 Good morning, welcome to CMC markets on Friday, the 4th March and this quick look at the week ahead beginning the 7th of March with me, Michael Houston and markets have taken another turn for the worse today as I record this video reports that one of Ukraine's nuclear power stations at I think that's how you pronounce it, they caught fire after being shelled by Russian forces now pointing to one side that it takes a special kind of stupid to start firing on a nuclear power station. Obviously markets haven't reacted well to that it's doubly incomprehensible I think and reckless given Russia's experience with Chernobyl in the north of the country and any potential impacts on Russia itself as well as Europe from any potential accident. So, nonetheless, European markets are lower quite significantly. It's been a difficult week around. We've seen big declines in the dex the dex is at a one year low. Obviously, because they're at the ground zero when it comes to the implementation of sanctions, sanctioning of Russian banks sanctioning of Russian individuals, the wholesale withdrawal of an awful lot of global brands from Russia is absolutely tanking the Russian economy the Russian ruble has fallen quite sharply. The Russian stock market has been closed, pretty much since the sanctions were announced and is likely to be closed for all of next week as well as simply to keep the tide of selling of Russian assets at bay. But nonetheless, we're also seeing massive moves in bond markets as well. That's no better illustrated by no better illustrated by the movements in UK Guilts that we've seen this year the 10 year yield where earlier this week we saw a decline on the first of March of 30 basis points in a day as bond markets or bond investors started to potentially price out the risk that the central banks will start to hike quite significantly. Personally, I think that's slightly misguided. I think central banks have got a very, very difficult task. We're seeing commodity prices blow out across the board, whether it be industrial metals, aluminium's at record highs, wheat prices are back at levels last seen in 2008, corn prices are back at levels last seen over 10 years ago, we're seeing spikes in rough price prices, soybean prices, at some point central banks will have to react to that, even if by reacting to it, there's actually nothing they can do about it. The dollar has moved higher this week. It's not the best performing currency this week. That's been the Australian dollar, largely I think as a consequence of its exposure to the commodity space. We've also seen decent gains from the New Zealand dollar as well on expectation that we could well see rate hikes, further rate hikes there. So at the moment markets are being very event risk driven. We've got non-farm payrolls, the US non-farm payrolls report later today. I really don't think that that's probably going to have too much of an effect on markets. Federal Reserve Chair Jay Powell has already said this week that he will be looking to raise rates when the Fed meets in just under two weeks time by 25 basis points. He said that he's in favour of a 25 basis point rate hike. Now there are some on the committee who might be in favour of going slightly bigger than that. The bigger question is, does he really want to strengthen the dollar any more than it already is? And that's going to create other problems for countries, regions like Europe where we've seen the euro come under further pressure. It's now trading just above 110. And the effects that a weaker euro or weaker currencies will have on inflation pressures more broadly, particularly here in the UK where a weaker pound imports inflation. Having said that on the plus side, one thing that we have seen this week is the pound rise to its highest level against the euro since before the Brexit referendum. But at the moment it's pretty much risk off today. The FTSE 100 has broken through that 7200 level that I was talking about last week and the trend line from the lows that we saw back in 2021, early 2021. If I calculate the potential pullback on that break, then we're potentially looking at 6850, 6845, 6850. That's just on a minimum retracement move based on just the measured move basis and the break of those, that key support level there and the 200 day moving average. We've broken a number of key support levels on the FTSE this week, today in particular, and that would suggest that we're probably going to get at least a retest of 6970 over the course of the next few hours, days, weeks. But on a technical basis, this is not good for the FTSE 100. It does suggest that we're probably going to see a retest of this series of lows, all the way through here. So anywhere between 6850 and 6800. And while that's nowhere near as bad as what we're seeing in the DAX, nonetheless, some of the technical breakouts that we've been seeing in the DAX would appear to suggest that we're probably lining up for further losses here as well. If you look at the minimum retracement that I've drawn in on DAX from the lows back in 2020, 7,960, the move all the way up to the record highs earlier this year, we're already within touching distance of a 38.2 retracement of that entire move, which suggests that we're probably going to get a retest of 13,100 in the not too distant future, and potentially even a move back to 12,130, unless we can break back above for 14,000 in fairly short order. And given the progress of the war is currently taking place in Ukraine and the fact that President Putin is reportedly repositioning some of his troops from eastern Russia to the Ukrainian frontline, that would suggest to me that things aren't going well. And that things are likely to get an awful lot worse. And as a consequence of that, you're going to see a lot of economic damage over the course of the next few weeks. And it's not immediately clear what central banks will be able to do to mitigate that because they've got supply supply shocks on the one hand, and inflation shocks on the other. Anything that they do with respect to these supply shocks by raising interest rates to either support currencies or what have you will not be positive for the global economy. But at some point, they're going to have to at least to be seen to be doing something while inflation runs rampant because we're getting hit from all sides now natural gas prices. In Europe, the record highs this week Brent crude's gone through $120 a barrel we have very briefly, but could well go higher natural gas is obviously at record levels in Europe as well. The only good thing about that is we are starting to come into the spring and summer months where demand could well tell off but that's not going to change the prospect that food in the shops is likely to get much more expensive, particularly when you consider that Ukraine and Russia and the Black Sea ports export 20% of the world's grain supplies. And if that's a war zone, you're not going to be growing much grain. I've written a little bit of a piece on searching oil and wheat prices on the website. You can find it on this page here in the news and analysis section of the website. Right. Right. Yeah. So as we look ahead to next week, having tried to dissect some of what the major markets are doing. The main thing to keep an eye out for is the European Central Bank. Before I get to that, let's quickly look at the S&P. Again, we've got this downtrend line here. It's still intact. Most markets have held up slightly better than European markets this week and it's not really surprising given the geopolitical factors that play. Obviously, Europe is right on the front line. The US isn't. Therefore, I think there's probably an element of a little bit of money flowing back into the US and out of Europe, helping to support US stocks relative to the European counterparts. And here, the big level on the upside, 4,400. This trend line down here. We still remain very much in a downtrend when it comes to US stocks. And you can certainly see that played out when it comes to the NASDAQ here. We're again, we were unable to make it through this series of peaks through here and the trend line through here. We're still above the January lows, but if we break below those January lows, then we could will see further losses for US stocks back towards the levels that we saw around about this time last year. You'll have to forgive me. My voice is giving out haven't been well this week, which is why I haven't been posting or tweeting anywhere near as much. Quickly have a look at Brent crude before I move on to next week. This is the key level that I'm looking at on Brent crude. It's these twin peaks in 2011 and 2012 of around about $125, $26 a barrel. This gives you an indication of the inflation shock that's coming that's coming our way. If you look at EU CPI, it's at a record high of 5.8%. Obviously inflation in the Baltic States is even higher. And this year alone, we've already jumped from $80 a barrel up to $120 a barrel. So it's almost 50% rise in Brent crude prices and even bigger percentage rise in natural gas prices and wheat prices are up 47, 48% this year to date as well. And none of this, none of that what I've just outlined is currently priced in to the inflation numbers that are coming out now. And European PPI is around about 30% with monthly PPI early this week coming out 5% on a single month. So I think, you know, that that paints a really bleak picture when it comes to commodity prices and their effects and the likely effects that we're likely to see over the coming months. The Bank of England already has an inflation target of 7.2 thinks that will peak out 7.25% in April, given the events of the past few days, I find that highly unlikely. I think we could well go as high as 10%. And what does the Bank of England do in that that sort of instance? Does it continue to push rates up? It may well have to. But again, you know, what can central banks do against this sort of inflation shock? The answer is not that much, particularly with interest rates at current levels. So that brings us on to the ECB. If its position wasn't difficult enough already, it's already become that much more difficult. But one thing I would say is that it's still running its asset purchase program. The PEP program is due to end this month. That will probably end, but they will probably need to look at extending and increasing the asset purchase program to compensate. We've already had Austrian ECB governing council member Robert Holtzman growing back slightly on his earlier call for a rate hike towards the end of the summer due to events in Ukraine. I have a feeling that rate hike may or may not get road back even further. But again, the ECB is facing a similar problem to every other central bank out there. What can you do? And they have the added complication of borrowing costs in countries like Italy and Spain, Italy in particular, which relies pretty much exclusively on Russian guests to power its economy. So there's some really dark clouds blowing in for the European economy and that's being borne out by this euro dollar chart here. We're back at levels last seen back in May 2020 with the likelihood that we could go much lower. If we break below 110, 109.80, then I'm looking for a potential retest of this series of lows through here, which is around about 107.80, 107.60. And the fact that the Federal Reserve is likely to raise rates in March. But also the US economy is much stronger than its European counterparts. So they have scope to move rates higher. And ultimately the Federal Reserve will only do what it thinks is good for the US economy. We won't care that much about the rest of the world. We saw that at the beginning of the 2010s when its massive easing program caused a big spike in commodity prices. And again, the tightening policy could cause a series of unintended consequences there as well. So euro dollar, the prognosis looks pretty poor going forward. Similarly, euro sterling does look as if it's on a slow grind lot. So we've broken below the lows in 2019. If we take it out even further, we've also gone below the lows that we saw back here. And we're now back to the levels that we saw around about the time of the Brexit referendum 2016. So we could see a move back to 8150 if we continue to fall through because ultimately there's not really anything between here and here. You've got that peak there, which is around about 8120. And you've got that monthly low there, weekly low there rather, which is around about 8156. But anything below where we are currently at the moment, that's pretty much all there is. So euro sterling does look if it's going to continue to drift lower. And what does this mean for cable? Well, obviously cable is feeling the effects of the stronger dollar. But we're still above these lows through here. I still think it will probably drift back down here at the moment we're finding it very difficult to get back above 134 and a half. That in the short term is the key resistance for a move back towards this line here. So currently in the context of the overall trend, we're still very much in a downtrend, which makes me think we're probably going to come back and retest the lows at 131 60 over the course of the next few trading sessions. Okay, so let's talk about let's talk about the European Central Bank. Let's talk about German PPI. It's already at 25% is much higher in Spain and Italy. All of these are likely to go higher. Oil prices $100 a barrel and higher escalating tensions pressure on Germany to reduce its reliance or stop buying Russian oil and gas. The outlook, the outlook is not looking pretty. And I think it's even without events in Eastern Europe, a rate hike would have presented enormous challenges for the ECB current events make that prospect even more problematic than it would have been. So I can't see the ECB doing anything other than jawbone. And as I'm talking to you now, the FTSE 100 is continuing to ratchet its way lower. So that 6980 level could be there. We could be there before we even know it. What else are we looking at this week? Well, we've got US CPI. That's already at 7.5% 7 point and could well go to 7.8% when the numbers are released later this coming week on the 10th of March, same day as the ECB. With the last set of PPI, so we CPI numbers. Aside from use car and petrol prices, which have already risen 40% year today. We're also seeing double digit price rises in domestic gas meat dairy fish and fruit. Those are likely to going to continue to come through over the course of the next few days. So the wider question I think will be around how many more 25 basis points rate hikes will follow if they do go in March and Powell has suggested that they will. There's little expectation that the number of rate rises this year has been paired back. But I think it's highly unlikely that we'll need to see anywhere near the number of rate rises expected now given the strength of the US dollar. Certainly I think in the context of the wider scheme of things. It's quite likely that the CPI number that we're going to see later on the 10th of March is likely to be much, much closer to 8% than perhaps a lot of people would like, and it's probably likely to continue to go higher. Other items to keep an eye out for we've got UK monthly GDP. We've got UK industrial manufacturing production and industrial production. All of these numbers are expected to see a really decent, decent rebound in January, but given the current environment. I'm not sure it really matters that much. Yeah, the economy is fairly strong at the moment unemployment is still fairly low. And I think for that we should be thankful, but ultimately the cost of living squeeze is likely to make disposable income very difficult for people. And unless we get significant wage rises, and that data will come later this month for three months to January. We really do need to see some signs of an acceleration in wage growth and certainly that is still lagging well behind on the wages front. Okay, on the, on the, on the companies front, there's not really that much to tell we've got Rivian automotive, which has had an absolute shocker over the course of the past few months. Since December, the shares have fallen further down below their $78 IPO price. I mean, to be quite honest, even at their current level, they're still woefully overvalued four year revenue is expected to come in at $63.3 million. That's million, not billion million up from $1 million last year. I mean, that's pretty pitiful for companies that's got a market cap of about $60 billion. All year losses expected to be $3.6 billion. Okay, $3.6 billion losses on revenues of $63.3 million. And they have a target of 1200 vehicles, although they have pre orders of around about $71,000 up from $55,400 in October. On the earnings front, we've got Belfort BT, construction company, UK construction company. So keep an eye out for them on the 10th. They're down 4% today. That's the Belfort BT chart, very much a range trade, I think fairly decent sport in and around 210. I'm getting absolutely clobber today. And we've also got Greg's sandwich maker as well. So let's just quickly let's have a quick look at gold for a side off completely tested the series of peaks through here, around about 1970. That's likely to continue to cap the upside in the short to medium term. But for the here and now, gold is probably likely to remain fairly well supported only dips down towards 1900 over the course of the next few days and weeks, and less of course, we get a ceasefire. But on, you know, on on current on the way things look at the moment that doesn't look a probable outcome but you never know. I think certainly equity markets would welcome a ceasefire but given given Putin's demeanor at the moment, that doesn't seem that doesn't seem that likely. And I've got to say, it's probably it's probably one of the most one of the most least likely outcomes at the moment. Otherwise, that's it for this week. Thank you very much for listening. We'll have a great weekend and hopefully speak to you all sometime same place. Next week. Thank you very much for listening.