 Good morning, welcome to CMC Markets on Friday the 13th of May and this quick look at the week ahead beginning the 16th of May and it's been another volatile week for equity markets not only here in the UK and Europe but also in the US while swings in both directions largely driven I think by concerns over slowing growth and stickier than expected inflation and I think this is the calculus that investors are trying to weigh up. They're trying to weigh up the prospect of whether or not the Federal Reserve will be able to deliver the number of rate rises that the markets are currently expecting without potentially slowing down the various economies and I think that's why we've seen such a really mixed trading week when it comes to equity markets because if we look at US markets they look to close down for the sixth week in a row we've seen the NASDAQ 100 hit an 18 month low earlier this week as seen from this nice little chart that I've done here I've taken the 2020 lows and taken the 2021 highs the highs at the back end of last year and we've retraced 50 percent of that entire move rebounding off 11 700 so I think in the context of where we've come from and where we've been this week it's been quite significant that we've broken below this very key support area that I outlined in last week's video around about 12 700 and really pushed aggressively lower now we're getting a bit of a rebound in the pre-market as we look ahead towards today's Friday US open and there is certainly potential for a little bit of a rebound from the lows that we've seen this week potentially all the way back to the breakout level of this area here 12 700 so potentially um a fairly you know a fairly decent thousand point thousand point move back what was also significant is if we look at the s and p 500 we've seen a similar sort of move play out again I've taken the lows back in 2020 projected the retracement back from the record peaks at the end of last year and unlike the NASDAQ we've fallen slightly short of the 38.2 for financial retracement level on that particular chart there nonetheless it doesn't change anything what it's done the significant break below those those twin lows around about 4100 is significant and could well be an arbiter of further declines towards 3800 and potentially to three and a half thousand certainly I think when you look at what markets are pricing this week's CPI numbers out of the US and the PPI numbers out of the US invests a wrestling with a little bit of a with a little bit of a problem in terms of how persistent or how sticky whatever you want to call it um will inflation be as we head through the rest of this year and inflation is going to be a theme that I'm going to continue to focus on for this week's video simply on the basis of the fact that as we look ahead to the upcoming week we've got the latest UK CPI numbers for April and they are likely to be ugly in the extreme earlier this week we saw UK GDP come in at 0.8 for the quarter what was more notable however I think was the fact that apart from January when the economy expanded by 0.8 the monthly numbers were pretty awful February and March we saw stagnation in February and we saw a 0.1 um contraction in March and I would imagine that this month's April numbers when they get released in May are unlikely to be much of an improvement that impacted the pound um we saw a significant move lower in the pound we broke below that 12450 area and there is a distinct possibility now um as those of you watched my last week's video is that we will retest the 11985 area which I outlined last week as a fairly key support level um because it coincides with series of lows in August 2019 but also the brexit lows the post brexit vote lows back in 2016 and 2017 obviously we also have the post um COVID lows um the lock the post lockdown lows around about 114 but I would say that they were an aberration more than anything else because we didn't stay down there very very long so the fact that we've now broken below 124 we can see from this daily chart here the the the rebounds that we've currently seen have stalled at 124 so we really need to get back above 124 consolidate and move back through here and head back towards 126 that unfortunately is not my base case and I think that for that reason the fact that the dollar still continues to look very strong means the equity markets are likely to remain very much in cell the rally the type mentality um euro dollar we've seen a significant breakout of this consolidation here a break below uh a break below 105 earlier this week yesterday in fact that brings us towards the 103 40 lows that I outlined again in last week's video as a next key support level but ultimately I still remain bearish on euro dollar I still think that we'll probably see a move towards parity people are saying that that's a crowded trade but I just need to cast your mind back to a video in an article I posted around about a month ago now that this this triangular breakout of this sideways move that we've been in since the end of 2016 um and 20 2017 2018 this this consolidation this this triangle consolidation here which is broken out puts us with a target of euro dollar towards 96 96 20 as a minimum price objective ideally if you're taking the proper minimum price objective you're looking at you're looking at a move below 0.9 but obviously you've got to factor in the fact that this move here has taken place over the course of three or four years so any move lower is also going to take place over one or two years the only reason that I would negate or reverse my view on my my sell the euro or my lower euro mindset is if we break back in to this sideways consolidation here or potentially could come all the way back towards 108 not a base case and obviously that's a big move you can't you know you can't dismiss that you're likely to get some form of move off 103 40 I'd be very surprised if we go straight through it what's more likely to happen is we'll find support 103 40 and we'll probably trade between 103 and 106 for several months but ultimately while we remain below 108 then my biases very much sell the rally on euro dollar and obviously we have this downtrend line here which if we do get a reaction back towards these sorts of areas here is likely to be to be a fairly key trend line resistance so the dollar is at 20 year highs I see no reason whatsoever to assume that it won't continue to move higher you know and it basically comes down to one basic tenet of technical analysis the trend is your friend trying to pick the top on any particular move or trying to pick the bottom on any particular move is a false errand you essentially play the trend as you see it as it is until such times as you see evidence that that trend is reversing trying to pick the top is a very dangerous strategy at a time when the trend is very very strong so the first another place where I would pay particular attention to obviously is dolly yen because the strength of the dollar has been predominantly driven by dolly yen we're starting to get a little bit of divergence in terms of how dolly yen is behaving the uptrend for dolly yen still remains intact but we have seen a little bit of haven buying in the yen as a result of the weakness that we've been seeing in equity markets now I think for me going forward the uptrend for dolly yen remains intact while we're above this area here so there's around about 126 80 126 90 why simply because I think it's it's a potential reaction low and you could also argue this is a potential double top that's starting to get formed so you've got 126 126 90 127 and the highs at 131 35 so essentially you've got 400 400 points here if we break below 126 80 then we could well see a move back to 122 on dolly yen you know and that that is a risk going forward and the only reason dolly yen would fall by that significant amount is if you either get a period of yen strength and that usually comes with about a risk aversion which essentially means weaker equity markets or a stronger dollar or both you know one doesn't necessarily be get the other so a strong yen can be an indication of a decline in risk appetite a strong US dollar not necessarily so you know a weak again obviously can be um perceived as fairly positive and certainly we've had a weak again for around about the last three or four months and the equity markets have still gone down so the two aren't necessarily symbiotic anyway I'm digressing ever so slightly so those are those are basically the key the key levels I wanted to pay particular attention to as far as European markets are concerned we've actually look as if we could well have a positive week which seems which seems a little bit of an oxymoron when you consider all of the all of the concerns that investors have about inflation impacting growth but what they haven't done and what this this week's moves haven't done in the wider scheme of things is undermine the downward trend that we've seen in equity markets in general yes European markets have been slightly more resilient I think a large part of that is a consequence of a weaker euro and a weaker pound so that is obviously helping on the margins and as such we could well get to see another retest of this trend line resistance here and I think that's also helped support the FTSE 100 as well which managed to hold above 7180 and is now rebounding back to 7300-7400 if you look at the FTSE 100 for example this year to date we're down 1% if you look at the NASDAQ 100 however we're down around about 25 so you pay your money you take your choice obviously the FTSE 100 is benefiting simply because it's much more of a haven index and say for example the more highly valued NASDAQ or S&P 500 so as we look ahead to next week we're not likely to get any good news from China obviously China's got a COVID outbreak that it's having to deal with Shanghai has been locked down for quite some time there's talk about Beijing undergoing significant restrictions obviously that is a concern and we've got Chinese retail sales which are due out on Monday morning now we saw the trade numbers earlier this week and they weren't particularly good for April in fact they were even worse than the March numbers and a large part of the reason for that is obviously if you've got Chinese ports locked down then not an awful lot of trade actually takes place when you've got populations being locked down in either their homes or workplaces you're not likely to see significant amounts of consumption either in March retail sales in China declined by 3.5% which was the first decline since July 2020 and the biggest decline since April 2020 when China was coming out of this first national lockdown now Chinese authorities are showing no indication whatsoever that they're going to be dropping their zero COVID policy which means that the outlook for the Chinese economy is looking increasingly bleak when it comes to achieving its GDP targets of five and a half percent Q2 is likely to see it fall further behind that target so what are we expecting for Chinese retail sales in April we're expected to see an even bigger decline of minus 6.2 percent industrial production is also expected to slow from 5% to 0.5% and while Chinese authorities have eased monetary policy and are expected to do even more easing that's not going to help much if people can't go out and go about their daily business now so that's obviously the Chinese numbers they could dictate whether or not Asia markets get off to a decent start on Monday or not we've also got retail sales from the UK we've also got retail sales from the US obviously the US economy we've seen that the US economy has performed much better in terms of retail sales than say for example the UK economy US retail sales have seen an expansion in every month this year and are likely to continue to do so in April apparently if economists are to be believed and I think that is you know I think that for me I think is the biggest concern because we've seen in inflation the inflation numbers this week the inflation has been very sticky food and energy prices are remaining fairly high US gasoline prices hit a record high earlier this week in airfares which were a good part of those inflation numbers rose by 18 percent well you know airlines can pass these these airfares these increases in prices on simply because of higher fuel prices the bigger question will be whether or not consumers are prepared to pay those increased airfares and at the moment we not really you know we don't have any significant evidence that they might be prepared to do that one thing that I have paid particular attention to is consumer credit numbers out of the out of the US which have exploded in February and March and you really have to question how much of that is sustainable at a time when US interest rates are rising so I think the US economy is starting to approach a little bit of a denouement when it comes to consumer spending the economy contracted in q1 the US economy even as consumer spending remained fairly resilient so I think you know we really do need to be cautious about whether or not we can expect to see of 1 percent which is what economists are forecasting for April US retail sales as far as the UK is concerned we've talked about the k we talked about cable earlier this week we saw euro sterling trip a few stops through 86 before coming crashing back down again and while I think it's very easy to be gloomy about the UK economy and why wouldn't you be when you've got the government basically imposing the monetary the fiscal policy equivalent of an own goal on its population I think you also have to think that while the media narrative is fundamentally negative there are positive there are positives to draw from the UK economy unemployment for a start so 3.8 percent it's likely to remain at 3.8 percent for the three months to march we've got fairly decent vacancy rates of the 1 million plus jobs that are unfit that are unfilled and while higher prices in the longer term could see firms start to shed jobs those vacancies first need to start disappearing as well so I think there is a certain amount of tightness in the UK labour market and as a consequence of that I think wages for march could well continue to higher now in the three months to February they came in around about 5.4 percent including bonuses and 4 without I think that figure is likely to continue to go higher I think the biggest concern will be in the CPI numbers and this is where we could see some eye watering gains let's not forget April CPI is going to include the energy price rise of 54 percent there's a whole host of other price increases from other utility providers along with council tax screen streaming subscriptions gym memberships other discretionary costs and that's before we price in food costs petrol costs and a weaker pound now the weaker pound will have an impact on headline inflation so headline inflation in March jumped from 6.2 percent to 7 percent from 6.2 percent in February to 7 percent April CPI is expected to see a rise to 9.1 percent yeah you heard that right 9.1 percent that would be a record CPI number CPI replaced RPI in the late 1980s as the measure of UK inflation it's never been as high as 9 percent and obviously if that worst case scenario plays out then we're potentially looking at 10 percent by the middle of the summer so I think that's going to be the number of the week 9.1 percent there or thereabouts we've also got UK retail sales and again here after a strong start to the year in January we've seen retail sales slump back quite substantially in February and March not surprisingly when you consider the UK consumers have known what is coming down the pipe in terms of tax rises as well as cost of living rises so I'm not expecting a significantly positive number from April retail sales even if you price in the impact of obviously an Easter bump as people got out and about the weather was quite nice you're going to see a little bit of a bump there but I wouldn't expect it to negate a negative number completely so that's UK retail sales that is due out on the 20th of May in terms of earnings we've got some fairly interesting updates from the likes of EasyJet Royal Mail and out of the US we've got Walmart and I think the Walmart one is particularly interesting in the context of US retail sales because I think if you're going to see evidence of a slowdown in the US economy then you're going to see it US retailers and US retailers have been remarkably resilient particularly the Bitwell so that's a bit of a sweeping statement big box retailers have been fairly resilient when you actually look at the way they've been trading even though you've seen the S&P 500 fall quite sharply you've seen the NASDAQ fall quite sharply Walmart has actually outperformed relatives say for example Amazon which has also fallen quite sharply so that gives you an indication of how much of a staple Walmart potentially is as a benchmark for the US consumer so I think the numbers out this week for Walmart will be particularly interesting given the fact that obviously business costs have risen for retailers in general last year in total Walmart hired an extra 500,000 people to basically augment its online operation with deliveries and what have you certainly in terms of its first this year rather the expectations are that sales growth for 2023 is 4% which was above expectations of 3.1% Walmart's also looking to buy back $10 billion of shares in this particular fiscal year certainly I think in terms of higher supply chain costs there will be an issue there Walmart has been able to deal with them by basically increasing its same-store sales whether it will be continued to be able to do that now that the fiscal stimulus checks have all been spent and now US consumers are dipping into their savings that remains to be seen I think certainly this first quarter trading update for Walmart and Target which is also reducing which is producing its first quarter numbers the day before on the 18th we've got Walmart releasing on the 17th target on the 18th it'll be very interesting in terms of the overall wider picture for the US consumer easy yet again it's been clobbered a little bit in recent days I've drawn a bit of a trend line through there from the lows certainly higher fuel costs are going to be an issue but unlike some of its peers EasyJet has managed to hedge 64% of its fuel costs for 2022 and 42% are hedged in 2023. EasyJet said that it expects to see a first half pre-tax loss of between £535 million and £565 million with the airline's load factor increasing from 68% in January and it rose to 81% in both February and March as capacity was ramped up so I think in order to free up extra cash though and this is something that they've been doing previously EasyJet sold and leased back another 10 of its A319s so for the outlook while losses are expected to come down Q3 capacity is expected to rise to 90% of 2019 levels Q4 capacity on sale remains at near to Q4 2019. Now EasyJet has been having to deal with the negative publicity not to the same extent as British Airways I would add of cancelling so lots you know lots of its flights because of staff shortages to deal with this it's going to be removing seats from its A319 fleet in order to be able to fly with fewer cabin crew so that is in essence and limits the capacity on all of these planes to 150 passengers per fly hopefully it reduces the risk of cancellations but obviously it then it then means they get less revenue per flight so it's trying to recruit more staff over the next 12 months let's hope that it's successful because I think at the moment the only thing that's putting me off going to the airport is the queues at check in the queues at security and pretty much everything else about flying you know I've never been a good flyer anyway I hate the I hate the I hate the airport bit once I'm on the plane I'm happy it's the airport bit it's the hanging about it's the queuing and pretty much everything else so it'll be interesting to see whether or not ECJET revises up its projections for the second half of the year last but not least we've got Royal Mail and again that's going to be a fairly decent arbiter going forward of how it for how it how it perceives the outlook so Q3 capacity sorry I'm reading I'm reading the wrong thing here so staff absences have caused problems over the course of the last few weeks and months Royal Mail is also axing 700 managerial jobs revenue in Q3 fell to 3.55 billion pounds this is his four-year numbers that we're talking about here the company is locked in discussions with staff over the latest pay round so there is potential to strike action I think an awful lot of that is potentially priced in hence the decline that we've seen in the share price we've got big support around about 308 which happens to be a 61.8 retracement of this entire up move from the lows in 2020 to the peaks in May 2021 since then we've slowly declined lower you'd have to think that perhaps we're probably at the lower end now and we're probably going to start to head back towards 365 370 in the event that Royal Mail paints a really positive outlook for its next fiscal year four-year revenues are expected to rise to 13 billion quid 13 billion pounds so that's it for the week ahead ladies and gentlemen it's been let me just call that again yeah it's been another one of those weeks really choppy and I think it's quite likely to remain so as I said previously I think the buyer still remains very much to sell strength in equity markets if we look at the way bond markets have been behaving over the course of the past few days I think there's a there is potential to think that perhaps yields have topped out in the short term and if they have then that will be because of concerns about growth and that's likely to potentially weigh on equity markets as people buy US treasuries and and drive yields lower in order to basically move assets across and around their portfolio so that's it for this week once again thank you very much for listening this is Michael Huston talking to you from see himself