting, while they dissect the effects of the 500 basis points of rate hikes that have taken place over the course of the past 15 months since since March last year. I think it's important to remember that central banks have hiked every single meeting pretty much over the last 12 months. And there hasn't as hasn't thus far any any significant effect on the headline inflation what has impacted headline inflation has been steep declines that we've seen, particularly in energy prices natural gas prices oil prices. But more broadly we're also seeing weakness in agricultural commodity prices. I can illustrate that for you by quickly looking at the CMC agricultural index which is a basket of key commodities corn wheat soya bean coffee sugar and what have you, and how quickly that has come down. Over the course of the past 12 months from the peaks that we saw in April May last year. We've kept we come down quite substantially. Yeah, we're still above the levels that we were back in 2020, but we've seen a really big fall over the course of the past few months. And in the case of wheat and corn prices we're back at the levels that we were seeing well before the Russian invasion of Ukraine. So there is an impulse a disinflation re impulse filtering down through the global economy. And that has consequences when it comes to how many more rate hikes are likely to come, but also the potential for rate cuts. Now, I'm not talking rate cuts this year. We're still a long way from that given current low unemployment levels. While unemployment is low central banks have no incentive whatsoever to even consider cutting rates. They might have an incentive to hold or pause whatever you want to call it. I'm going to call it a hold it's not a pause because it's going to be very much data dependent. But ultimately what we've seen so far in the past few days has been a decline in the dollar declining yields as a consequence of lower interest rate expectations or the effect that lower prices are likely to have on a potential rate path. So we've got payrolls later today, expecting a number in and around 200,000 unemployment 3.4 3.5% you know it's going to be in and around that number and wage growth of around about 4.4%. One of the things that we did see on the ADP was the wage growth there continue to show signs of coming down. So having said that it was still at 6.2%. So in essence it's still above core US core CPI of which the main numbers are out the day before the Fed is next due to me on the 13th of June. So again, there's another key data right in there that could shake the narrative when it comes to a June pause. And you know today's today's commentary US payroll set to keep June rate hike on the table. Yeah, you know basically it's going to be in each way bet in terms of whether or not the June, whether or not the Fed holds or hikes. I think if it were me that probably it'll probably be the best thing to do would be to hike and then have done with it and then see what happens. But ultimately with with headline rates of five between five and 5.25%. I think with rates at the current levels whether they hike or not probably doesn't make that much of a difference when it comes to what we can expect for the FTSE 100 seeing a little bit of a rebound over the past couple of days. But I think there is a concern that the global economy is slowing demand for commodities is slowing. I think the bigger question is how long that lasts for because I don't think even if you're talking about China slow down the various transitions to renewables is likely to keep demand for copper and other raw materials fairly high. So the weakness that we've seen in basic resources and energy is likely to be fairly limited. We've got OPEC this this weekend, another OPEC meeting. We've seen oil prices come down quite a bit remain under pressure. But again here, I think the downside is likely to be fairly limited simply on the basis of the fact that the US still needs to refill this strategic petroleum reserve. And also I think there's very limited appetite on the part of OPEC to see oil prices much below these sorts of levels that we've got down here. Having said that, any any rebounds that we're currently getting are getting shallower and shallower. But for me, I think even if we do rebound the 200 day moving average is likely to keep a nice little lid on the WTI contract. So I think it's very much a case of oil prices are likely to settle in and around current levels with the top of around about $80 on the upside. When it comes to the week coming up, we've got a couple of central bank rate decisions. The Bank of Canada, which could act as a as a little bit of a forward indicator for the Federal Reserve the week after. I think one of the things that struck me with respect to the Bank of Canada is how resilient even there. The Canadian economy has been as a reminder in April, the Bank of Canada stayed on hold keeping rates at four and a half percent. This policy makers decided to assess the impact recent rate hikes have had on the Canadian economy. And that sort of does shape the narrative of it in terms of what the Fed might do when it meets a week later. Having said that April CPI in Canada saw headline CPI nudge up to 4.4% year on year. Core prices are also slightly firmer. I've also got a solid labor market like the US. So with wage growth also firm at 5.2%. There is a chance we might see a 25 basis point hike when the Bank of Canada meets on the 7th of June. But I would suggest that they probably will continue to remain on hold. With respect to the central bank that I've got on my radar got the RBA, the Reserve Bank of Australia. And they surprised the markets a little bit in May when they raised rates by 25 basis points to 3.85%. So the bigger question here is, are they set to do the same thing again? If you look at the Australian dollar, that particular bounce didn't last very long. The reason we've seen weakness in the Aussie dollar is because of concern about weakness in the Chinese economy. The very lackluster state of the manufacturing sector there and even a fairly tepid services rebound. We'll see more detail with the services PMIs, which are due out on the 5th of June. But certainly the RBA, I would be surprised if they go again. I think the reason they went by 25 basis points in May was because they came under some significant criticism in the weeks leading up to that meeting for being too slow in spotting the inflation surge seen at the end of 2021 and throughout 2022. And ultimately, they are very much behind the curve. So there is a risk, given the fact that their headline rate is 3.85%, that they could hike by another 25 basis points. They're well behind the RBNZ, who signalled a pause in their recent policy meeting, which sent the Kiwi down quite sharply. So for me, I think there's an even chance they could go either way with respect to the RBA, given how far behind the curve they are. Certainly the pickup in the Aussie dollar would appear to reflect that some short positions are starting to get a little bit nervous. There China trade due out on the 7th as well concerns about a slowdown in the Chinese economy are growing. The recovery does appear to be running on fumes, exports growth did slow to 8.5% in April. But we could will see further weakness in the main numbers when there is an expectation that they could slip back into negative territory of 2.1%. And also Chinese imports, they are really struggling at the moment, and they fell sharply in April by 7.9%. And they're expected to decline again by 8%, reflecting the weak demand in the Chinese economy, the lower oil prices, the lower copper prices that we've been seeing. Chinese demand continues to remain lackluster. So the bigger question there is whether or not those negative forecasts, we come in in line with forecasts, or we actually come in worse than that. So certainly I think a big week for Asia focus data, we've also got first quarter GDP out of the European Union. Certainly one of the things that has been notable in over the past few days is how Euro dollar has broken to the upside. That has been more to do, I think with the idea that the Fed could well pause when they meet in June, rather than the expectation that the ECB is going to be more aggressive. I think one of the things that we have seen from a number of ECB policymakers in recent days has been that they've softened the rhetoric in terms of 50 basis point rate hikes. They're now talking in terms of 25 basis point rate hikes, and that's taken some of the edge of the Euro. I certainly think if we can get back above 108.20, and that for me I think is the big level, I've got a line through 107.80 here. But it's this series of highs through here that I think are the big levels for the Euro, 108.20, 108.30. If we can break through there, then we could head back towards the upside. But at the moment, we do appear to have seen a little, this is a four hour chart, let's look at the daily chart. We do appear to have seen a little bit of a rebound. Could you argue that this is a potentially bearish key day reversal? Possibly. But we need to see a breakthrough 108.30 to suggest that we're going to see a revisit to 109 and potentially 110. So let's certainly keep an eye on that. Cable again, seen a fairly decent rebound over the course of the past few days, found some fairly decent support in and around that 123 area. But the big, big level for cable for me is this one from this line here through these series of highs. If we can get back towards 126.30, 126.40, then we could well go for a trip to the upside. But at the moment, strong pound is also being helped by slightly higher UK yields and slightly higher expectations that perhaps the Bank of England could well go by another 25 or 50 or even 100 basis points over the course of the next few months. I for one think that it's unlikely the Bank of England will push the base rate up by another 100 basis points. I think they will mirror what the Fed does. We may see another 25 when the Bank of England meets later in June, even if the Fed goes on hold in June. But I think it's unlikely that the Bank of England will do more than another 50 in the short to median term. I just don't see that the numbers merit that and I think we could well see UK inflation fall off quite sharply over the course of the second half of this year. It might just take a little bit longer than the US, given the fact that we're six months behind them when it comes to headline inflation. Also first quarter GDP in the EU, that's likely to be fairly weak, given the fact that Germany slipped into recession in the first quarter. So we could well see a stagnation number there when that is released on the 6th of June. In terms of companies that are due to release their numbers, there's really not that much. We do have might be worth keeping an eye on Apple's share price. We've got the Worldwide Developer Conference, which is starting on the 5th of June and finishes on the 9th of June. One of the things I've been impressed about with respect to Apple is how resilient the share price has been. And we could get an announcement from Apple about a new reality virtual or a new mixed reality headset called Apple Reality Pro. There has been some chatter that it could actually be something in the region of $3,000. When I say hefty chunk of change for what is in essence a virtual reality headset. On the hardware front, on the other hardware front, we could see the launch of some new MacBooks, including a new MacBook Air, which might include the new M2 chip, with M3 chip-powered models coming later. We also have numbers from British American Tobacco second quarter numbers. And there is a renewable energy company called Fuel Cell Energy, who are reporting their second quarter numbers on the 8th of June. Other than that, I think that's pretty much it for this week, ladies and gentlemen. We've got non-farm payrolls later today, so they could actually skew the market one way or the other in terms of risk assets. But overall, there is a concern about future economic performance from the global economy. And the likelihood is that we could well be much closer to the end of the rate hiking cycles than perhaps we thought was the case two or three weeks ago. So that's it for this week. Thank you very much for listening. This is Michael Houston talking to you from CMC Markets.