 Good morning. Welcome to or good afternoon. Even welcome to CMC markets on Monday the 11th of July and This week's weekly market update Just a quick risk warning first first and foremost get the formalities out of the way Before we get started Basically going to be looking at the number of the number of different key events this week. Obviously dissect Last Friday's US payrolls report Very good payrolls report as it turns out, but ultimately I don't think it's going to move the dial with respect to a Potential US rate rise this year Simply because we are now starting to run up against the The US election which is due in November and I think it's going to be it's going to be very unlikely that the Fed Will feel compelled to act on interest rates at a time when there is some concern About the US economy now Obviously Friday's payrolls numbers were much better than expected a lot better than expected actually 287,000 new jobs added in June and That's that was the best US payrolls figure since October last year and the second highest payrolls number in nearly two years Which was a little bit of a surprise given that it came one month after the worst payrolls number in Around about three or four years at 11,000 jobs the main number was revised lower So the market had a bit of a problem on Friday in that Even though we had very much of a low figure in May and markets were dismissing that as a bit of an outlier We also had a bit of an outlier in Jim So it really begs the question is what's the true reflection of the state of the US economy? And I think that's really why we didn't really see a significant pickup in US rate rise expectations For July or September, and I think that's why you've seen equity markets start or continue to push higher And the likelihood is we're probably going to see the S&P 500 Break above it's all-time high When US markets open later this morning the futures price at the moment is just below 2137 It's already been slightly through that earlier this morning with a peak of 21 38 and a half But the the actual all-time high Intraday trading for the S&P is 21 37 and we're brushing up against that right now. So even though we're back Near and at the previous peaks for the S&P 500 Which is very very positive for us equities. We're still not quite there For the us 30 you can see that here on this chart that I've got in front of me Right now. We still got quite some way to go on the Dow 18367 was the 2015 highs So we are still quite some way short of that 160 170 points short of that In the short to medium term. So ultimately we could well see a retest of that I would expect to see a retest of that because actually when you look at what stock markets are doing Relative to what bond markets are doing Really, if you've got any capital or cash at all You're not going to put it in bonds simply because The yields are pitiful And actually in most cases Um, they're actually negative. So you're actually paying government's money to To lend the money which it which is absolutely ridiculous And to give you an example of how ridiculous bond markets are at the moment The list of negative yields in Europe Two-year yields are negative in belgian, france, germany, italy, netherlands, spain, slavakia and slovenia So basically if you want to lend money to those governments, you pay them for the privilege of doing so Which gives you an indication of how Distorted financial markets are with respect to risk at the moment And if you actually look at what say for example The s&p 500 is currently yielding It's yielding 2.1 percent Which in an era where interest rates are nailed to the floor Means that ultimately investors are going to put their money into stock markets They're going to put their money in into equities and more broadly I think the more higher yielding parts of The financial markets in the financial sector And I think that's also why we've seen the the rebound that we've seen in the footsie 100 the uk 100 You know, it's hard to believe that the brexit vote was less than three weeks ago And we can see that from this chart here. We had that strong plunge down here to 5,700 We're now back above The peaks the previous peaks that we identified that I identified last week In last week's webinar where I talked about the break of the 6450 level Potentially acting as a pull on a pullback That's exactly what happened. We did have a slight overshoot to the downside Around about 64 30 64 25 But ultimately I think the likelihood is we're going to retest the highs that we saw in august last year Around 67 65 and that's the series of peaks through here Then you've got the july peaks. Then you've got the The peaks in late june. So ultimately for the moment while we're above 6450 On the footsie 100 the uk 100 the line of least resistance still remains for buying dips On equity markets and one of the main reasons for that Is if you actually look at the average dividend yield on footsie 100 stocks, it's 4.2 percent So if you've got a if you've got a if you look at say for example the footsie 100 And I can and I can show this on a on a bloomberg chart very very easily here Let me just bring that up I'll just swing it over actually Let me do that now I'll bring over my bloomberg and then just change that to The description It gives you a decent indication of Actually, I've got the wrong one there Trying to find the the correct code That's that So you can see in this here. We've got dividend yield on the s and p It's 2.15 If we do the same thing with The footsie 250 Let's do the footsie 100 first And do the same thing there. We've got 4.18 Even though the the price earnings is quite high at 49.62, but ultimately 4.18 It's not too shabby in terms of dividend yield if we now look at the footsie 250 Which has underperformed quite significantly relative to the footsie 100 Now again, we've still got a fairly decent dividend yield there at 3.25 Percent with a much lower price earnings ratio and a lot's been a lot has been made Of the fact that the footsie 250 is still well below The levels that we saw at the beginning of june And we have we've got an iShares tracker here which allows me to track what the footsie 250 has done and you can see where it was In june the big plunge lower. We've since come back But we've come back pretty much more than halfway from the from the peaks that we saw In june and actually if you look at how the footsie 250 has performed relative to say for example the german DAX The footsie 250 is only 11 percent below its all-time highs the german DAX is 20 percent below its all-time highs and the german DAX Yields about 3.2 percent at current levels and we can see that We can see see how the DAX has performed over the course Of the past few few months from peaking back here in april 2015 We're currently still well below This gap here between these peaks here in that that area of price action there So there is significant resistance in the DAX between 9800 which is this series of peaks here Those three highs there and here and i've drawn a horizontal line through the the low There on that particular candle that we saw in the lead-up to the rebound To the peaks that we saw on june the 23rd We opened down here on june the 24th Since then we've pretty much traded sideways in a little bit of a box range and ultimately I don't really expect that to change too much though. I do expect to see a potential bias To the upside in the event these concerns About the italian banking system subside and that's really i think one of the key factors That's weighing down on European equity markets over the course of the past two to three weeks Ever since the brexit vote came out the italian banks in particular Have taken an absolute caning and this is an area that really we do need to pay a particular attention to because it will determine where markets go to over the particular european markets not so much us markets which are which are pretty Pretty insulated from what's going on in europe at the moment trading near all-time highs The italian banking sector still remains under a significant amount of pressure And it's this bank here in particular that we need to pay particular attention to because this is the pressure point monti de pesce It's been bailed out twice already It needs it could well need to be bailed out again The main debates at the moment are in the context Of how that happens But certainly in the context of this particular chart We can see that The line of lease resistance remains towards the downside And for that reason alone It's going to be very very difficult to buy european shares or european stock markets while there's significant concerns About the solvency or otherwise of not only italian banks and we've got as we've seen a decent rebound In monti de pesce today of eight percent, but we're still 63 percent down From the end of january. So an eight percent move really is neither here nor there doesn't really matter. It's You know, it's a it's a pinprick in terms of the actual Move lower that we've seen in italian banks and actually if you look at unicredit Which is italy's biggest bank It hasn't taken part in this particular rally For europe for for italian banks today. It's still very much Pressured towards the downside record lows And what's driving what's driving banks to record lows? Well, we talked about it earlier and the fact that yields Are firmly anchored in negative territory ultimately European banks can't make any money From borrowing short lending long while rates are negative and to give you an indication of how bad things are If you look at swiss if you look at swiss rates swiss government bond rates They're negative all the way out to 50 years. That's five zero years So if you want to lend money to the swiss government for the next 50 years you have to pay them money and If you if you want to lend to the government the swiss government um Over two years you probably have to pay them around about one percent and yet deflation in switzerland is around about minus 0.3 so That gives you an indication of how How skewed risk is and that's why when you look at say for example credit swiss Or ubs they are trading at record lows They've never ever traded as low as this and until such times as european regulators and european policy makers Saw out this problem of low rates That's or negative rates that is going to weigh on profitability going forward and the big big concern for germany's policy makers is deutsche bank We talked about this last week and i will continue to talk about it because ultimately for me deutsche bank Is the biggest elephant in the room Over the weekend We had the chief economist of deutsche bank saying that the european banks Needed to be bailed out to the tune of 150 billion euros so in excess of 150 billion euros the entire european banking sector needed to bail out to To the to that amount Now to understand why that's going to be very very politically difficult is because at the beginning of this year EU policy makers passed a law That basically said that there would be no more taxpayer funded bailouts and ultimately that Policy makers or banks or countries would have to bail in their bondholders and creditors first That is politically toxic in italy because an awful lot of the bondholders Or depositors in italian banks are pensioners They're domestic savers and ultimately They italy has one of the highest savings rates in europe if you bail in those pensioners and those savers Then you are basically if you're a politician signing your own death warrant Because you will never get voted in again and mr. Renzi has a referendum coming in october So what's got to happen? Well, there's going to be some form of fudge But ultimately Everyone knows that the biggest pressure point in the european banking sector is deutscherbank because of derivatives exposure And i've talked about this chart a lot here over the course of the last six Over the past six months and this breakout would appear to suggest that the worst is still to come For deutscherbank's share price. We've already seen the breakout lower below the 13 euros mark Potentially we can come all the way down to eight euros Now the big question is how do we get there? Well at the moment we don't we're finding support around about 11 euros But certainly in terms of the downside potential of this particular share price The downside potential we can see at least another four or five euros downside here over the course of the next two to three months And that is going to be a significant problem going forward And it's going to be a significant problem for the european central bank when it comes to look at potentially easing policy going forward and that means that ultimately downside for further easing for the european central bank is going to be limited By the fact that if it pushes rates any lower It could push the european banking system ever closer to the wall And that is why you're seeing euro dollar basically not doing an awful lot at the moment It's trading between 111 20 and 110 I think the bias overall will be for it to trickle lower over the course of the next few days and weeks But ultimately I believe that it's going to be trading 108 112 For the foreseeable future. I really can't see it moving anywhere quickly anytime soon So that's euro dollar sterling dollar Seen a nice little rebound in that After a dip foot below 129 we've had a rebound back above 130 We do have potential to come back all the way to 130 120, but as we can see from this chart here Because sentiment is so one way when it comes to looking at the pound There is a risk That we could have a significant short squeeze higher Now the pressure point I think for the pound and this is what I really want to focus on for this week because what we've got is What we've got is a Whole host of event risk later this week And we've got the bank of england rate meeting now the rebound I've been reliably informed is due to andrea ledson quitting the tori leadership race Which has just come up on the bbc news and it looks like tereza may Will be the next uk prime minister Which to my mind is a good thing because what it does is it saves us the whole rigmarole of waiting two to three months To find out who's going to Be the next uk prime minister. So That's that's important and that's why we've seen that rebound. So thanks for that Thanks for that john appreciate the heads up on that. I've just seen it on my screen. Obviously. I don't have my bloomberg Um on my screen. So I didn't actually see that But 130 50 that's really this this this resistance through here is quite key And ultimately We we would need to see a breakthrough 130 120 to suggest that we're going to get further upside risk So what am I looking at? What am I looking at? This week what i'm looking at is the bank of england rate meeting because there's been an awful lot of Speculation as to what the bank of england might do when they meet on thursday And I have done a video on this which is on the website And ultimately the markets are pricing in the prospect of at least 25 basis points rate cut from 0.5 to 0.25 and potentially Maybe some additional qe But I do need to warn I do need to warn you guys that There is a risk that the bank of england could disappoint because one of the things that mark carney said in his In his speech last week that he was he was very concerned about The impact lower rates has on uk banks profitability And that's something that we really do need to be very very aware of Ultimately if mark if mark carney or the bank of england cuts rates to 0.25 percent Then I think there is significant concerns given what's happening in europe of the effect that it could have on uk bank profitability and Really i'm not sure that it's necessary to cut rates. Let's look at uk guilt yields Since the 23rd of june On the 23rd of june, we touched 1.4 percent. Here we are 1.4 percent on uk guilt yields since then We've dropped Down to 0.731. So we've already seen a significant easing of credit conditions Without even the bank of england pulling the trigger on on a base rate cut Furthermore, mr. Carney didn't implicitly say that he was going to cut interest rates In july he said in the summer So he could be talking ill he could be talking july he could be talking august He could be talking september. Let's not also forget that we're only talking three weeks From when the brexit vote came out. So we are now Below 130 on the cable. We're also Significantly lower 65 basis points lower in terms of the cost of borrowing on a 10-year guilt than we were Which means that credit conditions are that much easier? so ultimately what's what's What's to be gained by cutting rates now? Why not wait until you get Some some more evidence of better data or the hit to data in august because in august We have the uk inflation report the quarterly inflation report And ultimately the bank of england will have much more data at its disposal to make an informed decision about Whether to cut interest rates from 0.5 to 0.25 But ultimately whether to do any further qe. They've already they've already introduced a number of credit easing Initiatives they could on thursday Boost the funding for lending program that is still going so they could give that an initial boost Higher but ultimately I think there's no real imperative To cut interest rates on thursday So even though I wouldn't be surprised if the bank of england did cut rates I also wouldn't be surprised if they didn't if you had to if you had to push me into a corner I'd have to say I'd I'd be More inclined to say the bank of england will probably hold But they did they'd issue a very dovish statement Um whether or not that would have any significant effect on the pound But what it would do is I think it would certainly give you some indication That with all the short positions that are out there We could see a significant move to retest the bottom of this particular flag pattern here I don't expect it to go much above 131 20 But I would Not be surprised to see a short squeeze all the way back up there It's a similar sort of story when we look at euro sterling There's potential for further sterling losses here We've now broken above now that we've broken about this 84 level on euro sterling What we've seen thus far Is some evidence Of a push higher the next level is 8706. Why is that important? It's important because in the context of that the big big move that we saw from The all-time highs or all-time lows of euro sterling back in 2008 2009 To those peaks to this levels of 2015 We've got 8706 Which is the 61.8 Fibonacci retracement Of the entire down move. So Certainly if you look at it in those contexts I think there's potential that we could actually be reaching the limits in terms of euro sterling and certainly what we're seeing here On this particular chart is we've got lower highs And there's good support through here So that would appear to suggest that we're starting to get A little bit of consolidation Before the next move now at the moment i'm drawing a Drawing a line through here So there's your resistance level on euro sterling, but more importantly Let's look at the support level and the support level is around about 84 90 so We've got a little bit of a triangular consolidation here And at the moment it's not really doing anything But what i would be looking to do is to trade some form of breakout of this triangle over the course of the next Four to eight hours if it continues to trade sideways The breakout won't happen and if it does it'll be more likely to the downside than the upside Triangles generally have to break out between 50 to 75 percent from where the apex is so it needs to break out Pretty much a round about this sort of area here that i'm showing you right now So if it go if the if the consolidation pattern goes much beyond where i put this circle Then you're not going to get a significant price move Here you've got a nice little Consolidation pattern. I'm just going to extend that back there for you So the distance between there and there is around about 100 points You project that from the breakout point. It gives you a hundred point move give or take back to around about the 84 level So if we do break 84 90, I would expect to see a move down to around about 84 83 90 in the short to medium term But we can't move beyond this We can't move into this little circle here. Otherwise the pattern will just dissipate And the move won't be anywhere near as explosive So that's certainly worth keeping an eye on for terms of direction for euro sterling Similar sort of story sterling yen That also has a slight bias towards the downside. We have had a little bit of a breakout I've drawn this before and we are now looking to retest this 133 75 area on sterling yen Why because we've got two Two nice little lows there on the daily chart. I changed that to a four-hourly chart and drilled down into the detail You can see it a little bit better Pushing back into this resistance area here, which was support So it'll be interesting to see how sterling yen behaves around these sorts of levels Potentially a short position at 133 60 133 50 with a stop loss above 134 Back above this sort of level here. It's a fairly low risk trade You're not taking on an awful lot of risk there, but that would be one way to play that And then we've got dolly yen and again, it's a similar sort of story here A good resistance at 103 50 103 55 Big big support around about 100 people are concerned about potential for further into or Further easing from the bank of japan after the elections over the weekend Mr. Abe one-up house elections Which has raised expectations that we could see further easing measures from the bank of japan And further fiscal measures from the japanese government to try and Kickstart the japanese economy, which is in significant amounts of economic difficulty at the moment Hence this nice little rebound here But what we do need to see is a put with is a recovery back above 103 55 103 60 to retest these these peaks up here at around 106 You can also draw a nice little trend line in through here And that pretty much intersects where we are Round about there Right now Another another thing that's making me a little bit cautious about Risk is the fact that crude oil prices are starting to look a little bit heavy We can see that here. We've seen this nice little break out between below the two month lows at $46 70 Currently testing this trend line support From the january lows So we're at a fairly key juncture terms of Brent crude Around about 46 45 dollars a barrel We've already broken out on wti Towards the downside And could well be looking to retest potentially this area of lows that we saw in may So we're looking around about 42 42 and a half dollars a barrel On friday we saw another increase in us rig counts Which means that more supply potentially is going to be coming on the market And unless you get a significant pickup in demand that's going to push down on us oil prices And you're certainly seeing it in the context of this Down move here so Certainly keep an eye on commodity prices because commodity prices and a tail off there could actually start to weigh on the footsie 100 Given how closely or how closely geared it is to the mining sector the best performing Sector this year in the footsie 100 has been miners And particularly the best performing stock has been ran gold resources not really too much of a surprise Given how the the the gold price has managed to rebound So far since the beginning of this year nice little move Nice little move higher Of around 26 at the moment We are pushing against this resistance from the peaks that we saw in 2011 It's struggling to get much above the 2014 highs. That's really the next big level for gold prices On friday on the non-farm payrolls number. We saw a sharp decline to around about 1335 Pretty much nailed that apart from obviously that little spike there, but decent support around 1335 Think gold prices are likely to remain fairly well supported Particularly if interest rates continue To stay in negative territory because ultimately you'd much rather own gold Even if it doesn't yield anything then own bonds where you're actually paying to lend money to sovereign governments So the the attractions of owning gold. It's not going to fall out of bed not in a negative negative interest rate environment So certainly worth keeping an eye on gold prices over the course Of the next few days Finish up with the australian dollar Trading in a nice consolidation pattern here nice trend line resistance Currently pushing against it around about 76 cents Think we finally got a government albeit a very Even even a narrow minority a narrow majority from Malcolm Turnbull I think they're still doing the count on that at the moment, but uh ozzie dollar If the Fed isn't going to be raising rates anytime soon Then the likelihood is ozzie could squeeze higher really depends on how happy the reserve bank of australia is with respect to that But certainly these peaks here just above 76 Are going to provide a very key test for the australian dollar And any move lower and what could move the australian dollar this week There's a whole host of chinese data. We've got chinese GDP Out on friday. We've got chinese trade data out on wednesday as well as industrial production and retail sales and That any disappointment there in terms of chinese data could well signal a little bit of a sell-off In not only mining sector stocks, but also the australian dollar as well Keep an eye out for eu inflation On friday That's likely to remain fairly weak But again, it's going to make it very very difficult if it continues to remain weak for the european central bank To do anything further unless it unless they make some changes to The number of illegible bonds that they can buy but anything below minus 0.4 percent the ecb Cannot buy Well given the fact that 70 percent of german bonds are already trading below minus 0.4 percent It means that the ecb can't buy 70 percent of german bonds or german bonds two year Five year ten year 15 year all of them trading at a negative yield A similar story with japanese bonds and obviously i've already told you about swiss bonds So the best performing yielding bonds at the moment are uk uk uk gilts And us treasuries so at the moment uk and us are still havens because they're actually yielding something Whereas pretty much everywhere in europe, you know, they're not yielding anything and actually if you are feeling a bit brave canadian 10 years are trading at around about 0.6 percent and So they may be an attractive player as well But certainly in terms of what the canadian dollar is doing trading sideways consolidation Resistance around 131 50 here good support around 26 55 But the canadian dollar is a proxy for the oil price so a weak oil price equates to a weak canadian dollar so We could see that start to break to the upside if crude oil prices start to break down Okay, so that's pretty much covers most of the events that i'm keeping an eye out for this week As I say the main ones are going to be chinese gdp china trade china retail sales china industrial production All the back end of the week bank of england on thursday Also got us beige book and us retail sales later this week to give a snapshot of the u.s economy And and and e you inflation Is there anything here ladies and gentlemen that i haven't covered that you would now like me to cover before I wrap this up Okay, well If that's all there is ladies and gents. Thanks very much for listening I will post this on youtube when i'm done and you can listen to it back If there's anything that you think you may have missed otherwise, I'd like to thank you all For checking in and good luck trading this week Thanks a lot