 Good morning. Welcome to CMC Markets on Friday the 25th of March and this quick look at the week ahead beginning the 28th of March with me Michael Hueson Given the fact that I will also be away for next week I'll also be doing a quick preview of the week beginning the 4th of April as well. So essentially I'm trying to kill two birds with one stone. So to speak That being said obviously it'll be fairly light in terms of what to expect for the week beginning of the 4th of April simply because of the fact that I won't have visibility of events over the course of the Next week or so, but hopefully nothing much on a macro level should significantly change geopolitical risks will still be pretty much the same obviously the Russia invasion of Ukraine The fact that they continue to get bogged down there. And I think the biggest risk factor going forward is likely to be I'm an escalation on the part of President Putin the use of the use of weapons of mass destruction whether they be chemical weapons or tactical nukes if he continues to be frustrated in his aims to try and make inroads into Ukrainian territory As we look ahead To the coming week the the the main the main Data of note is going to be US inflation data core PCE PCE deflator Non-farm payrolls on the 1st of April Sadly, there will not be a webinar the next week in my absence as I will be Away from my desk out of the office But payrolls data generally doesn't tend to be the market mover that it used to be But I would still urge you to keep an eye out for wages data in the context of the wider payrolls number given the fact that the Fed rules at the Federal Reserve essentially has Indicated that it's likely to go harder and faster When it comes to rate rises when it next meets Obviously the week beginning the 4th of April. We've also got the latest Fed minutes They are likely to be fairly dated By then given the narrative that we've heard from a number of Fed policy makers even the more dovish ones Like Mary Daley of the San Francisco Fed and Neil Kashkari of the Minneapolis Fed They have suggested that they are probably more disposed To going for 50 basis points in May if the data supports that but more importantly Powell's comments this week would appear to suggest That he is minded to go not only for a 50 basis point rate move in May but potentially Further 50 basis point rate moves going forward And I think that really does highlight the conundrum that is driving the central banks reaction function When it comes to what's likely to come in terms of rate hikes over the course of the rest of this year inflation is Already heading to levels last seen in the 1980s and 1990s not only in the US But in the UK as well this week we saw UK inflation at its highest levels Since 1990 again this time at 6.2 percent In the coming week US core PCE, which is the Fed's preferred measure of inflation Is likely to also push through 6% while core PCE is expected to rise To around about five point five so five point five six point four on the PCA deflator We've got fourth quarter GDP the final number there It is expected to be revised up to seven point one percent and US consumer Confident is but on a downward track for several months now and is likely to continue to Fall further in March when those numbers are released on the 29th So I think with respect to non-farm payrolls Deemployment the US labor market still remains in fairly decent health. We're expected to see 450,000 jobs added in March we're also expected to see a fairly strong ADP Payrolls number that is continuing to push the dollar index up to The recent highs that we saw in March more importantly if we look at US yields We can see that here on this Bloomberg chart We're now back at two point four percent if we go back on a five-year basis And we're still well below the levels that we saw back in 2019 and we also need to remember that the Fed funds rate Which is now at naught point two five to naught point five percent is still well below the levels It was pre-pandemic Fed funds was one point five to one point seven five So we've certainly got at least another hundred basis points in rate hikes to catch up From where we were pre-pandemic on the US on a US basis Whereas with the Bank of England. We're already back at the levels that we were pre-pandemic and as for the ECB Well, we haven't really moved that much. So if we look at headline rates in terms of the US On US rates, we're still one percent below the levels that we were two years ago. So You know, we can still move another 100 basis points Before we start to get really concerned about a significant tightening of monetary policy Even though obviously if we look at what yields are telling us there's a significant disconnect from the Fed funds Relative to where the bond market is pricing. So it's going to be interest. It's going to be certainly going to be an interesting next couple of weeks Looking ahead to the week beginning the 4th of April we've got the RBA and You can you can certainly argue that the RBA is well behind the curve when it comes to rate Expectations and rate rises and if we look at the Aussie dollar What we've seen here is a significant break higher. What we haven't done as yet is broken below or broken above The peaks that we saw back in October last year at 75 70 But I think that's because the RBA has been Uncharacteristically dovish in recent months despite rising evidence that inflation is running well ahead of expectations and if you look at what the RBNZ has done they've already started their rate hiking cycle and The RBA hasn't so RBA has got significant a way to catch up when it comes to hawkish expectations certainly events have moved on In the past couple of months Which suggests that the RBA could be closer to moving rates off their current 0.1% than at any time in the last six months Expectations are for a rate hike in June personally, I think we could Get to move in April. I think the RBA needs to start getting out in front of inflation And the rise in inflation that we're seeing is in terms of the Australian economy now It still seems some way off if you believe the narrative that's coming out from governor low He's certainly gone to great lengths to play down the prospect of a rate rise this year but Like the ECB I think the RBA will have to act In the same way that the Bank of England who played down the prospect of was slightly more dovish than the Fed was Central banks will have to act On inflation whether they like it or not because if they don't inflation will do their job You know, basically inflation will tip economies into recession. So they have a choice Hike rates and prompt a recession or allow inflation to let rip and get inflation and getting get a recession anyway more importantly Get more persistent inflation Going forward. It's you know, it's a dilemma to be quite honest But to be quite honest, I think it's the lesser of two evils Rates need to be normalized or at least brought back to a level that's commensurate With the levels of inflation that we're seeing. Let's not forget the last time we saw these levels of inflation In the us in the uk interest rates were above The level of headline inflation not anchored well below So there needs to be some level of normalization that obviously won't cause a significant amount of disruption And one offset the damage that higher inflation is likely to cause, you know In that context on the 1st of april next friday, we've also got the latest flash cpi numbers from the eu now We're already at record levels when it comes to CPI in the euro area. We're at 5.8 percent in march That's likely to move to 6.3 percent with core prices set to move From 2.7 percent to 3.1 percent. So what does that mean for euro dollar? Well, essentially Nothing much has changed when it comes to euro dollar We're still very much below this 111 20 area. We've really struggled to get much above it It's been a little bit as edsville this week in terms of what euro dollar has done But let me remind you of the long-term trend line that I showed you in last week's video we're still Holding above that key support from those lows back in 2017 And that for me remains the the line in the sand and move below 107 80 Is likely to see euro dollar move quite a bit lower essentially if the fed Titans As fast or as hard as I expected to you know, we're talking about another six rate rises this year Or what what's not said is how big those rate rises will be You've had bullards saying he wants the fed funds rate of three percent by the end of this year Well, we're currently at 0.5 If we take it back to 20 2020 levels or pre-pandemic that's 1.5 to 1.75 So that's only halfway back So the big question is how much can the fed get away with and what does that mean? For the dollar in terms of what the dollar has done against the euro this week It's not done an awful lot, but we look at dollar yen Um, it's gone absolutely gangbusters this week and the yen is likely has already hit its lowest levels since 2015 It's likely to post its biggest monthly loss Since september 2016 Um, and as such has prompted some concerns or some chatter that the bank of japan By intervene to capt the decline in the end Certainly the decline of the yen in itself isn't really that much of a problem for the bank of japan It's more a case of how quickly it's happening. So I think we could see The bank of japan try and start to jaw bone and slow The decline in the yen, but I certainly think there's potential for us to revisit the highs of 2015 Back around about 125 and these sorts of levels all the way back here. So you're talking 125 85 I mean that gives you a context some sort of context When it comes to the actual levels of decline And the advance of the dollar essentially What that's showing you is the fact that monetary policy in japan is not going anywhere And you're getting a significant Move higher in terms of the dollar Against the yen. So there's certainly potential for a move back to the highs that we saw back in 2015 when it comes to dollar yen as for cable We're sort of struggling to find any sort of support around about This 50 day moving average We're struggling to rally much above 132 20 And and that is a little bit of a concern going forward. This was potentially An inverse head and shoulders here left shoulder here head here right shoulder here But unfortunately we've broken back below it and that's disappointing because that does appear to suggest That we could well see Further declines in the value of the pound and we're not helped by the fact that the the budget this week From rishi sunak The uk chancellor Didn't really go anywhere near to addressing The tax rises that are coming in april But also the 54 rise in energy prices as well as other tax rises that are likely to come in in april as well Namely council tax Council tax as well and the fact that he was very reluctant to Extend the the vat tax relief that He gave to businesses as businesses as a consequence of the pandemic So it's going to be very very difficult next few months for the uk economy And if you've then got a bank of england that's likely to raise rates Over the court raise rates again over the course of the next few months Um, you know, it doesn't make for a particularly encouraging outlook And to a large extent it's self-inflicted in terms of government fiscal policy as well So it's not a particularly positive outlook. We've got a cost of living squeeze coming Some of them, you know, this chancellor has taken some measures To ameliorate some of them, but I don't think it's going to be anywhere near as significant As it could be so Obviously though, those are the key levels on um cable and And the euro dollar euro sterling is much of a muchness still very much a case of watching paint dry here But still very significant resistance anywhere above 84 fairly decent support around about 82 80 83 so very much a continuation of the range trade that we've been seeing Over the course of the past few weeks. So what what's the outlook for indices? Well, we've certainly seen a fairly decent rebound In the footsie this week, but it's really been a case of consolidating the gains that we've seen over the course of the past two weeks We've pretty much traded sideways What's significant? I think in the context of the rebound that we've been seeing is we haven't taken out previous peaks so while There's been an awful lot of chatter over the course of the past A few days that we might have seen the lows I've seen nothing thus far to suggest that we can continue to move higher quite significantly If we look at this peak back here in february 20 February last month just post invasion We're still below we're still above still below sorry 75 60 And and below the previous peaks the footsie 100 has bounced back Certainly much more than say for example the dachs but that's largely as a result of a significant rebound in the likes of banks but also miners and The likes of bp and raw dutch shell if we look at the germany 40 or the dachs and we look at the If we look at this daily chart here We're still in the downtrend that we've been in since early january So while we've seen a fairly decent rebound in the past few days We look as if we could well finish slightly lower this week We're struggling to move much above the peaks of 14 580 that we saw For Last week but also this week as well And we're also below the 200 day and the 50 day moving average So we've seen a fairly decent rebound just of just over 50 But what we haven't seen Is a break of this downtrend line that we've been in since those peaks back in january If we look at the s and p 500 We have seen a much stronger rebound That's borne out by this chart here and we have broken the downtrend line But that downtrend line was much steeper So if we take that out, what's significant is we're still below these peaks here So we're still getting lower highs and we're still getting lower lows So I would only be A slightly more confident of a rebound And a continued gains in us markets if we take out the series of peaks back in february Last month so around about 4600 on the s and p. Yes, we are back above the 200 day moving average We are back above the 50 day moving average, but we're not really impulsive Impulsively moving above it and that is a little bit of a worry in the short to medium term So certainly, you know, I'm not going to save with any degree of certainty that the lows are in Because we haven't taken out The previous peaks same applies to the nasdaq We are below the 200 day moving average still so that again is significant Even though we've broken above the 200 day moving average on the s and p 500 When we've not been confirmed with that when it comes to the nasdaq And when it comes to calling a reversal on equity markets, what I want to see Is convergence in terms of we want to see a significant breakout on other indices as well And we're not seeing that and we're also below The peaks that we saw in february of around about 15,240. So yes, we've seen some decent gains But the big question is can we consolidate those gains and we can we push above the february highs? Let's have a quick look at the the the the The dow Not the backs the dow put my teeth in again We're below the 200 day moving average on the dow as well and significantly We're also below the february peaks So it's always important that when you look at us markets, you look at them in the round You don't just look at the you don't just look at the s and p You don't just look at the the dow and you don't just look at the nasdaq in isolation They come as a package, you know and as a package They really need to show evidence that that base is in place And we're now looking to move towards the upside you see with this trend line here We have broken above it, but again the the move higher has been tepid at best. So certainly worth There are certain flashing warning signs about being overly bullish Um when it comes to equity markets against a backdrop of yields At the moment show little signs of topping out now If we go back to The chart of the us 10 year you can see here how mile how far we've come In the space of the last three weeks we've come from loads of around about One one point six six percent to 2.4 percent on a weekly chart who make that a daily chart We can see there's potential for a little bit A little bit of a reversal here. Is that a bearish reversal there on that daily candle on the 23rd? We won't know For certain what we do need to be what we do need to see is for it to stay below 2.4 percent These these highs here and we could as such see a little bit of a correction Lower but at the moment the line of least resistance does appear to be a further higher rates and if us data continues to Come in on the upside Then that is likely to give an indication that perhaps there is potential for further upside In us 10 year yields us 2 years in us 5 year yields. So just a quick recap For next week non-farm payrolls looking for around about 450 000 on the headline 400 000 on adp Unemployment the unemployment rate is expected to fall back further to 3.7 percent weekly jobless claims are at 53 year lows Look at the participation rate look for a continued gain there look for wage growth To improve from the current from the current levels of around about 5.5 percent So you want to see wage growth head towards 6 percent so that the income squeeze gets mitigated to some extent So as I say non-farm payrolls for next week core pce pce deflator on the 30th And we also have one item in terms of also also flash cpi e flash cpi on the friday as well In terms of earnings numbers Keep an eye on wargreens boots alliance. There has been some chatter That wargreens is looking to sell its boots operation uk operation With apollo global management said to be interested in buying that for seven billion pounds So that could be a significant driver of the share price wargreens boots alliance Um, certainly they have been one of the winners Oh, not so much one of the winners, but they've certainly done well from the pandemic in the us You can certainly see that in the context of the share price Rises that we've seen but their boots operation has been a little bit of an anchor around its neck So if they're able to offload that that could be a catalyst for a little bit of a bump higher in the share price As we look ahead to the fourth of april That week there we've got the rba meeting on the fifth as I have covered that look for potentially hawkish Pivot there with the potential for a modest rate hike. We'll have to wait and see We've got fed minutes Coming out that week. We've also got ecb minutes And I think the ecb minutes could be interesting in the context of yokom nagels the bundersbank governor's Comments that he's talking about the need for tighter policy We certainly know there are divisions on the ecb governing council Recent comments from a number of policy makers suggest there's rising concern that the ecb is behind the curve And the minutes for this week could well offer significant insights as how high this concern Actually is in terms of earnings numbers. We've got asos first half numbers on the eighth of april You've got to ask yourself at some point Whether or not we're going to get a rebound in the asos share price We're expecting a fairly decent set of numbers But on the second of march the company issued another profits warning because it suspended sales in ukraine As it became impossible to serve customers there and it also suspended sales in russia These two regions represent four percent of revenue for asos and 20 20 million pounds of group profit So you have to sort question whether or not that is That is already priced in and the profits warning was around about there. You saw the share price dipped down It has rebounded a little bit, but it's continued to drag or drift lower The big level on that is really the april 2020 lows And we saw a rebound and then we've given back pretty much all of that post pandemic bounce And we're now pretty much back to where we were when we started so asos first half numbers They should be interesting for the week beginning the fourth of april We've also got services PMIs as well We pretty much know that there's at some point we're going to get a little bit of squeeze on services particularly given the fact that Ppi in italy is at 41 percent in in germany It's 25 percent You've got to think that some of those cost pressures will start to manifest itself In headline inflation as we head into the second quarter of this year Quickly have a quick have a quick look at Brent crude commodity prices. Let's look at that Seeing a little bit of choppiness at the moment the rebound that we've seen this week Hasn't been able to get back above 125 So that could be Significant in the wider scheme of things if we look at a weekly chart That gives us a better indication the big support level Is back around about 98 dollars a barrel Maybe just maybe We've got a short-term peak in I'm not convinced about that at the moment, but it is encouraging That we haven't taken out these highs here Which suggests that some of the upward momentum might be might be waning But I think a lot of the reason why we haven't followed through on the upside Is because EU leaders cannot agree a ban on Russian oil imports. So those will keep flowing Gold It's been quite interesting over the course of the past few days. We've seen a fairly decent rebound It's at the beginnings of a potential head and shoulders reversal We certainly haven't taken out This 1965 area here that's going to be key in terms of a potential rebound Back to the highs that we saw earlier in March fairly decent trend line support on this blue line Through here. So certainly keep an eye on that going forward So I think ladies and gentlemen that is pretty much it for This two weeks as I say I've tried to cover as much ground as I can Over the course of the next two weeks because obviously there won't be a video Next Friday. So I've tried to cover as much ground as I can over the course of the next couple of weeks Um, I hope you all have a great weekend. Don't forget that the collocks go forward This weekend. So it's we once again go back to a five-hour time difference between US trading and European trading Otherwise until two weeks from today Um, have a great week trading and I'll speak to you all same time same place In a couple of weeks time. Thank you for listening