 Good morning and welcome to CMC Markets on Thursday the 1st of April and this quick look at the week ahead beginning the 5th of April with me, Michael Huston. Before we get on to that, just get a few small matters of risk warnings and disclaimers out of the way before we look back on the price action of not only the last few days, but also reflect, I think, on what's been a fairly decent quarter and a decent month for equity markets in general, not only European equity markets, but also US equity markets which have continued to remain extremely resilient in the face of rising bond yields. So I think when we look back on the last three months and we look at the economic backdrop, we've got a very much divergent picture starting to form. You've got the likes of the US and the UK continuing to forge ahead with their reopening processes and their vaccination programs on the one hand and it's notable that despite all of the optimism around the UK, the FTSE 100 continues frustratingly, I think for me because I've been fairly bullish on the FTSE 100 pretty much since the fourth quarter of last year, the last quarter of last year. FTSE 100 continues to lag behind, which I find bizarre in the extreme, but nonetheless, it doesn't shake my belief that we will eventually see a move towards the 7,000 level, simply on the basis of the fact that most of the dips that we're seeing in equity markets in general generally tend to be well sought after. The same sort of applies as well to US markets as well with the S&P 500 within touching distance of 4,000. I mean who would have predicted that at the beginning of the year and even though we've seen some very sharp reactions towards the downside, it's notable that when you draw this green line here, every dip that we've seen this quarter has been higher than the previous dip. So that is indicative very much of a very positive trend, despite the narrative around the negative headlines. Obviously, the main story of this week has been the RKGOS or RTAGOS capital story, which prompted some big declines in the likes of Viacom's CBS shares and Discovery and obviously also concerns about investment bank exposure to that leverage trade. But nonetheless, I think at the moment, all the time being, the predominant narrative remains very much by the dip. However, the news flow when it comes to say, for example, European shares is not getting better. It's getting worse. And I think that for me, I think remains a really key risk factor as we look ahead to Q2. You know, we talk about risk factors and we talk about the prospect of economic re-openings. And yeah, that's a very positive story when you look at the UK, for example. And the US, unfortunately, events in Europe are likely to have an effect on the economic narrative going forward. Now, crude oil prices are reflective of that because we have seen concerns about a demand slowdown over the course of the past few days and weeks on the basis of a much slower than expected reopening in Europe. The Suez Canal has now finally been unblocked, which now really, I think, shifts the narrative back to demand. And OPEC is likely, I think highly likely, to try and keep those production caps in place, not only into May, but also into June. But nonetheless, I still think that even though crude oil prices are in an uptrend, the big, big barrier for further gains remains that $72 area that I have highlighted in previous videos. And goes back to this particular peak all the way back in 2020. So the 2020 highs, that's likely to be a very key barrier resistance on any move higher in terms of Brent crude. Got solid support around about 60 bucks. I think OPEC will be very, very happy if they keep crude oil in a corridor between $55 a barrel and $65, $70 a barrel. I think that is eminently manageable for the global economy and the challenges facing it. So what does this mean for European equities? Well, the DAX has moved above 15,000 and looks quite likely to continue to move higher. I think that's the stronger DAX has obviously helped being helped, I think to a certain extent. by a weaker euro. When you look at the PMIs that are coming out of Europe, particularly in manufacturing, the process is there, the economic recovery story there still looks a very, very positive one as a manufacturing sector has adapted fairly well to the prospect of extended restrictions. France has just announced another four week lockdown for the whole of April. In the face of surging infection rates and hospitalizations and rising death rates and a vaccine program that really I think is almost multi-Python-esque in its shambolic-ness. I think when you undermine the efficacy of a vaccine in the way that Emmanuel Macron, French President Emmanuel Macron has done with respect to the AstraZeneca vaccine, don't be surprised that people are a little bit reluctant to take it and then wonder why Covid infection rates start to surge through the roof. I think the only thing in Europe's favor at the moment in the face of these rising infection rates is the fact that weather is probably going to start getting warmer as we head into summer and that hopefully should act as a cap on any significant further surges in the infection rate there. But nonetheless, Europe is facing severe problems and for Spain and Italy and Greece in particular, that's going to be a real concern if they're not able to get some semblance of a summer season. I think two lost summers is going to make things very, very difficult for the services sector in those particular countries. And that's one area that I will be paying particularly close attention to in the coming few days. Services PMI is China, the US and surprisingly, the UK aside where we saw a big jump in the flash PMI numbers out of the UK economy as businesses get ready, build up inventory ready for an economic reopening on the 12th of April. We saw a big, big jump in services PMI, the flash services PMI for March. From a low of 39.5 at the beginning of the year, we're now back at around about 56.857 in the flash number for March, which should be confirmed in the final numbers on the 7th of April. Going back to services within France, Germany, Italy and Spain, these still remain very much below the 50 level. And that is a real worry given the fact that all of these indicators have been sub 50 for the past five or six months. And a likely to remain so. You know, that's the biggest concern, likely to remain so for the next four to five weeks at least, while tighter restrictions continue to be implemented. And that is a real, real worry, I think, for. I'm not only politicians within Europe, but also in the EU as a whole. So, and it's going to be a problem for the European Central Bank as well, because the pandemic recovery fund is now facing a challenge in the German constitutional court, which means that any disbursements to the likes of Spain, Italy and Greece are likely to be held up further. So real problems being faced by Europe. The ECB can do only do so much. And while individual governments can roll out emergency fiscal measures, you know, without significant fiscal reform, it's going to be a very, very challenging next few months for Europe in general, particularly with services continuing to be shut down. So looking at the, looking at the DAX, still looking fairly positive. And hopefully that will continue to remain the case, despite a slightly bleaker economic outlook for Europe in general. Similar sort of thing for the FTSE 100. I'm still looking for a break of 6,800. That red line across the top there, that for me a 6810, 6820, there or thereabouts. Think if we can get back through there, then target for 7,000 previous peaks that we saw in January 6,950, still, still maintain given the direction of travel here, the dips are still being well, well bought into. We hopefully will see this back at 6,900 by the end of, by the end of April. And April generally tends to be a fairly positive month for equity markets. So hopefully that will continue to be the case. NASDAQ 100, still struggling in and around the 50 day moving average. The Biden infrastructure plan has given US equity markets yet another shot in the arm, though I think the prospect of tax rises could act as a little bit of a break, I think. But at the moment, while the Biden administration is mulling another two trillion dollars of infrastructure stimulus, while it's important in terms of the headline number, whether or not I'd be able to actually get any of that through Congress is another matter entirely, because the polarization is very much along party lines with respect to this new infrastructure program. So while $900 billion in January, $1.9 trillion of stimulus in March, followed by another $2 trillion of infrastructure stimulus are all big numbers, whether or not he'll be able to deliver the last part in the way that he hopes is another matter entirely. And I think while it's, you know, I think while the focus is very much on the headline numbers, if you focus on the practicalities of it, how much of that $2 trillion will he actually be able to sign off on? He could sign a couple of executive orders and push it through that way in the way that President Trump did. And I think if he finds Congress particularly obstructive, then he could well go down that route. But ultimately, he's not going to be able to get it all through. So important to bear that in mind. Nonetheless, we've got significant resistance in the NASDAQ all the way through $13,300. So we really need to get through that to retest the peaks that we saw in February. Looking at moving on rather, moving on to currencies, we've also got the latest Fed minutes. Now, while the first quarter was very good for equity markets, it's pretty dire for bomb markets. And I think what's all the more surprising I think about the resilience that we've seen in equity markets has come in spite of a big, big surge in borrowing costs or long-term bond yields. If we look at, say, for example, the U.S., the beginning of Q1, U.S. 10-year yields were at 0.913 percent. They're now at 1.7 percent. So there's an 80 basis point increase in the past three months. Equity markets for the moment don't appear to bothered by that because the argument is, and the Fed's been making it, and we'll hear about that in the minutes on the 7th of April, is that the rise in long-term bond yields is a direct consequence of an economic recovery. And the reason they're going up is for the right reasons, not for the wrong reasons. Certainly, if we look at inflation expectations while they're rising, this week's European CPI numbers for March, even though the headline CPI number rose quite sharply, core prices actually went the other way. So inflation expectations still remain on the low side. What I would say is keep a very close eye on the services ISM numbers, prices paid in particular in the U.S., because they are trading at very elevated levels going forward. And obviously, I'm talking about this particular rise in bond yields in the context of also a very resilient U.S. jobs market. Now, we've got non-farm payrolls tomorrow, or should I say on Friday, the 2nd of April, I'm recording this video prior to that report. And if we get a particularly strong report in the Friday payrolls, then we could well see this U.S. 10-year yield go to 1.8%. As long as two-year yields remain well-anchored, and I think this is the key, as long as U.S. two-year yields remain well-anchored, then I think equity markets should be able to bear U.S. two-year yields going towards 10-year yields going towards 2%. But I think if we move above 0.18% on the two-year and start to show evidence of a rise in short-term borrowing costs, the Fed will be concerned about that. And I think it will be very, very interesting, given the debate that we heard over the last Fed meeting about dot-plots and interest rate rise expectations being moved forward from 2024 to 2023, whether there was any discussion amongst Fed members about the risks of an overshoot when it comes to short-term inflation risks. So I talk about it in my week ahead. Keep an eye on two-year yields. At the moment they're well-anchored between 0.1% and 0.2%. You can see that here between the lows here and the highs here. If they start to become unanchored and start to head higher, you could start to see the Fed get a little bit twitchy. But for now, while we've got 10-year yields at or below 2% and two-year yields trading sideways, I think the Fed will be fairly relaxed about a rise in 10-year yields. So excuse me, got a bit of a good bit of a frog in my throat. But certainly the nature of any discussions by various FOMC members will be closely passed to see where, if any, splits on the timing of a taper or a rate rise are likely to come from. Particular attention likely to be on next year's voting members rather than this year because I think any rate rise will come from the people who are going to be voting next year, not so much this year. Atlanta Fed President Rafael Bostic has already suggested that Fed could well start to look at rate rises in 2023 if the data supports it. And while that's a minority view, it is unlikely to remain so if US labor market data continues to improve. So the Fed minutes are going to be, I think, very, very important in the overall context of the stronger dollar narrative and higher rates. In the context of a stronger dollar, we're getting a breakout towards the upside in the CMC dollar index. And that is likely to be negative for the euro. We've broken above this key resistance level here, which was around about 9.69. Now we look to be heading towards 200-day moving average on this particular index here, which could well act as a short-term peak. But nonetheless, the direction of travel is very, very clear here. Widening yield differentials between US 10-year and German 10-year are likely to be indicative of a weaker euro and a stronger dollar. Already hit the, already broken below 117.50, which means that we could well be heading back towards 116.12, which is these two lows back here in October and November of last year. The big level on the upside for me, I think, is 117.70, 117.80. So I think if we hold below 117.80, even though the oscillator is oversold, it doesn't mean we won't continue to drift lower. I think the key thing for me with respect to the stronger dollar narrative has been the way Dolla Yen has behaved over the course of the past few days. And Dolla Yen has broken to the upside. We can see that born out in this chart here, broken aggressively higher, broken up all the way through here. And this breakout suggests to me that we could well head back towards 112. Well, if we head back to 112, that implies a weaker yen, it implies, therefore, risk on. Generally, when the yen weakens, equity markets generally tend to do well. I don't think it's any coincidence that while equity markets have gone up over the course of the past three months, so does Dolla Yen. So there is a correlation there. Also, we're seeing fairly decent demand still for commodities, particularly copper and crude oil. So if you're looking for correlations, weak yen, stronger dollar generally tends to be a fairly decent barometer of risk sentiment going forward. What we're also seeing is a fairly decent correlation between a stronger pound and risk as well. And certainly looking at the way the sterling rate index has been trading, we are finding a little bit of a barrier in and around these peaks around here. But nonetheless, I'm still of the opinion that the pound is likely to continue to strengthen further. We've broken lower on euro sterling. We can see that on this chart here. And net whilst we're below 85, 40, 50, this support level has finally given way, not before time. We will probably see a move lower over time towards the 2020 lows of 82, 84 euro. So that implies further downside for the euro, further upside for sterling. And you may argue that, well, if stronger sterling could act as a drag on the footsie, yeah, that is very true. But we're talking a pound against the dollar at around about 138 and 139. You know, that's not historically particularly low. And that's why I still maintain that even though we're in a little bit of a downtrend at the moment, any downside against the dollar is still likely to remain fairly limited. And we'll probably head back towards the peaks that we saw in the middle of February, around about 141, 141. That is obviously predicated on the fact that we hold above these two lows here, around about 136.70. But I certainly have maintaining my by the dip mentality on the pound against the dollar, because any any dollar strength will be mitigated by sterling strength against the euro. And as such, that should mitigate any downside, significant downside risk in cable. And that is that. So so those are the key macro events for the next few days, FOMC minutes on the 7th of 7th of April, global services PMIs on the 7th of April, ISM services numbers, particularly prices paid, be paying particular attention to that. We've seen strong prices paid numbers in the manufacturing numbers. And they're likely to remain that way going forward. We've also got an RBA rate decision next week. And certainly, I think what we've seen recently is that they're likely to remain fairly dovish. Philip Lowe has already said the governor of the RBA has said that he the RBA intends to keep rates low, look through any inflation, overshoot, what have you. What we've seen with respect to the RBA is evidence of a little bit of a topping pattern, perhaps, when it comes to this daily chart here. The big level for me, I think on the Aussie is 75. If we can break below 75, then we could well see further losses going forward. Any pullbacks or any rallies need to hold below this trend line resistance through here. We're now starting to make lower lows and lower highs. So if we do get a drift lower on Aussie dollar, and let's not forget that we are now starting to head into winter months for Australia, the weather starts to get colder. At the moment, their COVID cases are quite low. But also their number of people who've been vaccinated is also quite low. So there is a risk that we could get an economic slowdown in Australia as we head into the winter months. That's likely to keep the RBA very much on pause, despite the big surges that we're seeing in house prices in Australia. Biggest house price rises in 17 years. Not a unique problem in Australia, but nonetheless, I think it's something that while the RBA Governor Philip Lowe does have a concern about, I think he's more concerned about the unemployment rate, which while below the peaks of last year is still at a fairly elevated level of around about 6%. So keep an eye on the Aussie dollar as we head into the winter months. In terms of earnings next week, we're fairly light on earnings. We've got a couple of retail announcements, Dynam Group and ASOS. Next posted some really positive numbers in the past few days, sending the shares to record highs. ASOS again has done very well on the back of the online shopping boom. At its last trading statement in January, ASOS reported a 24% rise in total retail sales for the four-month period to date. Its first half numbers are likely to reinforce that strong performance and they're due to announce their first half numbers on the 8th of April. And Daniel, the hardware company, not hardware company, the retail, it's a retailer anyway. It's household retailer. I should know what it is because of my good lady. I'm a shop surf quite regularly. They've also done fairly well managing to overcome the peaks, pre-pandemic peaks to trade higher. Again, it's been a similar sort of performance here. In February, the company reported a 23% rise in total sales driven by a 111% rise in digital sales. So in terms of Q3, that's likely to continue and let's not forget Daniel will be reopening its store real estate in just under two weeks' time. So the guidance is probably likely to be important in the context of that particular update. We've also got constellation brands who make corona beer. That joke's falling a little bit flat now, so I'll probably leave it there. But they're announcing their fourth quarter and four-year numbers for the fiscal year 2020-2021. And despite the closure of bars, pubs and restaurants, the outlook for constellation brands is also likely to be a fairly positive one. And anyway, let's wrap this up. As I say, we've got non-farm payrolls coming out tomorrow, Friday, the second of April. So that could be very instructive in the overall scheme of things when it comes to US 10-year bond yields. So keep an eye on that. Keep an eye on the services ISMs and the prices paid numbers and also the FOMC minutes. Otherwise, on that note, I wish you all a very happy Easter. I hope you get to enjoy a fairly nice, pleasant, long weekend. And I'll speak to you all same time, same place next week. Thanks for listening.