 Good afternoon and welcome to CMC Markets and this week's Monday market webinar with me Michael Hueson and welcome to what is turning out to be or What could well be a very interesting week? It's certainly central bank heavy But before I get get started. Let's get the small matter of the disclaimers out the way and then and I can get cracking is to the things that I'm particularly paying attention to This week obviously we're starting the week on a very interesting political backdrop who would have thought Just over two weeks ago that the politically unstable part of Europe would be the UK and The politically stable part of Europe would be France, but that's the situation that we are faced with Now and having had the weekend to absorb the events of the last few days I think the only questions being asked now is how long Prime Minister may can last and How bigger majority the new French president Emmanuel Macron will win in the French Parliamentary elections over the course of the next week or so they say a week is a long time in politics Well, it's certainly a long time in European politics because from what looked like conservative landslide and deadlock in the French Parliament We've had a quit. We've had a complete switcheroo and Now it looks like Emmanuel Macron will be the one with a landslide victory and Theresa May It's really a question of how long she can last as UK Prime Minister and that's really being reflected in the performance of Euro sterling early early today because ultimately euro sterling is pushing higher Pushing towards the highest levels that we've seen over the course of the past few months and the likelihood is that Given the breakouts that we've seen We've already hit the highest levels this year for the euro against the pound and We're now testing the highs that we saw at the beginning of the year And if we break through those peaks then the likelihood is we're probably going to test this 89 20 level that we saw all the way back in November When euro sterling was last at these sorts of levels and that's a 61.8 for financial retracement level of the entire down move from the October peaks to The December lows and as one of one of the clients has just said to me now say la vie as they say well indeed It's certainly not looking good for the pound at this point in time Certainly against the dollar. It's sort of cast in cast into doubt. I think Mike and my belief I mean as you well know I've been fairly bullish on the pound against the dollar over the course of the past few weeks and Certainly the events of the past few days have really called Caused me to call that Call that belief into question certainly on the basis of the fact that we've broken below that one 27 and a half level that I was looking at last week, but That is I think that belief is largely dependent on the data that we're going to get out later this week With respect to the UK economy on inflation wages unemployment and retail sales But also on this week's Fed meeting because I talked about the beginning about that It's a very busy week for central banks. It is we've got the Bank of Japan. We've got the Swiss National Bank We've got the US Federal Reserve and we've got the Bank of England So there's an awful lot of central bank risk on the table this week and how What sort of guidance we get out of that? Well, I think dictate where the dollar goes and also where the pound goes We saw we saw the ECB last week The ECB was fairly dovish in terms of its inflation forecast It's revised its inflation forecast down for this year next year and the year after But you know what it does with this inflation forecast I think now is neither here nor there I think if we continue to get the recovery in Economic data out of Europe that we've seen over the course of the past few months Then the downside in euro dollar is likely to remain fairly limited But having said that we've also got potential for What the direction of future US monetary policy is likely to be in the wake of what is expected to be a Fed rate rise later this week And I think it's not really about whether or not the Fed raises rates this week It's really about what the Fed does after this week with respect to interest rates We've seen a rate rise in December. We've seen one in March We're probably going to see one in June and really the big question now is will we see one in September or December or Will we see the Fed announce? Or put more flesh on the bones as to how it's going to shrink its balance sheet Will it shrink its balance sheet at the same time as raising rates? Will it do one or the other or will it do both and I think that more than anything I think it's going to be the key takeaway from Wednesday's press conference Will Janet Yellen start to outline In more detail the feds tapering program that they alluded to With respect to the reduction in the in the size of the balance sheet earlier this year in its in its previous Fed statement. There was some talk about rolling over a certain amount of the bonds that come to maturity but letting some roll off And I think the markets will be looking for some Significant further detail on that. So at the moment, I'm looking at 8860 on Euro sterling That was the highs that we saw earlier this year We had a we had a go at that on Friday and failed. It looks like we're probably going to have another go at it today And in that context it'd be very interesting to see how the market reacts around this 8860 level and whether we go on to To retest the 8920 level on the downside got decent support at around about 8720 But at the moment that there appears to be some decent support around the 8780 90 area, which is this series of Peaks through here, which also coincides with today's low If I shrink that down to the four-hour chart, it gives you a better indication of where the key support areas are With respect to Euro sterling is starting to look a little bit overbought But at the moment, I think It's unlikely that we'll get a Theresa May resignation quite yet That comment could come back to bite me, but I think If we're looking to start Brexit talks in just over a week's time I think The likelihood is that she will probably be able to hang on Maybe to the end of the year I think the last thing the UK needs right now is another general election because I think the Conservative Party will be terrified That the Labour Party will win And having seen the Labour Party manifesto and its Stance on Brexit. It's no more coordinated than the Conservative Party Stance on Brexit is we've already seen this morning that John McDonald and Barry Gardner have come out with two completely different Interpretations of the Labour Party position on the Brit on their Brexit manifesto You've got Barry Gardner saying that the UK would look to stay in the single market And yet you got the shadow Chancellor saying that they wanted to come out So if people thought that the UK the Conservative Party's stance on Brexit was confused The Labour Party's is no more coherent. So I Think at the moment, it's better the devil you know Rather than the than the devil you don't so I think it's likely that what we will probably see from the Conservative Party Putting to one side all this noise about a confidence and supply Agreement with the Democratic Union is the DUP ultimately the Brexit maths means that the Tories have 318 seats They only really need four or five extra votes to get over the 322 Because the 326 is predicated on Sinn Féin Taking up their seats in the in the UK Parliament and they won't do that. So basically you can knock out Four seats from that 327 at 326 and the majority becomes 322. So Ultimately the Conservative Party the actual majority in Parliament is not 326 Yeah, 325 is half of 650, but the seven seats of the Sinn Féin have Aren't included in the electoral math of that. So actually it's only 322 So the Conservatives are actually foreshort the majority not eight That's by the by So Brexit talks, I think will probably start on time next Monday on the 19th of June There's probably not likely to be that much progress as As James has said the the EU would dictate the type of exit anyway But what I would say is given the fact that Theresa May has had to Allow both Remainers and Brexiteers into her new cabinet reshuffle I have a feeling that you'll get to hear an awful lot more in the coming weeks and months about the Norway option Which is going into the European economic area Which basically means that you leave the EU you still remain members of the single market. There are still some You can still implement some restrictions on the freedom of movement. It's very very limited But you're not a member of the customs union and I think Given that given the fact that Theresa May has a has a much weaker hand That ultimately is probably going to be a fallback position that we could well see Discussed more and more over the course of the next few weeks. No matter how unpalatable It might be to the more extreme Brexiteers expect to hear an awful lot more about EA and the European free trade area in the coming days and weeks if only to Get the UK out of a cliff edge Brexite now in the context of What we've got coming up tomorrow We've got the latest inflation data CPI and RPI and I'm not expecting to see too much of a change in the overall inflation numbers Over the course of the next few days and weeks if we look at the markets calendar for this week We can see tomorrow that year-on-year CPI is expected to come in at 2.7% So there's no real change there PPI is Probably going to soften a little bit and I think a large part of that will be down to the declines that we've seen in Commodity prices over the course of the past few days and weeks oil prices still remain fairly weak So that's likely to take the pressure off input costs as well as taking pressure off consumers Every week every day every day spending habits in terms of refilling filling the car up and what have you Certainly there does appear to be some evidence that input prices are slowing down That's likely to feed into slightly weaker inflation over the course of the next few months. We've seen that play out in Some of the weaker inflation data that we've seen coming out of the EU and of the US in recent week and and China as well at the end of last week when we saw China PPI prices come in a little bit cheap a little bit weaker as well. We've seen iron ore prices decline We've seen nickel prices decline. We've seen copper prices remain fairly weak as well over the course of the past few weeks as well so Looking at retail prices and CPI They're likely to I think they're likely to have topped out in the short to medium term Which then brings us on later into the week to the latest Unemployment data, which is likely to remain fairly weak at four point fairly fairly fairly on the low side around about four point six percent Looking at average earnings 2.4 With bonuses 2% excluding bonuses so still remaining below the headline inflation rate Moving on then keep going We can we can we can actually if If we can go and edit that and basically take out all the countries that we don't want to look at I'm keeping UK in there. We'll have you say you can basically tailor your market calendar to The regions that you want to have or pay particular attention to then then we then we move on to Retail sales on Thursday and obviously the Bank of England rate meeting as well retail sales are likely to probably Probably be a little bit weaker For May we saw a very decent rebound in April 2.3 and Easter bounce I'm an Easter bunny bounce. I call that Probably going to see a little bit of a slowdown in May In the lead up to the general election. That's not probably going to be too much of a surprise We've seen business optimism crash over the weekend Not surprising really because there was an awful lot of concern that the Prime Minister May not survive over the weekend and we had calls from Jeremy Corbyn to allow The Labour Party to have a go at trying to form some form of minority government even though they don't have the numbers I think as time goes by and The Conservative government shows that it's able to at least get on with the business of running the country Or be it on a fairly unstable basis. We should see some of that business Pesimism turn into a little bit more optimism but overall I find it very difficult to articulate a scenario whereby the pound is going to bounce with any degree of Strength over the course of the next few weeks This is probably better. This is probably borne out I think a lot better by this this chart here what I didn't want to see This is something that I alluded to last week was a break below this one 27 and a half level We've seen that we've seen it break below the 50-day moving average We've seen it break below 127 and a half and unless we get back above this one 127 60 area here and this series of lows through here Then the dynamic has changed with respect to buying sterling on dips Yes, we are still above the 100 day and 200 day moving average, but for me This was not what I wanted to see I did not want to see a break below 127 50 or the series of lows through here. We've now seen that if I change that to a four-hour chart That gives us a better idea of where we are with respect to our bullish sterling scenario and our bullish sterling scenario is in significant danger now and the only way I would reverse my view on Sell sterling on rallies from here is if we get back above This one 27 80 area here. So any short squeeze Needs to stay below 127 80 To really I think cast into doubt a rebound back to 129 This low here this low here and these peaks here are now the new barrier to further sterling gains in the short to medium term I can draw that through there. So 127 75 127 80 Sell rallies into that area there with a stop loss back above 128 20 30 For a move back to this level here around about 125 90 126 I think that is where the momentum trade really lies over the course of the next few trading sessions on On the basis of the the price dynamics that we've seen over the course of the past few days Also, you're a sterling slightly different here. We're going to see a little bit of what I would call We already talked about it euro euro strength sterling weakness looking a little bit flaky below 88 60 Slightly counterintuitive, but you can only trade the price action. That's essentially what I'm trading here. I think euro dollar Still remains while we're below 113 one of those trades that is very much Sell into euro strength because it's going to take an awful lot I think to really push us through 113. I think on the balance of probabilities We are looking this does look a little bit like a topping pattern on the price charts here We do have a little bit of a trend line coming in through This for our chart here And that would dictate where we go to next but ultimately we're in a little bit of a range yet So I would certainly look on the basis of the price action To sell in to any rallies up to around about one twelve fifty one twelve sixty for a move back towards this trend line around about one eleven fifty one eleven sixty and then look for a break back down towards 111 10 but euro dollar at the moment is about as exciting as watching paint dry The it's it's it's a bit of a range trade at the moment and it's likely to continue to be so Dolly n is still very much a sell Sell dollars buy in But again, it's a little bit of a range trade in the same way that euro dollar is It's probably look to sell into round one eleven sixty And buy dips towards one oh nine twenty and one oh eight I'll just get rid of this trend line here We can see the Ichimoku cloud is probably giving us a decent area of opportunity to sell into But on the basis of what we're seeing here at the moment It's very much It's very very very much a short-term downtrend here on for our chart Decent support around one oh nine twenty and 108 But overall, I'm certainly looking to sell into This one eleven sixty area one eleven for a move back to these lows around about one oh eight on on Dolly n Now today we've seen a little bit of equity market weakness and a large part of it has been down to a little bit of a sell-off in tech stocks Now a lot large part of the rally that we've seen thus far this year is in the S&P 500 has largely been driven by tech One thing that I have found that's quite interesting is This particular chart that we saw in NASDAQ We look at the NASDAQ and the way it's performed over the course of the past few weeks It's been absolutely parabolic The rally that we've seen but looking at this particular move here We've seen a key that a key a key day reversal a key reversal on the weekly chart on the NASDAQ Which would appear to suggest that we could have seen a potential top form of 5900 now That's all well and good, but we've seen plenty of them in the past. We saw one here on the daily and Then we bounced off the 50-day moving average. So rather than calling a top quite yet I'm going to be looking to see how we react around the 50-day moving average because the 50-day moving average is pretty much dictated the entire up move From the breakout that we saw in December, but certainly on the basis of this weekly chart We have seen a very nice weekly reversal on The weekly charts and ultimately what I would be looking for looking to see here is a nice little breakout of the 5600 level and Break of the 50-day moving average to potentially confirm a sell-off on the back of that Goldman note that we saw on Friday night where they wore where they what where they warned that valuations were looking a little bit Juicy and that's what's prompted the sell-off in the tech sector over the course of the past 12 to 24 hours So keeping I'm going I'm going to be keeping a close eye on the 50-day moving average And this 5600 area through here But certainly if you look at the divergence that we've been seeing on the oscillators Well, what I would do a little bit of a sell-off the key question is how do how do we time it and? As with anything in technical analysis is all about the timing but certainly This weekly reversal on the nest act does appear to suggest that we could be In line for a little bit of a sell-off because that's one thing that we didn't see When we had the reversal on the daily chart in May We didn't see a weekly reversal Confirm the daily reversal what we've seen on the weekly chart does appear to confirm the daily chart So I'm slightly more confident that we're probably going to see a little bit of a correction on the nest act now Then what we saw when we saw a correction on the daily chart in May So I'm going to keep going to be keeping a close eye on that also going to be keeping a close to that close eye on the S&P 500 Because I think if you do see a significant sell-off in the nest act we could see a retest We could see a retest of the 2400 level on the nest act and I think that's a very key level of support on The weekly chart on the nest act if we get a retest of that particular level Then and a break below that then things could get very interesting indeed Looking at the footsie 100 Footsie 100 is looking fairly well supported. That's not really surprising on the back of a week of pound again How that how we react around 7400 we've got very decent area of support Through there and we saw a very nice rebound on Friday in the wake of the big sell-off that we saw in Sterling I call that the seesaw trade weak sterling strong footsie strong footsie Weakest three week weaker sterling strong footsie weak footsie strong sterling I'll get my words out in a minute. In fact, I might take a little So overall we're also seeing a little bit of a rebound In Brent crude prices, which is also I think helping the basic resource sector and the oil and gas sector in particular If you have any questions on Anything so far, please feel free to shove them in my direction One thing that I have found a little bit perplexing despite the fact that we've hit record highs recently in recent weeks on the S&P 500 and the footsie 100 and the footsie 250 It's the fact that we haven't been able to do it on European markets in fact We are still looking To be a little bit neutral on that but what does appear to be a Little bit encouraging is that even though we haven't been able to Retest the highs or make new highs on the German DAX The dips do appear to be starting to get a little bit shallower So looking at the trend line support on the DAX at the moment if we look at a daily chart or a four-hour chart and The dips do appear to be getting shallower on every single pullback So if we do get a dip back to around about 12,600 on the DAX There is a decent area of support between five and six hundred Which are likely to contain any dips and potentially look for a retest back to 12,900 Which we saw at the end of May the beginning of June So keeping an eye on those particular support levels on the DAX or a retest of the highs there Similar sort of story on the Euro stocks 50 We can see that there Pretty uninteresting But what we can see on the Euro stocks 50 is a decent area of support Around about 3,500 So Do we will you know will will we find support in this gap through the April highs And the lows that we saw throughout May? I think that's likely to act as a decent area of support Fill the gap in and look for a little bit of a rebound going forward Looking at gold It's always a nice little trade there decent area of resistance around about 1,300 dollars an ounce Could well see a little bit of a Pullback on gold prices, but I don't see gold falling off a cliff. I still think gold is buy on dips Finding a little bit of support at the moment around about the 50 day moving average But even if we drop through the 50 day moving average, we've still got this very nice trend line Coming in Through the lows from May as well as the 200 day moving average as well So we're getting a little bit of a sell-off in gold prices But overall I think it's likely to be fairly limited towards Around about the 1240 area in the longer term And the 1260 area In the shorter median term And we have seen three successive days of declines ahead of this week's fed meeting Which is due seven o'clock on Wednesday So As I say expect expect a expect a rate rise And then really it's about the language Now with respect to the pound and the bank of England and we're going to return to that now because We've got The meeting on Thursday at midday And at the last meeting there was some chatter That michael saunders might look at Moderating his stance on being particularly dovish About the uk economy But events of the last few days have probably changed the narrative with respect to A hawkish bias for the bank of England Kristen Forbes is termed as an external mpc member expires at the end of this month And she has been a dissenter She has voted to raise rates For the last two meetings Now There I think there is an outside chance given recent events that she's going to find it much harder To argue for a rise in interest rates Given the prevailing political uncertainty that we that we have right now So I think there is an outside chance That Kristen forms could reverse Her call for a rise in interest rates Given the uncertain political backdrop On to in terms of the data front as well and the uncertainty created by the general election I think there is an argument to suggest That we could actually have a slightly more dovish outcome On thursday's meeting and actually we could get broad agreement to keep rates unchanged 800 On the basis of the events of the last few weeks Because I see no reason whatsoever now to argue for a rise in interest rates Given the fact that the government is now weaker than it was a month ago And the prevailing political picture despite the fact that unemployment still remains very low The prevailing political picture is an economic picture is probably likely to remain a little bit weaker given the prevailing political uncertainty at the moment So I think that's another reason to be cautious about being overly bullish sterling The fact the bank of england might be probably a little bit more dovish than it would have been if say for example the Government had got a stonking great big majority, which it does not have Um, so I think that's something that we do need to bear in mind when we look at the bank of england rate meeting On thursday the narrative has changed the political backdrop has changed and as such I think it's much harder to argue for a rate rise now Than it would have been if the outcome on thursday and friday had been different Got the bank of japan also later this week. I think it's unlikely the bank of japan is going to change its outlook for The japanese economy The inflation outlook does appear to be moderating And as such, I don't think we're going to get any surprise um with respect to Japanese monetary policy I think it's likely to remain pretty much unchanged and as such I think that dolly n is likely to remain pretty much in the range that it's been over the course of the past Few weeks Now i'm being asked about italian indices No one's talking about them Simply because I think while we've seen a little bit of a bid go on italian bond markets The prevailing narrative around italian indices hasn't really changed that much and the reason for that Is because even though The prospect of an election this year has moderated somewhat And yes five star did suffer a little bit of a setback in the polls in regional elections of the weekend We still got the small matter of an election in 2018 so while there is While there's still uncertainty about the italian banking sector Ultimately the long-term picture for italy hasn't changed that much We've seen a slight improvement in the macroeconomic picture for the italian economy But until such times as there is some form of clarity as to how the banking sector In italy gets resolved in terms of the non-performing loans then ultimately the italian Stock market is is going to be fairly high risk What I would say is at the moment we still remain in a very decent uptrend for italian indices And until such times as we break through this series of lows that we saw earlier this month That uptrend remains intact if you strip out all the political noise For italian indices they've been in an uptrend Since november december and until such times as that uptrend gets broken You have to you have to try and park the political noise surrounding it and buy the dips so Look at looking at the italian market at the moment It's very much by dip mentality But you also have to be aware of the political risk going forward So on the on the MIB look to buy dips to around about 20,500 But if it if it goes below that then you've got a potential reversal head and shoulders top And we could see a little bit of a move back down to around about the 19,000 level But at the moment it's very much a buy the dips mentality for italian indices And sell a break of 20,500 for a move lower So hopefully that helps But at the moment you're getting a little bit of a short-term bid on italian debt On the basis of the setback that five star had in the polls at the weekend And the fact that italian and italian election this year has become that much less likely so Sorry, I'll just Answer that question for you 22,000 could be easily possible if we get through the level above approximately 21,200 Yeah, possibly. I mean, but that really depends on whether or not you think this 21,200 level is a right Is a right shoulder I'm not convinced about it could be a right shoulder. It could be a slightly Irregular head and shoulders reversal um Yeah, I mean you could make a case for that most definitely if you break through 21,200 You could have a series of stops through there And we could go we could go back and retest the highs and potentially argue for a little bit of a double top Around about 21,800 21,900. Absolutely. That's certainly a reasonable scenario But you'd really have to really push significantly through that 21,200 level to argue for that But it's it's certainly a realistic scenario On that basis because then you could argue that it's a potential For the formation of a little bit of a double top on the on the italian index. Definitely And I'm looking at Brent crude seen a little bit of a rebound the market's starting to get a little bit long At the moment getting a little bit long on the basis that we're pretty much at the bottom end of the recent range These are the main lows here So getting a little bit of long positions building up But one thing I would say About the oil market is that rig counts now in the u.s. Out of the other the highest levels since the 24th of april 2015 Um, so the market is still very much saturated in terms of inventory For crude oil. Yes. The oscillator is starting to turn upwards a little bit So what I would say with respect to Brent crude is Let's look for a breakout level and I would suggest looking at this chart here is We need to get through 49 dollars this area through here So if we can if we can push back above this moving average here on the four hour chart Which is around about 49 dollars a barrel. I think we can go for a little bit of a run towards 50 So this is the area. I'm looking at around about 49 dollars on this continuation chart here And that could take us up to around about 50 dollars a barrel on the continuation contract on Brent looking at wti So a quick look at that Getting a little bit of a nice turn around there And I would argue it's a similar sort of story on wti Let's draw a little horizontal line in through here And this is around about 47 dollars a barrel So 47 dollars a break through 47 dollars a barrel on wti Could see us go for a little run towards 48 dollars a barrel on the top side there But the market does appear to be looking The market does it look as if it's starting to get long of crude at these levels simply because There's a perception that we're at the bottom end of the range And as such I think we could potentially get a little bit of a short squeeze Let's look at what client sentiment is telling us about crude And it does appear to be that positions Are starting to get a little bit long 62 cash long positions Starting to starting to get squeezed a little bit as we go higher on the client sentiment on wti on the Brent contract Okay, so what else have we got this week? China data we've got Chinese industrial production and retail sales data for May We did see a little bit of an improvement last week in the trade picture for imports and exports So on that basis you would expect to see the industrial production data Also improve and suggest that there's going to be a little bit of an improvement in the data that we've seen in industrial production and retail sales and here we have it here 6.5 percent that we saw in April Projecting that 6.3 so a little bit of a decline So on the basis of the trade numbers that's disappointing because we saw An improvement in the import picture and we saw an improvement in the domestic consumption picture as well. So I would expect not a slowdown in these numbers. I would expect to see a pickup. So The retail sales and the industrial output figures are slightly counterintuitive to what we were seeing with respect to the trade numbers So I'll be interested to see whether or not these retail sales numbers here actually confirm the trade picture and improve Or whether or not economists are right and actually we have seen a slowdown in in the Chinese economy and certainly The decline in factory input prices would appear to suggest That there is a bit of a slowdown In the industrial production. Certainly if we look at iron ore prices, they are still looking very very weak and Nickel prices and commodity prices are showing the same thing So there is there is one other thing that I would urge you pay particular attention to aside from The uk data and this is it's this chart here This is the this is the core inflation data for us inflation And while we expect to see a fed rate rise in june This chart here will be particularly important in the context of The guidance For the us federal reserve at the moment. There is one dissenter On the fomc and that's neil kashkari of the maniacalist fed I think there's a decent chance that we may get More than one dissent on For a june rate for a june rate rise And even if we don't I think we could get a very dovish height On the basis of this chart here. This is the core pce and this is the This is the this is the chart the fed looks at for its inflation outlook So it'll be very interesting to see what the fed does with its inflation Outlook does it guide it down because this is a very very steep drop And the fed's target is two percent and the trend here Is very much for Lower inflation we've seen it move higher over the course of the last two years But it does appear to be dropping quite sharply while I don't expect this to derail a june hike It could suggest That they're unlikely to hike in september particularly when donald trump president trump has said he wants to shut the government down in september And while they'll keep the option open I think it's unlikely they will get a hike in september Which means that we could only get one more hike after this one And that's probably going to come in december if it comes at all So that's going to be a particular Area that i'm going to keep an eye out for on Wednesday I've run over a bit today 12 56. It was only supposed to be half an hour. So unless there's any other questions Um, I'd like to all I'd like to wish you all a very good trading week And I'll post this on youtube later this afternoon. If there's anything you want to listen back to otherwise Thanks very much for all turning up today, and I'll speak to you same time same place next monday