 Good morning. Welcome to CMC markets on Friday the 24th of June and this quick look at the week ahead beginning the 27th of June With me Michael Euston Before I do that just go through a couple of risk warnings And I think it's also important to mention that I will be out of the office away from my desk For the next couple of weeks. So not only will I be previewing the week ahead But I'll also be having a quick look of the week ahead beginning the 4th of July as well where we have couple of Very important data items, which will probably be worth having a quick glance over over the course of The next 20 to 30 minutes namely non-farm payrolls The RBA rate meeting and obviously the latest Fed minutes We'll also be heading into July and we'll be getting the beginning of US earning season and that traditionally kicks off with US bank earnings, but I'll hopefully preview them in a couple of weeks time, but More broadly, I think it's important to get a quick look at The events that are coming up next week but more importantly, I think in terms of What's been happening over the course of the past few days where we've seen further weakness in US equity markets and that Sorry in in European markets rather Not so much US equity markets, but we've certainly seen More weakness in European markets, which looks set to close lower for the third week in a row and I think that's I think there's no better illustrated In the context of the the DAX where we've seen three successive weeks of declines also seen three successive weeks of declines in the FTSE 100 as well and a large part of the reason for the declines that we've been seeing in equity markets more broadly as I think we've been seeing Increasing concerns that particularly in France and Germany their economies could well be sliding into recession After the recent June flash PMI slowed more than expected Well, we're also seeing I think and this is probably more important in the wider scheme of things is We've been seeing significant weakness in commodity prices and that is upending the bond markets it's upending the bond markets in terms of Raid expectations because I think if we look at the way bond markets have behaved over the course of the past Few days. We've seen a big decline in bond yields, particularly if you look at say for example German 10 year This is the weekly chart We've seen potentially bearish in gulfing week and that I think is really begging the question Have we seen the top? When it comes to bond prices bond yields more broadly because I think if we look at the jet the US 10 year We've seen a similar Narrative play out and I think this this I think this this feeds into a Couple of things obviously rate hike expectations The US CPI number from a couple of weeks ago, which came in at 8.6 percent The narrative that followed from that that we were going to see a much more aggressive federal reserve When it comes to hiking interest rates 75 basis points, which we've already seen another 75 basis point rate hike Pricing in in July a 50 basis point rate hike in September The fact that we've got some very important inflation data coming out over the course of the next couple of weeks Namely US core PCI. I think it was very interesting that the Fed aggressively pivoted During the blackout period from a 50 basis point rate hike in June to actually hiking by 75 basis points obviously the We will obviously seen a big decline in consumer confidence Michigan consumer confidence the increase in inflation expectations there the fact that Other inflation measures in the US economy are starting to show evidence of a little bit of a slowdown and has actually the Fed overreacted to one rogue CPI print In June if we look at the core PCI numbers that are due out in the coming week Could we see a further softening? In the numbers for May that we've seen Since the February peak of five point three in February we fell to four point nine percent in April It's been a similar story in core PCI, which is lit back to six point three percent in April from six point six in March We're expecting to see a decline in May to four point eight in the deflator Could we see a further decline away from six point three in April to maybe a number closer to six percent? You know, what is this shift? That we've been seeing in commodity prices tell us About the rate outlook going forward bond markets are pricing in the fact that we potentially peaked in the US 10 year at three and a half percent We've come off quite aggressively in the past few days to three percent So is the inflation narrative? The market's been pricing in starting to shift Towards the recession narrative and our bond markets starting to price that You know, and I think that's I think one I think that's one of the big I think that's one of the big moves that we've seen over the past few days is market sentiment shifting towards less of fear of overly aggressive rate hikes to Our markets now starting the price an economic slowdown because if whether you look at the US 10 year Whether you look at the German 10 year or whether you look at the UK guilt yield They're all telling me the same thing that potentially yields a peak. So what does that mean for equity markets more broadly? Well, I think that is the big question and if we look at the DAX here, yeah We've broken the downtrend line But what's important to note is that we actually haven't taken out the lows that we saw back in March So could we be starting to build a little bit of a base? Perhaps for a rebound or perhaps just a continuation of the range trading that we've been in over the course of the past few months my immediate reaction is perhaps the As long as we hold above the lows of The last few months then we're likely to continue to see a continuation of the range trading now obviously The elephant in the room is obviously the impact of energy prices going forward when it comes to European economy because certainly I think in terms of their exposure to Russian gas if Putin decides to cut off the gas to Europe and particularly and particularly Germany and any spillover effects from that Then all bets are off when it comes to say for example European equity markets If we look at a footsie 100 again, we've seen a significant decline over the course of the past few weeks But despite the decline in oil prices, we actually haven't taken out the lows of earlier This year again, we've been trading very much in an overall range Or be it towards the downside over the course of the past three weeks So the story is fairly similar I think in terms of the way equity markets in Europe have been trading been trading within an overall range since March May March March May whatever top and around 14,800 bottom in and around these sorts of areas here Has the narrative really shifted when it comes to the s&p 500 well I think certainly if we look at the daily chart Yeah, we've broken Below the previous lows. We've made a marginal new 15 month low We're now currently trading back above 3800 the bigger question for me I think is whether or not we are able to make those gains stick the gains that we've seen this week I think that's the bigger question I think what we're seeing at the moment There's a little bit of a bid coming back into US markets on the back of the softening in US Treasury yields if that continues then I think it's likely that we could see further gains the big I think the big level on the US 10 year is 3% if we drop below 3% You could see further gains in US equity markets. Are we the are we there yet? It's hard to say because I think While you can create a narrative for weaker commodity prices and particularly copper prices And we've seen that this week. Can you really can you really define a narrative? For weaker oil prices, and I'm not sure you can Simply because of the fact that demand is likely to remain fairly strong But if you look at copper, there's been a definitive breakout here And I think there's a potential for further losses towards $3 and this level here Why because we've broken out of this sideways trading range We've broken out of it quite nicely this trend line here And I think as long as we stay below 400 or $4 Then we could well see further losses back to 350 initially, which is these series of lows through here I think this is largely because of concerns about China's economy over the course of the next two to three quarters q2 I think is going to be a disaster When it comes to Chinese second-quarter GDP those numbers will be coming through in July in the week beginning the 11th of July I'll cover them in a subsequent video But ultimately I think what we're seeing here is a little bit of softness in commodity prices and more broadly I think the biggest the bigger test will be whether or not Brent prices are able to head back towards a hundred dollars barrel I'm not overly convinced about that and I think that more than anything is likely to define the of inflation narrative when it comes to persistence over Transitive and I think that's I think I think that's going to be the key test going forward how persistent will The Slowdown inflation be when it comes to energy prices, and I'm not convinced that there will be the significant level of slowdown that we'd like to see That would prompt further declines in bond yields, but having said that certainly in terms of the charting The the bearish weekly reversals that we've seen in the German 10 year It does suggest that we may have peaked when it comes to German 10 year yields And certainly the ECB while it's likely to hike by 25 basis points in July The bigger question will be whether or not can it can do any more than that Over the course of the next few months particularly as winter approaches and obviously gas supply Will be a much more hot-button issue when it comes to the German economy So in terms of looking for the week ahead We've got EU CPI Which is due out on the 1st of July and that's likely to See a move up from a record high of 8.1 percent to 8.3 percent So that will certainly keep the narrative for a much more aggressive ECB at the July meeting. We're already seeing a number of policymakers talking about a 25 basis point rate hike in July, but it's 50 basis point rate hike in September We'll also get details of a new policy tool Which will deal with fragmentation risks spread differentials at the July meeting again I will cover that That's a later point in time And obviously we will also be seeing final first quarter GDP numbers on the 29th of June But again, they're not going to tell us anything. We don't already know the first quarter contraction for the US economy I think the bigger question for the US economy is whether or not Q2 sees any sort of Growth at all and the and the bigger question is the US economy already in a technical Recession because while we know that the first quarter numbers Were actually skewed by the fact that we saw a big negative trade component Will Q2 signal stagnation or Will the US economy just avoid a technical recession when it comes to publish its Q2 numbers Towards the end of July What does that mean for euro dollar? Well, certainly the chart here speaks for itself 106 continues to cap has capped for the past few days 50 day moving average. We've got this trend line from the highs this year So I think any move above 106 30 is likely to trigger a potential short covering move to 108 But looking at the key level, it still remains 103 40 on the downside That's the barrier to a move towards parity Whereas a move above 106 could well trigger a few few stop-loss buys up towards 108 And obviously the previous peaks that we saw back at the end of May beginning of June in terms of Cable cables looking like a little bit of a disaster at the moment But one thing that I am drawing comfort from is these long shadows on the daily candles We still got really solid support at around about 119 80 And that's going to be a key level Over the course of the next few days if we can hold above that then we could we'll see a move back towards 124 and then 124 50, but I think the key level for me is going to be the 50 day moving average at the moment We're trading sideways. It's very uncertain in terms of the overall wider scheme of things where cable goes to next Big resistance around about 123 20 123 30 So keep keep an eye on that for a move back towards 124 and a half if we fall below 119 80 then all bets are off. We're looking at a move towards 115 Dolly end does appear to be showing Some signs of potentially topping out seen a little bit of a reversal over the course of the past few days That's largely as a result of the decline in US yields if the decline in US yields continues Then we could we'll see further declines in Dolly end But that's very much. I think I play on the yield differentials between US yields and Japanese yields 132 I think is a big support area there 131 80 132 50 But if we look at the weekly chart on Dolly end, it's not particularly Conclusive when it comes to a potential top But certainly I think momentum does appear to be starting to fade away And how we react on any pullback towards 136 I think will be key in terms of all in terms of the overall wider direction when it comes to Dolly end in terms of What I'm looking at over the course of the next few days in terms of earnings. We've got Nike Q4 numbers They're really the only only numbers of note out of the US ahead of the the 4th of July holiday in terms of Data in the week beginning the 4th of July we got non-farm payrolls for June They're probably going to be less of a concern unless we start to see a significant slowdown in employment trends certainly if we look at the ADP number for May that did slow to 128,000 and that was the weakest number since December 2020 So even though the non-farm the equivalent non-farm payrolls numbers for May came in at around about 390,000 If we see a significant slowdown from that to anything below 300,000 to around 100,000 you're going to get questions asked about how long before we start to see a negative print Certainly don't think we're there yet not with vacancy rates still in excess of 11 million 11 million But certainly the unemployment rate is at 3.6 percent Wages data still continues to remain fairly subdued around about 5.1 so again there keep an eye out for that when it comes to non-farm payrolls on the 8th of July We've also got the RBA Rate hike expectations there are going to be particularly interesting Given the fact the RBNZ is very much on a tightening cycle And perhaps if we look at Aussie dollar in the confines of this particular chart here Then perhaps we could well be near a short-term base on that If we draw a little bit of a horizontal line through there Through this this low here. We've got 6840 so 68 cents on the downside on the Aussie dollar Could we see a hawkish a much more hawkish than expected RBA as we look ahead for the 5th of July? The RBA caught few people on the hot with their 50 basis point rate hike in June. I Was actually thinking that they would go by 50 basis points in June I think it's nailed on they'll do another 50 basis points at least That they're July meeting Certainly, I think if they're looking to play catch up With the RBNZ they could go even harder than that and could actually go to perhaps 65 basis points to push the headline rate up from 0.85 which is that which it is at the moment to 1.5 percent a nice round number because 50 basis points will only take you to 1.35 percent So given the increased hawkishness of various central banks If you're going to tighten hard and tighten early Then you might necessarily go by not You won't necessarily go by 50 basis points You could actually go by more than that. So I wouldn't rule out the RBA going by 65 in July To 1.5 percent Rather than the 50 basis points that markets are starting to price in we've also got fed minutes the week beginning The fourth of july on the 6th of july and I think The sudden shift in the federal reserve's thinking in the wake of the may cpi number It's likely to be revealed in terms of the overall discussions as why they decided to do that I mean, we pretty much know why they decided to do that They were spooked by the big jump in the michigan consumer confidence inflation expectations numbers Because it certainly wasn't down to just one cpi print of 8.6 percent The decision to hike rates was unanimous almost unanimous. There was one exception So it'll be interesting to understand the dynamics behind that And shift the guidance to a much more aggressive stance Personally, I think the Fed was slightly premature in shifting They could have easily gone by 50 In june and said they were going to go by 75 in july and 75 in september That would have shifted the guidance expectations In pretty much the same way. They didn't do that. They threw their guidance playbook out the window So it'll be interesting to see what the tradeoffs of there were there with respect to that In terms of the overall earnings picture for that week There's not really that much in substantive in the context Of us earnings, but we do have first quarter earnings numbers from sainsbury's And they'll be interesting in the context of the numbers that we saw from test goes Which saw a significant decline in the first quarter of one and a half percent like for like sales Will we see a similar decline in sainsbury's first quarter numbers and obviously house builders? We've got person and second quarter numbers. We've got curries full year numbers on what have you for that particular quarter so I think that's pretty much it for This particular week ladies and gentlemen, as I say, I've tried to cram in as much as possible For the week the full week that i'm away But also for the upcoming week. It's certainly going to be a disappointing quarter For equity markets q2. I had a really fairly decent q1 We've had a disappointing q2 as this will be my last video for June and also the wider quarter. So as we look ahead to q3 Let's hope for better fortunes in q3. Certainly. I think to summarize We've seen a big decline in yields over the course of the past few days Is that A canary in the coal mine for further declines in yields in q3 and potentially a much more resilient outlook for equity markets more broadly I'll leave that with you and wish you all a nice weekend and speak to you all in a couple of weeks time