 Good morning. Welcome to CMC markets on Friday, the 23rd of June and this quick look at the week ahead beginning the 26th of June as we come to the end of the month and the end of the quarter. And it's been a disappointing week for equity markets were on course for five successive daily declines for markets in Europe. And I think we can check I think we can pinpoint the shifting sentiment of markets this month from events of a few days ago, particularly the events of last week. Last week, I think, if I'm honest, because I think when Jay Powell signaled on Wednesday evening of last week that the Federal Reserve, potentially had another two rate hikes up its sleeve. All markets reacted to that. But I think there was always this perhaps expectation that when Powell spoke to lawmakers on Capitol Hill, that perhaps he was just talking a good game, shall we say. That's turned out not to be the case. He continued to press the case for further rate rises. Following on, obviously from the ECB. Just after the Federal Reserve, who suggested that they still see the potential for at least another two or three rate rises. And then, of course, we've had events this week we've had the events of Thursday from the Bank of England. And to a lesser extent the Norges Bank and the Bank of Norway, who both raised rates by 50 basis points. Signalling that they were prepared to do an awful lot more at their August meetings and that I think has really weighed on markets this week. I think when you actually look at the when you when you look at how markets perceived central banks. Two weeks ago, I think there was always this expectation that they weren't really serious about aggressively hiking over the course of the next few months. And now there's been a bit of a mindset shift. And the likelihood is that we aren't going to see rate cuts in the short to medium term. And yes, I did say rate cuts. I think that always been this expectation. The central banks would probably blink when it came to a significant slowdown in global growth. And that could still happen. But I think the events of the past few days have prompted an awful lot of doubt. We're also coming to the end of the month. We're also coming to the end of the course. So we've had a fairly decent run when it comes to equity markets. But overall, I think what we've seen is a little bit of a shift in sentiment in the past two weeks. And it's not been helped by what we're seeing in guilt yields and bond yields more generally. I think if you look over the course of the past two or three weeks, this is the UK two year guilt. We're back above 5%. I think what was particularly interesting I think about the reaction of the guilt market to yesterday's rate hike by the Bank of England was the fact that we didn't really go much above current levels. To a certain extent, I think the price, the rate hike that we saw yesterday was a free hit for the Bank of England. And I think what's happened is they've merely put rates to where they should have been five or six weeks ago. The bigger question is what comes next. And I think that's what markets are reacting to. They're reacting to the fact that we could well see another 25, another 50 basis points from the Bank of England, from the ECB, from the Federal Reserve over the course of the rest of this year. And a willingness, or they sound very willing to risk a recession to push inflation lower. Core CPR here in the UK jumped to 7.1%. That's really spooked the central bank. I think it spooked central bankers more broadly. I think there's this perception that, yes, we've seen a significant reduction more globally in headline inflation from the peaks that we saw in the middle and at the end of last year. And we are now starting to come down. But I think there's now a realization that it's going to be an awful lot stickier than markets that originally envisaged. And that rates are going to have to stay higher for an awful lot longer. And that is what's getting pushed out. And that essentially means that the markets are starting to price in a much higher recession or a stagflation risk going forward. And that's why you're seeing a little bit of a move higher in bond yields. Now, you could argue that you should be going, you know, basically you shouldn't be selling bond markets on the back of that. But at the moment, the markets are pricing in the prospect of high yields up. I struggle with the idea that the Bank of England is going to have a terminal rate of 6%. I really do. You look at wage growth at 7.6%. You look at core CPI at 7.1%. You know, ultimately core CPI is not going to come down particularly quickly while wages are trending at their current clip. But ultimately, all wages are doing is playing catch up on the basis of the fact that consumers are feeling increasingly squazed. Certainly by the fact that energy prices, particularly natural gas prices, their energy bills, not the prices of the pump, but their energy bills are taking so long to come down. And for that, you can blame the government and the energy price cap. Because ultimately, if you look at natural gas prices and how they've behaved over the course of the past few weeks and months, they've come down quite a lot. They've come down massively from the peaks that we saw back in 2022 and now back at levels that they were in 2021. But that hasn't been reflected in energy prices or energy bills. And that's because of the energy price cap. Those prices have been locked in. We are now starting to see the effects of that roll off. Direct debits are coming down. I got notification this month that my direct debit was coming down quite substantially. So that should start to feed in to personal spending, retail sales, which came in better than expected for May. We got a rise of 0.3 in numbers released earlier this morning. You can see that there, expecting a decline of 0.2%. So that should help, I think, some of the offset in terms of higher mortgage rates. I don't think the Bank of England will be hiking rates to 6%. I just cannot see it, not without completely tanking the economy. And I think what you're seeing at the moment with respect to guilt yields is potentially a reflection of that. You've got all these bankers revising up their forecast for the terminal rate. I struggle with that. I think if the Bank of England continues to out-hike the Fed, I can't remember the last time they actually did that. Now rates are not likely to come down any time soon. But I will be surprised if we see much more than another 25 basis points at the August meeting, assuming we see a rate hike at all. I think much will depend on the data, very much data dependent. But at the moment, the markets are pricing in the prospect of much higher rates. And I can't join the consensus on that. I can't see a bank rate of five and a half or 6%. It could be wrong, but that's essentially my gut feeling. So what does that mean for equity markets this week? Well, we've seen a significant decline in the likes of the FTSE 100, the DAX, the Cat Caron, the S&P 500. I think what's significant, though, is we haven't as yet taken out the lows that we saw at the end of May. And I think on that basis, I'm probably encouraged by that. I'm encouraged by that to a certain extent. Now we've taken out this line here, but it's not a particularly strong line. So I'm not going to use it. But what I will be looking at and paying particular attention to is this series of lows through here. So you're talking around about 7,400 area in terms of the FTSE 100 for a potential key support level. But if you look at the candles, if you look at the shadows on the candles here, they're quite long, which suggests that there is certainly interest to buy down here because every time we push down, we've come back up. Now the risk is that selling pressure will continue to grow and will continue to fall back. But I think as long as we hold above 7,440, there is certainly scope for a bit of a rebound on the FTSE 100. If we look at the DAX, similarly, we are still above the may lows. And I think we've got a similar sort of thing here, very long shadow there. But we've also got a very strong area of support all the way through this 15,600 level. So I think that's going to be a key support level going forward, 15,650, there are thereabouts. And as long as we hold above that, there is certainly potential for a little bit of a rebound. If we look at the S&P 500, we've seen a bit of a roll over this week on the shortened week for the US. We're trading at the lows of the week. I think of any of the markets, the US market is the most frothy in terms of the gains that we've seen so far. Does that mean that potentially we could come crashing off again? I think the 50-day moving average for me is my long-term benchmark in terms of the strength of the current rebound. We're seeing a little bit of consolidation, but at the moment I'm not seeing any evidence that markets are in the mood to come crashing off. NASDAQ, similarly, we're still quite away from the support levels that we saw back at the beginning of June. If anything, we could see a little bit of a correction in the NASDAQ if only because it really has extended towards the top side. And potentially we could see a little bit of a reassessment, particularly if US rates continue to remain as sticky as they are. When we looked at UK 2-year guilt yields just then, we did see a move above 5%, but it is struggling a little bit in the short to medium term to hold on to those moves. I think there is certainly interest to buy bonds at those sorts of yields. If we look at, say, for example, the US 2-year yield, we are scratching a little bit higher, but we're still below the highs that we saw earlier this year. And we're also below the highs for UK guilt yields on 5% and 10% from the peaks that we saw back in October. We're close to them, but we haven't moved above them yet. The move in the 2-year yield is a little bit of an outlier. And I think the reason for that is obviously, I think there's a significant concern that mortgage rates could go quite a bit higher. And that's helping to push the 2-year yield up in the way that it is. Looking at currencies for this week, the dollar has been very strong. And once again, we've seen a big drop in the euro on the back of some very weak flash PMIs from France and Germany, which would suggest that the eurozone is likely to remain in recession for the second quarter. Flash PMIs for June. I mean, the French ones were absolutely awful. Services PMI and manufacturing PMI both in contraction territory for June in France. And certainly, I think there are some headwinds coming Europe's way. And on manufacturing, German manufacturing dropped to 41, which again was very weak. Despite all the negative headlines around the pound, we still remain very much in an uptrend. And yes, the rate hike that we saw yesterday did prompt a little bit of a sell-off in the pound, which obviously is not a good sign, but we still speak to confidence in the growth outlook for UK assets, which also helps to explain the underperformance that we've seen on the FTSE 100. But at the end of the day, for me, price action is the most important aspect of the jobs that I do. If you listen to the mainstream media, you'd be forgiven for thinking that we're about to head into an apocalypse. And what's saying that things aren't going to be difficult, they are. I mean, they have been, but a past two years in terms of the squeeze on disposable incomes, the big rise in energy prices, the energy price cap, which obviously did its job on the way up, but it's actually squeezing inflation on the way down and squeezing incomes on the way down because ultimately gas prices coming down aren't being reflected in the headline inflation rate. That should improve in July. It should also improve even further in October. But I really don't know why the government just doesn't just bin it because ultimately it served its purpose and needs to go in the recycle bin. But, you know, that's, that's, that's for the government. And the tax rises, obviously, that the government implemented in April aren't exactly helping either. So being squeezed from either side, but things are probably not as bad as the media would like to paint. That's not to say they can't get a problem. They probably can't get a little bit worse. In terms of the data that we've got coming out next week, there's not really that much to get our teeth into. We've got final iterations of first quarter GDP from the UK and the U.S. Not really expected to add to the sum of our overall knowledge when it comes to telling us about the respective economies. The US core PCE deflator for May. And that could actually feed into a little bit of a narrative about whether or not the Fed is serious about hiking by another 50 basis points to more 25 basis point rate hikes by the end of this year. I still remain skeptical that the Fed will follow through on its hawkish narrative. That doesn't mean to say that the dollar is not likely to remain strong. But I think if we get any indication of a weak core PCE deflator, then we could well find that the dollar starts to weaken again. The deflator itself pushed up to 4.4% in the April numbers from 4.2. So obviously that is a concern. It's heading in the wrong direction. But I think this week's core PCE numbers along with personal spending numbers ought to offer markets and additional insight into whether concerns about rebounding core inflation are valid and whether or not the Fed's recent hawkishness is justified. So core PCE deflator that's on the 30th got first quarter GDP numbers, final numbers from the UK on the 30th as well and US on the 29th. We've also got stress test results from US banks. Now they're not likely to really tell us anything that we don't already know because ultimately these stress tests are about the big US banks and not so much about the US regional banking sector. But the concerns about the US regional banking sector have subsided to a certain extent. So I'm not really convinced that we're going to find out too much information from these tests simply because then the US regional banks aren't covered under the stress test scenario that the US is basically publishing the results to. They were considered too small or at the time of the tests were run that the US regional banks were considered too small and not systemically important enough. But as recent experience in Europe has taught us and particularly in Spain 10 years ago where a large cohort of Spanish car has nearly brought the economy to its knees and resulted in a banking bailout. Just because a bank is small doesn't mean it won't cause a financial meltdown if it's troubles spread. And we saw a little bit of that in the March sell off in the US banking sector. So I think it's worth considering but at the moment, I think there is this perception perhaps the US economy is still performing reasonably well. Weekly jobless claims are still have aged up a little bit but continuing claims interest interestingly enough actually went lower. So still a fairly strong US labor market is unlikely that we'll start to see that deteriorate sharply much before the end of this year. In the UK, we've got mortgage approvals for May. They are likely to struggle from here on in. And again, that is likely to be that we should expect to see that the whole point of these rate rises from the Bank of England is to tamp down on demand for mortgages and loans to stop consumers spending money. And the mortgage approvals numbers are likely to reflect that for May. We could well see net lending decline as well that declined in April by 1.4 billion the weakest number since July 2021. So you could see further effects of weak lending patterns in the UK economy for May. On the earnings front, I'm going to be particularly interested I think in associated British foods. Why you may ask, well, if we look at the share prices associated British foods, it's actually been doing fairly well since the October lows and earlier this week. The next upgraded is profit forecasts for the current fiscal year. They basically said that sales were holding up well and that UK consumers were actually spending money at a not an excessive rate but certainly I think optimism. With respect to UK consumers was on the up now obviously those that statement was made for the events of this week so that could well change but consumer confidence is also at its best level since January 2022. And assuming that this little squall in the guilt market passes and rates start to head lower. This could well pass so say safe British foods third quarter. Third quarter trading statement on the 26th of June management have already said that they are concerned about consumers spending holding up in the face of rising interest rates and the higher cost of living. But they did say that the first half trading statement that second quarter second half margin is still expected to hold up in line with the first half 8.3%. So I think if they paint a similarly positive narrative to the one painted by next earlier this week then we could see a rebound towards the recent highs. We've also got the latest earnings announcements from Nike fourth quarter numbers. Again with Nike I think their share prices suffered a little bit on the back of concerns about Chinese markets. Certainly if we look at the share price here we can see that the share price has been trading sideways for most of this year did take a little bit of a dip. At the beginning of the month it's now starting to claw its way back. But I think the optimism about the Chinese recovery was slightly overstated and I think there is a risk here that the Nike numbers could actually miss expectations. We are expecting both fourth quarter revenues to come in around about 12.57 billion dollars, but I think given the lackluster nature of recent Chinese consumers spending. These forecasts could miss expectations and Nike sales may have also taken a hit due to recent publicity over its new brand ambassador Dylan Mulvaney and the company's recent advertising campaign. Now I'm not going to go into the pros and cons of that but I think there could well be a little bit of a fallout on that basis. These are their fourth quarter numbers, annual gross margins that were expected to slip back to 43.5% and annual revenues are expected to come in at a record 50.9 billion dollars. So, you know, certainly, you know, the numbers aren't going to be grim, but I certainly think in terms of the forecasts, we may see a little bit of a surprise. But as I say, much will depend on whether or not we can look to recover these peaks here. But certainly the fact that this little candle here is a little bit of an island top or a doji top or reversal would appear to suggest that perhaps Nike's shares could be about to turn a little bit lower. So that's it for this week. As I say, we've got, we've seen five days of declines, we're approaching some key support levels. Let's see how we head into the last week of the quarter and whether or not we can actually round off the half year and look at it in the round. We've had a fairly decent first six months. I think the bigger question is whether or not we can consolidate the gains that we've seen over the past six months, but see notwithstanding, which is pretty much gone nowhere. And whether or not we can see as resilient as six months of the year as we've seen in the first six months of the year. Anyway, that's it for this week, ladies and gents. Thank you very much for listening. It's Michael Houston talking to you from CMC Markets.