 Good morning. Welcome to today's Market on Friday the 19th of May and this quick look at the week ahead beginning the 22nd of May with me, Michael Houston. It's been a significant week this week in terms of breakouts for certain equity markets. We've seen a new 33 year peak for Japanese markets. First of all, it was the topics that traded back at levels last seen in the 1990s. And then earlier today, we saw the Nikkei 225 follow suit. In turn, we've also seen a fairly positive breakout from the NASDAQ 100, which is broken above its 50% Fibonacci retracement level of the declines that we saw from the 2021 peaks to the lows that we saw last year. And an awful lot of the reason for I think this market exuberance I think is an expectation that sometime in the next few days, there will be some form of debt ceiling accord. I've never been arrived at by US politicians, but this is one of those dances that takes place on a fairly regular basis. And ultimately, I think the consequences of not arriving at a deal are so bad that I really do struggle sometimes to understand why markets can take any notice of it because over the course of the past 10 or 15 years, we've been through this before. It's an awful lot of political theater. And consequently, a deal is usually arrived at the very last minute and the market is pricing in the prospect of a similar scenario playing out. But one of the things that stood out this month has been the performance of the Nikkei 225 almost unnoticed in the past few days. It's risen and broken out quite significantly. This month alone, it's up over 6% and up over 20% year to date. And a large part of that has been down to the continued divergence when it comes to US and Japanese monetary policy. And I think the big question is how long that can be sustained because when you look at the Nikkei 225 and the fact that it is back at 33 year highs and has broken above the previous highs that we saw all the way back in 2021. It's all really predicated on the basis that the Bank of Japan is likely to keep monetary policy at its currently very loose policy settings. And when you actually look at the inflation numbers coming out of Japan, I think there will be quite a few Japanese central bankers shifting a little bit uncomfortably in their seats. Nonetheless, a technical breakout is a technical breakout. And I think as long as there is continued divergence between US monetary policy and Japanese monetary policy, then we could well see further gains. But we really need to stay above that 30,700 level that I've highlighted with the red line here when it comes to the Nikkei 225. What's also been rather odd though this week is while equity markets have gone from strength to strength, so have yields. And the US two year yield is now back above 4.2%. More importantly, it's still within the overall range that we've been in pretty much for most of the last three months. March lows around about 3.6, 3.7%. And the peaks back in April are around about 4.225 or 4.25. They're all there about so we can see that peak there is 428 yesterday's peak 428 give or take the odd people to so monetary conditions are continuing to tighten in the US. And the dollar is getting stronger and yet the NASDAQ continues to go from strength to strength and we can see that laid out in this chart here. If we look at my Fibonacci retracement levels for the NASDAQ. We can see that we've finally broken above that 30,600 level but also above these previous peaks back in August, which would appear to suggest that there is potential for us to continue to rise quite sharply. But there is a word of warning with respect to this rise in the NASDAQ and it can be no better summed up by this chart here. This is the NASDAQ 100's best performers and worst performers year to date. And an awful lot of the reason as to why the NASDAQ, as I performed this year can be down to a very small cohort of tech stocks and video, for example, who are reporting this coming week up 116% so far. Year to date, meta platforms up over 100, 105% year to date, Tesla's up 43%, AMD advanced micro devices up 66%, Amazon up 40%. So the rebound that we're seeing thus far is very, it's confined to a small cohort of tech stocks, which makes me worry a little bit. Consequently, as a result of that, if we look at the S&P 500, it's a similar sort of story, although that we do have a smattering in there of travel stocks. And the worst royal Caribbean cruises, for example, as the travel and leisure sector continues to drag itself off the mat after the shutdowns, the COVID in full shutdowns that have crimped people's ability to go traveling. So, it's just worth having a look at that. So, for the NASDAQ we've broken above the previous peaks in August. I would suggest there is potential for us to head a little bit higher, but I still do have some concerns about the sustainability of this particular rebound. That's not to say that it can't continue. But I think, as with everything in these markets, you do have to be very nimble when it comes to how you play this. And what's significant is even though the NASDAQ has broken above its August peaks, the S&P 500 has not. No, we do appear to be finally breaking out above this 4178th area and are now edging above 4200. So, there's certainly potential for both the NASDAQ and the S&P to both move back to their 61.8% of energy retracement levels from the peaks back in 2021 and 2022. If you compare that to the performance in, say, for example, the Dow and the Russell 2000, the world's apart. The Dow and the Russell 2000 are up around about one and a half percent year to date compared to the 26% in the NASDAQ and the 5 or 6% in the S&P 500. So, it has been very much a rally that has diverged an awful lot. I mean, the DAX has also seen a little bit of a breakout this week as well, breaking above these previous peaks here around about 16,000 as it looks to retest all those peaks back in January 2022 of 16285. So, really, it's a question of so far, so good. And the only disappointment is our perennial underperformer, the FTSE 100, which continues to fill the pain from falling oil and gas prices, but also a little bit of weakness in the banking sector as well as commercial real estate. So, FTSE 100 is underperforming ever so slightly and probably will continue to do so. But having said that, I don't expect it to fall much below the lows that we've already seen thus far, assuming all other markets continue to remain or retain their buoyant tone. In terms of the dollar yen, we've seen that also break higher over the course of the past few days. It's broken above its 200 day moving average. Now looks as if it could well retest the 13960 level. Why is that significant? Well, it's significant in the context of the move from the peaks back in October 2022 to the lows of January earlier this year. 50% retracement of that is 13960. So that is likely to be the next target now that we're above the 200 day moving average. On each of these previous two occasions, we were really unable to sustain a move above that. We do and now appear to be holding above that. Yesterday's daily candle was able to consolidate above that. We are seeing a little bit of yen strength today, largely on the back of those CPI numbers that came out earlier this morning from the Japanese Statistics Office. So it'll be interesting to see what the type of tone is struck by Bank of Japan officials when they next meet when it comes to looking at potentially tweaking the yield curve control guidance. As we look ahead to the upcoming week. I think what is significant is all my main focus this week is going to be on the UK economy. We've seen unemployment this week edge higher, but wage growth continues to remain strong. And we've seen the pound unfortunately come under pressure on the back of a stronger dollar. But we've got UK CPI for April coming out on the 24th of May. We've also got UK retail sales on the 26th. We've seen GFK consumer confidence improve further in the latest numbers published early this morning. And having seen the Bank of England hike rates by another 25 basis points this month to four and a half percent. I think this week CPI numbers for April could go some way to indicating whether or not we can expect to see another hike at the June meeting. In recent months UK CPI has remained very sticky largely driven by food prices, which have been rising at close to 20% per year. Unlike its EU and US counterparts, the CPI numbers haven't fully reflected the decline in energy prices that we've seen over the last few months. However, there is an expectation that it's merely an effect that has been deferred due to the energy price cap which ended at the end of March. So UK March CPI was at 10.1%. There is now an expectation that we could see a sizable fall over the next quarter starting with the April numbers. Only this week we've seen UK gas prices, European gas prices fall to the lowest levels since the middle of 2021. So you would expect to start to see that reflected in the headline inflation numbers. The only reason that UK inflation numbers haven't seen this reflected is as I said previously, it's the energy price cap. That is now no longer in place. So this time last year oil prices were above $100 a barrel while in UK natural gas prices were over double the level that they are now. So expectations for headline CPI are for it to fall to about 8% from 10.1%. We could even see it dip under 8% and that would bring us more into line with where European inflation levels are. Core prices still expected to remain fairly steady in and around that 6% level. It's currently at 6.2% but ultimately we could see that those core prices soften a little bit as well. We're already seeing signs of disinflation in some of the more broader inflation numbers, namely the US. We've seen it this week in German PPI and we've seen it in Chinese factory gate prices which have contracted for the last six months in succession. So there is a disinflationary wave pulsing out through the global economy and that in that context then we could well see a pause when it comes to the Federal Reserve in June. Even though Fed policymakers are insisting that they don't want to consider that and perhaps the data doesn't support a pause. It may support a skip which is pretty much the same thing but ultimately I think they're keeping all options on the table to make sure that their battle with inflation doesn't start to wriggle away from them. We've also got UK retail sales on Friday. Again, these have been surprisingly resilient given the cost of living pressures that have afflicted UK consumers over the course of the past few weeks as Q2 gets underway. These holidays will hopefully have provided an uplift to retail spending. We did see a 0.9% decline in March due to suppressed economic activity by the wet weather and as well as widespread strike action which is continuing to affect the UK economy this month but also in April. Certainly there is room for encouragement. Recent CBI retail sales numbers that show a modest improvement in April as did the latest British retail consortium numbers. So it's unlikely that it will be a surprise shall we say that retail sales would be worse than the March numbers. We've also got Fed minutes coming up but before we go on to that obviously you can see the train line here for Cable. There are really decent areas of support between 1.23 and a half and the levels that we see right now. So as long as we hold above that line there we could we'll see further further rebound in Cable. Euro dollar is broken below 108 and does appear to be starting to drift lower. The next target to support is 107.10 which is the 24th of March lows. So having a look there but I think the fact that we've broken below 108.40 that's likely to act as resistance. We could probably draw a trend line through those peaks there on a shorter term chart and do that now I think. So if we take that line there and draw a line through those peaks there perhaps that could be our impulse rebound on any move higher in Euro dollar. But again you know the trend at the moment is for a slightly weaker Euro slightly stronger dollar given how the way the dollar has performed not only against the yen but also against hold cohort of other currencies as well. So the Fed minutes are probably going to be instructive in the context of whether or not there was unanimity for a delay instead of the hike that we got. So reverse that how much unanimity there was for a hike or whether there was any consideration of a delay or a pause in the message that that would send. The removal of the language in the statement the signal that more hikes were coming was I think notable. I think the bigger question is is was there a significant discussion about the change in financial conditions and which are now tighter obviously given the problems with the banks the regional the smaller regional banks. And whether or not there was really any serious consideration given to pause we've heard a whole number of Fed speakers this week talk in fairly equivocal terms about the fact that they don't see any reason for a skipper a pause unless the data supports it and thus far the data has remained fairly resilient hence the rebound that we've been seeing in the US dollar but the minutes on Wednesday should give us a fairly decent indication of where the splits starting to manifest themselves. We saw PC called deflator on the Friday as well in the March numbers we saw PC called deflator remain sticky at 4.6% slip modestly from 4.7%. The latest q1 GDP numbers showed the quarterly prices were still rising from levels over three months ago. So in terms, and they were at 4.4. In a current PC is around about 4.5 4.6. So you could question whether or not in terms of the GDP numbers, we are starting to get softness in those underlying inflation numbers we've also got another reiterated we've got another iteration of US first quarter GDP to keep an eye out for as well. So that sort of gives us a broader overview of what the markets have been doing by enlarge has been fairly positive. Obviously the debt ceiling is acting as a bit of an overhang, but it's certainly not prompting any significant risk aversion. When it comes to equity markets, the what we are seeing is pockets of our performance, particularly in big tech stocks. Now maybe there's a bit of a haven element going on going on over there they've got fairly decent cash flow, one of these big companies and maybe just maybe. I'm just speculating here that investors are looking for safety in companies that have fairly solid cash flow and fairly sustainable balance sheets but you know that's that's still that these these these companies still got very rich valuation. And when you've got us yields to yields at 4.2% and you've got one month, three months and six months to build yields trading around about 5% you do really question the wisdom of perhaps putting your money into very highly valued tech stocks. But that's a discussion for another day in terms of earnings announcements we've got Nvidia, which I think is obviously going to be a fairly key one given the outperformance that we've seen so far over the course of the past few months, particularly in the context of numbers. It's Q, it's Q4 numbers, which came in line with expectations that just over 6 billion pounds, 6 billion pounds, 6 billion dollars, while profit saw a beat at 88 cents share now on guidance, the company was very bullish when it reported back in Q4. But you do have to question whether or not the market is quite a bit out over its skis on this particular one because with the increasing popularity of AI, this appears to be the market betting that the very highly spec highly spec chips of AI are helping drive this rally. And video and you've got chat GBT three chat GBT for you've got Bard, you've got all of these chatbots which are being launched by various businesses and obviously the require an awful lot of computing power on guidance for Nvidia. So we projected Q1 revenue of six and a half billion dollars plus or minus 2% and I think investors are banking on revenue growth to drive this move higher in the chair price so the big question for me is what will the Q2 guidance look like. We're back in over above the six and a half billion guidance that we saw it pledge back at the beginning of the year. So, in video keep an eye out for that. Another company worth keeping an eye out for is zoom video and snowflake and in the UK, we're back to UK we're back to retail and marks and Spencer now I've written a piece on marks and Spencer, which should be available on the website later today. Yes, we've certainly seen some fairly decent. We certainly seen a fairly decent rebound since the lows back in October. But we haven't as yet been able to hit the 50% retracement of 177 certainly the turnaround plan put in place by previous CEO Steve row does appear to be paying dividends. I think that the decline from the 2022 highs to the lows that we saw back in October was overdone. We've retraced some of that. The bigger question I think for me when it comes to marks and Spencer's latest numbers is how do they see their guidance going forward for 2024 because this will be the four year numbers for 2023. And they did perform fairly well up to q3 but the guidance q4 was slightly disappointing, given concerns about the cost of living I think there was a feeling perhaps that they might see a slow down, not so much in the food which has continued to outperform, but in the housing division, but we can see from this chart here that we are finding a fairly decent area of support just above 157 we tried that on two occasions over the course of the past few weeks. And we are finding a little bit of a resistance to the highs we saw back in April of around about 170. So we're trading 155 170. So I think that's pretty much it for this week, ladies and gentlemen. Once again, thank you very much for listening. This is Michael Houston talking to you from CMC Marcus and wishing you all a pleasant weekend.