 Good morning. Welcome to CMC Markets on Friday the 30th of April and let's quickly look at the week ahead beginning the 3rd of May 2021 with me, Michael Houston. It's been one of those weeks this week quite choppy. Obviously, there are concerns about rising COVID cases in India and what's unfolding there is an absolute tragedy and I think that is limiting some of the upside in terms of European markets. We've certainly seen that play out in the DAX which is really I think struggled for gains this week. On the other hand we've seen the CAC Caron make new 20 year highs. The 5100 is trying to get back towards and above the 7000 level and we've seen a plethora of really decent earnings announcements from the US tech giants but more than that UK banks have also come out with some fairly decent numbers as well as they've rotated some of their loan loss provisions back onto their balance sheets and thus boosting their profits. We've seen the S&P 500 make new record highs this week. Same goes for the NASDAQ but what we've also seen is US Treasury yields also start to wedge back up as well and I think that may well be manageable assuming they don't move significantly above 1.8%. I think one of the key takeaways from this week's events and the Fed meeting is the fact that the Federal Reserve really did nicks quite significantly all talk of a taper or any type of raining back on its current levels of monetary accommodation or stimulus whatever you want to call it. But Jay Powell I think it was notable in his press conference how determined he was to play down expectations that the Federal Reserve was likely to even contemplate any sort of taper on its monthly bond buying program in the short to medium term. However the data might have other ideas and certainly next week as we look ahead to next week non-farm payrolls and ADP payrolls and the ISM numbers could well play a part in maybe shifting that dynamic back towards slightly higher bond yields. If we look quite closely at US 10-year treasuries we can see that there does appear to be a fairly decent base in and around that 1.5% level but by the same token what we're also seeing if we can move this chart over like so we can see that they are starting to edge back up again. And I think that will be important in the overall scheme of things as we look ahead towards the next few weeks the fact that US Treasury yields are starting to edge back up should be sustainable should be containable in terms of equity markets as long as we don't accelerate any more than we have done since the beginning of the year and I think that more than anything is what the Fed is concerned about. I don't think it's concerned so much about the fact that yields are going higher it's really more concerned about the speed at which they're going higher. And at the moment we do seem to have had a bit of a short-term peak. I think the bigger concern at the moment and at the moment it's not really a factor is what two-year yields are doing and two-year yields are still very very flat and I think while the short end of the curve has the Fed sitting on it and two-year borrowing costs remain where they are I think ultimately we could well see we can we can probably expect to see equity markets continuing to remain resilient. Obviously there are risks to the upside or the recovery story whatever you want to call it and obviously events in India are a very big concern particularly if they start to spill out beyond India's board as we've also seen increased restrictions in Japan Turkey has gone into lockdown as well so even though we're making good progress on the virus in the UK and also in the US we've had European leaders talking about loosening restrictions next week and potentially or next month rather sorry next month beginning of June France and Italy trying to reopen before they've really got the virus under control. Dad is a real I think there's a real concern going forward given that only two or three weeks ago we were really concerned about rising virus cases in France and now Emmanuel Macron is talking about loosening restrictions on indoor hospitality and leisure in the middle of May. I mean it just seems it just seems a little bit too soon given where they are in the vaccination story so what does that mean going forward as we come out of April it's been a good month for equities in April and of course once you come to the end of April you get the inevitable questions or the inevitable metaphors about selling May and go away. I just wish those selling May and go away little sound bites would go away because they don't really have any basis in fact and they're not really practical in an era where fiscal policy has loosened quite substantially and while monetary policy remains loose ultimately the markets will go where the money is or money will go where the markets see or where people see that there's value and we've seen blowout earnings from the likes of Apple, Amazon and Facebook and Alphabet this week and we've seen really big gains in an awful lot of those stocks. I think the big question is what effect will the current chip shortage have on earnings as we look ahead for the rest of the year but more importantly I think you know in terms of the data in the US and the UK I think the bias really is very much to the upside so I think as we look ahead to next week there are concerns China data may be starting to slow down somewhat so we'll be looking at the China trade numbers which are due out on the 7th at the end of the week. We've obviously got the Bank of England rate meeting on Thursday on the 6th we've got non-farm payrolls on the 7th as well join me to cover those numbers at 1pm you can basically sign up for that on the CMC markets website. Those are usually while they're not particularly market moving events I think what they can do is they can they give me an opportunity to talk about the markets in general but also give you a steer as to what policy makers might be thinking when the numbers come in and I think more than anything I think the bulk of the data that we're interested in is coming towards the end of the week rather than the beginning of the week but what it doesn't do doesn't change the overall direction of travel for equity markets in general and we can see that born out here in terms of what equity markets are currently doing we've got the FTSE 100 wasn't able to consolidate those gains above 7000 slipped back quite sharply and we spent most of the last few days trying to claw those losses back. I think this is one of the things that we're going to have to get used to when it comes to UK stocks we get slow move higher a correction higher correction higher correction higher again so I would expect over the course of the next month for us to go above those previous highs head towards 7200-7300 while we are above first and foremost 6800 this trend line or support and resistance line here but also this trend line from the lows back in February and the 50 day moving average ultimately it's really about the overall trend and for the moment the overall trend continues to remain positive looking at the Germany 30 or the DAX as we like to call it that's stalled a bit over the course of the past week or so and while the FTSE 100 looks as if it's probably going to finish this week higher the DAX has found progress this month an awful lot more difficult and it's not really hard to see why when you actually look at the fact that the DAX is at record highs whereas indices like the Kat Karant which hit a 20 year high earlier this week and the FTSE 100 aren't so and you also have bear in mind that the DAX is a total return index so essentially it does it does give a slightly more distorted view of the overall market but if we what we can do or what we can tell from this particular chart here is if I draw a horizontal line through here I can see that there's a fairly decent area of support around about 15 000 so if we drop below 15 000 then you could argue that there is a little bit of a top starting to form here but while we're above that then the the upward bias still remains intact and even if we do break below that we've still got the 50 day moving average further down as well as obviously this trend line support all the way down through here but ultimately line of least resistance still shows for a move higher and the same can be said for the S&P 500 as well which has also continued to edge its way ever so slowly higher and we can certainly see that in terms of the weekly chart but also the monthly chart here it's gone almost parabolic let's get rid of this little line here because it serves no useful purpose really so just get rid of that move that back there and then redraw this line through here just attach to that low and attach to that low there and there we have it so so looking at the S&P we're above 4200 a new record high and what was quite significant I've been talking about this in previous weeks was the NASDAQ the NASDAQ had been struggling to get back to its previous record highs and it has just about got back above them but it has been really painfully slow progress and if we look back at the record high on the 16th of April around about 14067 we only marginally got above that before drifting back down again and I think when you've got President Biden articulating the case earlier this week for higher taxes in terms of the wealthiest Americans I don't think it's just wealthiest Americans he's got in mind it's also those big companies like Apple, Amazon, Facebook which essentially are printing profits on a quarter by quarter basis I mean taking Apple as a case in point this week they generated for their second quarter 89 billion dollars that's 40 billion dollars higher than the same quarter last year now you can argue that last year's earnings numbers were slightly depressed by the fact that we were going through the first lockdown but Apple's earnings have generally been fairly lockdown proof so while you could certainly make an argument for them being slightly depressed 40 billion difference from one quarter to the next particularly Q2 to Q2 that's a huge swing and it's only just below the previous record quarter of 91 billion dollars that we saw all was projected for the previous pre-Christmas earnings numbers which then smashed expectations and came in at 111 on the previous quarter so be under no illusions I think the US government the Democrats will be costing envious eyes at those numbers given the fact that both companies both not only did Apple announce a buyback but so did Alphabet Alphabet 50 billion dollar buyback and Apple a 90 billion dollar buyback and I would imagine that politicians would like to get their mitts on some of that money anyway I'm digressing and I'm going on a little bit too long let's talk about what's coming up in the week ahead because we can certainly we can clearly see the earnings this week have been fairly positive and we're going to have a particular close look at earnings in the coming week as well notable ones being British Airways sorry IAG international consolidated airlines intercontinental hotels group we've also got next ITV they're all they're all on here all the ones that we're looking we'll be covering next week or I've written about are here so we've got Uber Peloton Pfizer Moderna intercontinental device I'm not going to cover them all in this video you can see them in the news and analysis section on the CMC Marcus website we're all we're all cover them there but let's start I think with non-farm payrolls so what are we expecting well certainly I think one of the things that I took away from Jay Powell's press conference earlier this week was that the 916,000 jobs that were added in March does not a recovery make and I think what we're going to have to see is a consistent consistent month on month gain of around about 900,000 to a million jobs over the course of the next two to three months to really shift the Fed's focus when it comes to maybe preparing the market for a taper or slight changing even monetary policy if we look at the way payrolls have been over the course of the past few months since the since since January we've seen job gains of 166,000 468,000 and then 916,000 now general consensus is for something in the region of around about 900,000 there or thereabouts and we've also got the ADP payrolls report as well on the Wednesday which is expected to see another 825,000 on top of the 517,000 that we saw in March for ADP what's notable about ADP though is that it has lagged somewhat behind non-farm payrolls in terms of the number of new jobs added on a month-on-month basis and maybe you'll get a little bit of a pick up there. What's also encouraging I think about the number estimates for non-farm payrolls for April is the fact that weekly jobless claims are now well below 600,000 and are trending around about 545,550 in fact I'm surprised that they're as high as that but if you actually look at the under-employment rate that is still around about 10% whereas just before the pandemic it was an awful lot lower than that so I still think there's still plenty of scope for people to come back into the workforce and you can certainly see that born out in the participation rate which is around about 61.5% compared to 63.4% pre-pandemic so there's an awful lot to get through in terms of the payroll's data but ultimately the dollar has continued to sink back but what's important I think in the overall scheme of things is that while we've slid lower over the course of the past month we're still above the lows that we saw at the beginning of the year and I think that maybe feeds into a narrative that could well be is that we're in a bit of a range trade and we're at the bottom of that range for the dollar with the risk that we could head back towards the upside particularly if the data next week is much better than expected that should be positive relative to the data that we're going to be that we're likely to get out of the euro area I think people are pricing in the fact that the euro area is likely to start to recover well I'm not totally convinced about that and I certainly think that in opening up too early Europe could actually find themselves back in lockdown very very quickly unless they get their vaccination program really back on track looking at euro dollar we broke out above this downward channel line here earlier this week but we struggled to really consolidate those gains and there is a risk that this could potentially be a candlestick reversal pattern if we fall back below 12070 I've drawn it on here if we fall back below 12070 then we could drift back down again I thought I was hoping to see a much more impulsive break higher here we haven't seen that and this peak at 121 50 should have really gone all the way back to here and it hasn't happened so that does beg the question that we remain at risk of a move back down again which in essence will drive the dollar higher so I'm paying particular attention to 12070 on euro dollar if we slip back below that then we could we'll see further losses more importantly I think the more important level though is this level here around about 120 and a half you've got that low there 12056 what that low there which is around about the same sort of level so if we drop back below 120 and a half between the 5070 area on euro dollar we could we'll see this the euro dollar roll back down towards 119 I can't get enthusiastic about euro dollar at these this given that sort of structure within the price action irrespective of what people are saying about euro dollar to 125 I'm not there I'm not there yet at all and one of the reasons for that is this euro sterling chart still looks a little bit toppy anywhere near 87 30 until such times as we break above 87 30 for me euro sterling should go lower we're also below some very key long-term moving averages and while you could argue yeah well it's making a base it's making a base that says maybe but it needs confirmation until I get that confirmation I'm very much of the opinion that this is very much sell the rally market until such times as we get evidence to the contrary on that basis so I'm paying particular attention to that in particular the 87 30 area so that brings me on to the PMI the manufacturing and services PMI is for April one of the bright spots amidst the gloom of the economic rebound has been the resilience of the manufacturing sector and I don't think that is going to change we've already seen from the flash numbers that they look very positive the pressure points continue to remain in Spain and Italy we saw that we've seen that in the GDP numbers this morning which you can see down here Italy GDP slides 0.4% we had Spanish GDP coming in at minus 0.5 so again you know double dip in Italy and we just about avoided a double dip in in in Spain but nonetheless the euro area did post a double dip recession so we've seen a bit more resilience in the services sector but Spain and Italy still remain below 50 they're still in contractionary territory and there is a concern that that will continue to be the case irrespective of what Italian Prime Minister Mario Draghi is hoping to put together in terms of a recovery plan so we've got the manufacturing PMIs they're out on out on the Wednesday and services PMIs are on the Thursday we've also got UK PMIs as well they are likely to or they're expected to be fairly solid services activity saw a big slump in January in the UK but I think we've more than rebounded from that we saw a big rebound of an 80 month high for services if the recent flash numbers are any guide and I think this v-shaped recovery and services bodes well for the rest of Q2 and certainly in terms of the pound there's been an awful lot of people who seem to think rightly or wrongly that the pound could find a little bit of a headwind when it comes to next week's elections the Scottish parliamentary elections and the risk of a vote for the SNP I mean not being I cannot get excited about that so you know the SNP won independence for Scotland well yeah that's not surprise and it you know they'll always want another independence vote for Scotland the big question is will they be able to push one through and if they do will it be valid for me yeah any sort of vote for a referendum will be incredibly divisive and less is by a very clear margin I think one thing that brexit has taught us is that 52 48 55 45 referendums are not the way to go which means that even if the UK government allows the SNP to hold its referendum I will imagine that they will insist that they need to get at least a 60% vote for it because otherwise any other outcome is going to be incredibly divisive and I think we've we've seen plenty of division over the course of the past five years with the brexit referendum I don't think anyone wants to go through that again which brings me on to the Bank of England rate meeting because I think as we get set for the third meeting of 2021 the economic picture is quite a bit different from where the bank was when it held its first meeting all the way back in February at the time in February the bank would have had us believe that UK banks needed to prepare for the prospect of negative rates now the work around that apparently is still going on but things have changed quite a bit since then and we've also heard that Andrew Haldane Chief Economist of the Bank of England is going to be departing in the summer and he's been one of the I think he's been one of the key he's been one of the key um hawks it's been oh not one key hawks he's been he's probably been one of the more hawkish members of the MPC in recent weeks because of his talk about a coiled spring rebound in the UK economy and one thing that I did note from the UK banks numbers this week was the big build-up that we saw in customer deposits and the big reduction that we saw in credit card spending and personal loan spending in terms of their overall numbers Lloyd's and Nat West both showed both showed big drops in credit card spending and and personal loans and a big rise in customer deposits now that suggests to me that consumers are building up their cash buffers in preparation for the reopening in May and a potential significant rebound in Q2 so the Bank of England will be mindful of that and if the data continues to move in the direction that it has been and I'm surprised no one has mentioned this even though that they're talking about this in the US the potential for a withdrawal of accommodation why would the Bank of England not to consider cutting back on its bond buying program that's the potential you know they cut cut back on the amount of stimulus that's a potential tightening monetary policy that should be supportive of sterling you know they don't have to raise rates why should they they don't need to do that but what they can do is cut back on the amount of stimulus and that would be a perfectly sensible thing to do given the amount of accommodation that there is in the UK economy and given some concerns that have been raised that the Bank of England probably did a little bit too much stimulus so it stands to reason maybe they start to taper that back a bit so maybe get a little bit prepared for some limited taper talk at next week's Bank of England meeting they'll want to manage the message very carefully because what they don't want to do is from to spiking guilt yields because they've stabilized around about current levels of around about 0.7 0.75 percent and they want to keep them there they certainly won't want them to go up any higher but there should be a way that the Bank of England can appear much much more optimistic about the UK economy with its latest inflation report and it's likely to also upgrade its growth forecasts as well so keep an eye on the Bank of England it's on the on the Thursday 6th of May so we've done the manufacturing PMIs we've got the services PMIs those in particular will be paying particular attention to the Bank of England rate meeting non-farm payrolls ultimately I would expect the pound looks looks fairly well supported above 1.38 look for a move back towards 1.40 and through 1.40 20 obviously the US dollar notwithstanding if we look at the CMC sterling index we can also see a little bit of a moderation there overall it's been in a bit of a sideways channel but again here you know it's a it's a sideways consolidation albeit a slightly downward one but I would expect to see a little bit of a move towards the upside over the course of the next few days there's nothing to be I don't think there's really anything significant to be concerned about thus far got China trade as I said earlier keep an eye on the exports and imports data you've got to remember that also the comparatives there are likely to be um are likely to be quite quite significant given the fact that year ago the Chinese economy was just coming out of lockdown so the April numbers could we'll see a much larger year on year rebound in terms of exports and imports relative to a year ago and you also got to bear in mind that these trade numbers could have been disrupted by the events in the Suez Canal so there could have been a little bit of a there could be a little bit of a skew there that we need to be aware of okay so um let's look at the numbers that are coming out this week let's start with international consolidated airlines group British Airways they're always a fairly decent one um now in February I AG reported a six billion pound loss no one was surprised by that given the impact in the travel sector over the last 12 months I mean in Q4 alone the company posted a 1.47 billion euro loss just in that quarter so I don't think there are there will be any surprise is that the numbers that are due out this week are likely to be disappointing the big question I think with respect to I AG is whether or not we get a return of transatlantic travel now there has been talk of an air corridor being set up between the UK and the US so that US passengers can come over here as long as they've been vaccinated and vice versa and you're going to get to hear an awful lot more about these so-called vaccine passports over the course of the past few weeks I suspect um for companies like I AG they're going to be even more important given the fact they make most of their revenue on their long haul routes their their transatlantic routes so the sooner they can get those routes back up and running albeit in some shape or form I think the better so it'll be interesting I think as we look towards these numbers what the narrative is with respect to the with respect to travel corridor because for the first quarter I AG estimated the capacity plans capacity plans this quarter will be around 20 percent of 2019 levels so in essence Q1 is going to be worse than Q4 was and Q4 they lost 1.4 billion euros so the hope is that the loss won't be bigger than that what is notable from this particular chart if you look closely at it is that I look at that there's a really good base at around about 178.5 so I would be surprised no matter how bad the numbers are if we drop below that because then you shift the focus towards Q2 expectations now I AG aren't going to offer any guidance why would they the international travel outlook looks very uncertain but overall the hope is that there will be a recovery recovery it'll just be a little bit later than perhaps markets are currently pricing in but certainly in the context of this particular chart we've got a decent area of support coming in around 178 so whatever the numbers are like I will be paying particular attention to that all right moving on let's have a look at intercontinental hotels again this is another this is another travel story and again we got a nice little trend line in place here and one of the things that I noticed about intercontinental was the fact that they've actually been more resilient than most and I think that's simply because the China hotels have reopened the holidays and what have you and some of the US real estate has also actually been operating albeit not for capacity but it's certainly been it's been it's been working it's been operating fairly normally as normal as can be expected so revenue per room is down around about 50% but despite this they still opened another 285 hotels over the course of the past 12 months so despite the difficult backdrop this they still appear to be doing something right and once again if you look at the charts here you can see from this particular that there's a lovely line there from the lows all the way back from April 2020 now and this is why I love looking at charts because I can give you an indication of the overall direction of travel and where the money is going and I that intercontinental hotels chart is is quite quite quite a good indication of that next PLC let's have a quick look at next before we sign off because I'm very cognizant of the fact that I've been rambling on for quite a bit you wouldn't know from this chart that retail UK retail has been absolutely obliterated over the course of the past 12 months next is above its highs of last year it's recovered really really well they had already had a very good online operation leading into the pandemic and while we did see a little bit of a sell-off initially and profits obviously dropped back quite sharply the company by and large has remained fairly resilient when it comes to pulling back off the lows of last year so just over a month ago next race four-year guidance for this current fiscal year the pretext profits of 700 million pounds on the basis that online sales in February and March picked up the slack from the closure of retail stores that was a trend that was born out in the UK retail sales figures that we saw in March and given the limited reopening that we've already started to see in April and we'll see in May that is likely to feed in to a much better rebound going forward so that's also going to be a factor in boohoo's numbers when they come out also in the coming week given the fact they've taken over all the brands of Arcadia Dorothy Birkins Burton's and what have you so retail is going to be a very big story next week as well boohoo.com they've had what I would call a little bit of an up and down 12 months given the problems at their Leicester factory but nonetheless we can see from this chart here the extent of those problems there but nonetheless we can see through here that there's a fairly decent base in and around just below 300 and even though we've tried to break above there we haven't been able to do that so that line's worth a little bit of a redraw let's just quickly do that now and two three and that comes in there in fact because that's on the through the peaks I might actually draw that through there simply because now you can call that curve fitting or whatever you want to call it but at the end of the day there is a there is a clear direction of travel there and if I change I change that chart to say for example a line chart mid chart there it works a little bit better that way taking just taking the closing prices only to give you an indication of you need to close above that trend line to signal a nice little breakout okay so I think I think that's pretty much it for this week if you want to catch up on all the other stuff that I've written about Uber Peloton Pfizer Moderna please go to the website otherwise tune in for non-farm payrolls next Friday at 1 p.m. otherwise I will I will wind up this particular webinar wish you all a nice long bank holiday weekend yes it's the bank holiday so we get an extra day off on Monday and I hope you enjoy the weather and speak to you all the same time same place next week thanks very much for listening