 Good morning, welcome to CMC Markets on Friday the 16th of April and this quick look at the week ahead beginning the 9th of April with me, Michael Hewson. Before we get started, just put up a couple of risk warnings, but I think it's fairly safe to say that this week has been a fairly positive week for equity markets in general. We've seen record highs in the likes of the Euro stocks 50, the DAX, the stock 600, the C250, the S&P 500 and the Dow. Other indexes have indeed lagged behind, but certainly I think the prognosis for equity markets continues to look by and large fairly positive. This is despite improvements and I say despite improvements in economic data because normally what has been happening this year when economic data has come out much better than expected is bond yields have gone up. That hasn't happened over the course of the past few days which is slightly counter-intuitive and I'll explain that because ultimately the sliding yields that we've seen over the course of the past few days has been particularly puzzling simply because for the past three months yields have been on the rise due to concerns about higher prices, higher perceived concerns about higher levels of inflation and a strong economic recovery driven by large-scale fiscal and monetary stimulus both of which, all of which we're currently seeing weekly jobless claims at a post-pandemic low 576,000. We've seen CPI numbers come out higher than expected. Now it's easy to dismiss the CPI numbers why simply because you're having to take into account base effects inflation measurements a year ago or much, much lower than they are now simply because most of the global economy was in lockdown that has a deflationary effect on prices. So if you're comparing a deflationary shock a year later to the prices now you're always going to have slightly elevated prices. Yes there are concerns certainly I think in terms of prices paid, data that has been trending quite a bit higher that is largely down to supply chain constraints but overall the data has been by and large fairly positive and certainly in terms of the retail sales numbers that we saw out of the US. I did flag last week that we were likely to get a fairly decent beat on the basis of the fact that the stimulus checks hit the door mats in March and it would have been surprising would it not if we didn't get a significant rebound in retail sales off the back of that and that's exactly what we got 9.8%. So what does that mean for inflation expectations going forward because ultimately we got the data we expected and the yields fell back. So I think for me we can extrapolate that a number of ways either that the recovery is in the price already. Certainly I think there is there is an argument for that or that markets think that this could be as good as it gets. Now personally I don't think this is as good as it gets because the latter point doesn't bear up to scrutiny given that the April payrolls data which is due in two weeks time could well be even stronger than the March 916,000 new jobs that were added. So I think what we could be seeing here is perhaps a temporary leg lower before we get further upward pressure on yields. Maybe the market was so one way that it had nowhere else to go but down. Now certainly in terms of the price action that we're looking at here in terms of the 10 year yield what is significant and this is a warning sign is we've broken below the 158.75 lows from the 25th of March. There was a double tap there on the downside. We closed below that. Now what really needs to happen is for us to hold below 160. Now obviously if we move back above 160 that doesn't necessarily mean we're out of the woods. We do appear to be now in a slightly shorter term downtrend for US 10 year treasury yield. So maybe the top is in. We don't know yet. The data could get better. It certainly won't be anywhere near as good in terms of retail sales but certainly the labour market has potential to improve further. So the big question is how well does the labour market continue to improve but also what do prices do relative to the improvement in the labour market and that is likely I think to drive US bond yields over the course, long-term bond yields over the course of the next two to three months. So at the moment we appear to be capped around about 175. I think the next key support area is likely to be this low here around about 147-148. Take 150 I think probably as a fairly key support level overall. It's a nice round number but overall there does appear to be a slight change in emphasis now and that potentially we could start to see bond yields start to trickle off a little bit if the upcoming inflation data starts to show signs of levelling off. Certainly the markets appear to be pricing that in. So that's something that we'll be paying particular attention to over the coming days and I think that's what is helping to boost equity markets as well. I think diminishing fears about rampant inflation. I don't think that was ever likely irrespective of your views on the scale of the stimulus that's coming our way. There's still a significant demand shortfall at the moment and I think that while there is a demand deficit it's going to be very difficult for prices to start running away. We've seen an improvement in the latest Chinese economic data, China GDP, rose an annualised 18.3% in the first quarter again. Base effects account for the extent of that rebound in the first quarter of last year. The Chinese economy was in lockdown. Same applies to the retail sales numbers but I think one thing about the China retail sales numbers is that finally we appear to be seeing clear evidence that the Chinese economy is rebalancing more towards services and away from manufacturing and that is a good thing. A 50-50 split between the two is generally positive. Going forward I think the outlook still remains fairly positive for stock markets in general. Now you can argue about whether or not valuations are justifiable at current levels but at the end of the day we're not talking about the fundamentals here. We're talking about price and you could say well surely price reflects fundamentals. Well yes and no but price also reflects the amount of available liquidity that's sloshing around in the market. That liquidity has to go somewhere so essentially it goes into the markets. Now if we look at the FTSE 100 we've broken higher, we've finally hit that 7000 level. Whoever said patience has a virtue is a liar because it's been such a long time coming but finally we do appear to be seeing signs of the FTSE 100 on the cusp of potentially starting to ratchet its way higher. It's still got quite some way to go until we get all the way back here in the back of 2020 when we saw 7689, 7700 but we appear to be on the way there assuming we can hold above this 7000 level that we've broken above at the end of this week. But I've still got an end of year target on the FTSE 100, maybe a little bit conservative around about 7400. So FTSE 250 is already made record highs. If we look at the German DAX it's a similar sort of story. We've finally broken towards the upside after trading sideways three or four days but we can see quite clearly from this chart here we have a series of lows all the way through 15140. So stands to reason if we get a dip back there's likely to be very key support in and around the series of lows through here. Again the trend is your friends do not try and pick the top you're in the middle of an uptrend and the only reason to look at shorting a particular market or selling a particular market is if you're already long it's very much a case of the trend is your friend until it comes to an end and I know that sounds very cliched and I make no apology for it because ultimately it's the way that any sensible trader should trade markets you trade with the trend not against it. Here again the S&P 500 once again new record highs this week. Next target now 4200. So where's the support level I hear you cry? Well again I think if we're looking at the levels over the course of the past few days we can see there's fairly decent support in and around 4100. The lows there on the 12th of April and obviously the lows on the 13th of April 4100 is as good a support level as any given the fact that we found decent support there on Monday and Tuesday of this week. We're now at 4168 but it certainly does appear to be where the market wants to go. The NASDAQ is underperforming a little bit again that worries me somewhat but nonetheless what we have finally seen is a break higher on the NASDAQ through 14,000. Certainly we can see there's decent support all the way through these lows through here around about 13,780. Again it's looking for levels where the market has rebounded from. Now if you want to drill down into slightly greater detail on that it's fairly easy to do we can do that here and we can see throughout the week this week we found fairly decent buying interest in and around 13,780. So very easy to drill down into the detail you can see that there and gives you a much clearer idea of where the key support and resistance levels are. So as I say we've looked at all of them and now we can look ahead with a little bit of confidence I think in terms of what's coming up in the week ahead and it's quite a busy week by all accounts it's probably going to be a key focus on the UK economy which brings me on to the subject of the pound which has looked incredibly weak over the course of the past few days and I'm struggling to explain the reasons for that in the same way I'm struggling a little bit to explain why treasury yields are as weak as they are given the strength of the economic data that we've been seeing coming out of the US. Nonetheless you can't ignore what the price action is doing we've had a good run higher in the value of the pound over the course of the past few weeks and months and maybe now is a time for a little bit of a reassessment as to where we go to next but at the moment the sterling index the CMC sterling index is finding support with the bottom end of this downward channel that we're seeing here so maybe there's a perception perhaps that we're starting to find or we're trying to stretch we're trying to find a bottom basically and certainly I think that's particularly prevalent in the way that euro sterling has been behaving that's been the ultimate pain trade if you're playing a short position certainly in terms of where I see euro sterling I don't like it here I think it's probably needs to be lower but nonetheless I think so does everybody else and that's why I think it can start to become what is perceived to be a little bit of a crowded trade so that makes this week's coming economic data out of the UK that much more important obviously the the rally in the pound has been largely as a result of the successful vaccination program that's being rolled out and perceptions that the economic recovery here in the UK will be much stronger than say for Europe than Europe now Europe is obviously behind in its vaccination program but by and large the data that we've been seeing out of Europe has despite the evidence of a third wave been improving ever so slightly on a month-on-month basis certainly in terms of the flash PMIs that we've got coming out later in the week from France Germany in the UK it's been clear for several months now that economic activity between the services of manufacturing has been diverging nonetheless we have started to see a little bit of improvement in services relative to manufacturing manufacturing has been very very good certainly in terms of the PMIs out of France and Germany but we're starting to see evidence of a little bit of divergence between the French manufacturing PMIs and the actual hard data because February manufacturing and industrial production for France was absolutely dreadful at the same time as the PMIs are fairly positive so there is a little bit of a divergence there which is difficult to explain just by looking at the PMIs so we need to be a little bit careful about that nonetheless we've got the flash PMIs for April coming out later in the week and they should give us a good indication as to whether or not services is going to continue to improve going forward so keep an eye out for them given the fact that we're getting large second waves of infections in Germany and France and see whether or not the improvements that we saw in March are sustained I suspect they may find it difficult to do so but in terms of the UK data that we've got coming out I think the big level on euro sterling is highlighted on the chart that you can see in front of you right now it's around about 87.30 there is evidence perhaps the shorts in sterling are starting to get a little bit squeezed and we can see further squeezing if we break above 87.30, 87.40 so that for me I think is the key level going forward if we do break high we'll probably get a sharp move to 88 and the 100 day moving average but nonetheless one buyer still remains for a stronger pound and a weaker euro we've also got the European Central Bank rate meeting so there could be a little bit of what I would call position squaring ahead of that because I think some of the narrative out of the European Central Bank in the past few weeks has been not as dovish perhaps as you'd like it to be there's been I think there's significant divisions on the governing council about the scale of the asset purchase program that's currently being rolled out across the euro area you've had a count number of members French central bank governor for example the Villa Roy Gahal basically saying that he wants to terminate the asset purchase program by March 2022 which would be well ahead of any potential timing from the Federal Reserve so that's giving a slight upward bias to euro against dollar and obviously that is bleeding through also against the pound so I think that explains to some extent why the euro has started to gain ground a little bit I think in terms of the other currency pairs because I think Christine Lagarde is going to find it much more difficult to draw consensus on future monetary policy decisions going forward if the vaccination program continues to get rolled out particularly across Germany and France and the rest of Europe and essentially the consensus could start to fracture as we head into the end of Q2 and the beginning of Q3 but as they say you know week is a long time in politics is an even shorter time in financial markets anyway moving swiftly on still think euro sterling big level 87 30 keep an eye on that but overall my buyer still remains for a stronger pound weaker euro which brings me on to the data that we've got out over the course of the next few days so we've got UK unemployment for February on the 20th of April we've also got the jobless claims numbers now obviously I think what's less important about the unemployment numbers is the fact that they are very much a lagging indicator certainly I think while the furlough is still in place there is a certain element of disguising the true level of unemployment but I think what is encouraging is that business optimism at its highest level for 13 years and vacancies are starting to rise as well so while unemployment may go a little bit higher over the course of the next few months expectations are that it will actually peak at a much lower level so the ILO measure of unemployment is expected to see a modest tick down in February to or sort of saw a tick down in January to 5% slipping back from 5.1% in December it's likely to stay around those sorts of levels in the February numbers what was more surprising was that we saw a big rise in jobless claims from 7.2% to 7.5 so it'd be interesting to see in terms of the March jobless claims as to whether or not we start to see them slip back given the fact that we're starting to see vacancies start to rise again we still can't disguise the reality there are 700 thousand fewer jobs in the UK economy since this time last year obviously most of those losses are in the hospitality sector and in the under age 25 cohort so you know I think I think these these could be a key indicator as to whether or not we're starting to see early signs of a peak in the monthly jobless claims numbers and whether or not we start to see them come down we've also got UK retail sales for March we're not likely to see the type of retail sales gains that we saw in the US far from it because ultimately there haven't been any stimulus checks sitting doormats here in the UK and the UK economy was still locked down in March as well so we saw a big slide in UK retail sales in January of 8.2% in February this saw a modest reversal of 2.1% as people took advantage of garden centers and DIY centers still being open 16% rise in household goods helped offset a 50% decline in clothing sales I think anyone expecting a big jump in March could well be disappointed but we could still see some fairly decent activity in DIY and garden centers as people look to the planting season when it comes to looking ahead for the spring and certainly I think in terms of the UK GDP numbers we have seen a much shallower contraction in January and February than was originally feared so I certainly think in terms of how the UK consumer is feeling I think there is a growing sense of optimism as we head towards a further unlocking of the economy not only here in April but also in May when indoor hospitality starts to reopen as well public sector borrowing yeah well less said about that the better but I think what we can say is it's likely to come in at a record level another 19.1 billion pounds was added to the national debt in February and net borrowing rose to 278 billion year to date with this week's March number expected to see borrowing get close to an even probably push above 300 billion pounds now this needs to be put in perspective it's still lower than was originally forecast a few months ago and has been helped by a number of businesses returning their furlough money and business rates money as they successfully adapted their business models to a much more online operation so you know I think it really depends on whether you're a glass half full or a glass half empty person personally I think given where we are at the moment I'm probably more glass half full and and as such given the fact that everyone pretty much everyone is in the same boat I think whatever the public sector borrowing numbers are at the moment UK guilt yields are still around about 0.73% so it's eminently serviceable even if it is eye-wateringly high as I say we are not alone in that regard and we've also got flash PMIs for April coming out for the UK economy and they're likely to be good fairly positive as well given the fact that we saw a big jump in UK services PMI in March as companies started to restock ahead of the reopening in April so hopefully now that we've seen a partial reopening of the economy in April that trend will continue so brings me on to sterling dollar pound dollar cable whatever you want to call it still big support 1.3670 that's the key line in the sand the further cable losses for me on the upside we're struggling to get much above 1.3820 1.3830 if you want to keep abreast of my updates on that you can find them in the chart forum right there they can be seen here so I put an update here we've seen four days of gains this week I think the thing that worries me a little bit about this is the lack of really an impulsive rebound off those 1.3670 lows but whilst 1.3670 holds I still think that ultimately the pound should break higher so that's the key line in the sand for me with respect to cable 1.3670 we can talk about euro dollar as well we've seen a decent rebound in that and it does look as if we could well be about to start heading higher so the big question then becomes if euro dollar goes higher does it take cable with it or does it push euro or does it take euro sterling higher now it is looking very overbought but at the moment I'm choosing to disregard that because ultimately it clouds my thinking it's a question of what's the price doing so the next resistance level is here it's currently where we are at the moment it's around about 1.1980 1.20 if we can hold below that we should start to roll back over but if we're able to push above 1.20 and it's quite likely stop losses will get triggered and we will push higher so it's really about mechanics it's about how if you're looking to short euro dollar where do you put your stop loss where would you put it you put it just above 1.20 and if 1.20 goes bid it will go 10.20 then we'll probably like we'll probably see a row of stops taken out we'll probably head back to around about 1.20 and a half but while we're below 1.20 then the likelihood is we'll drift back down to rules around about 1.1980 1.20.20 so it's really about levels trading levels when you're trading currencies if you forget that lesson for any minute you're likely to get burnt pick your levels and trade the levels accordingly okay so as I say UK retail sales 23rd public sector borrowing 23rd UK ILO unemployment jobless claims 20th of April ECB rate meeting on the 22nd of December how does Madame Lagarde basically bring together the divergent views of what the ECB can and can't do over the course of the of the next few months certainly PEP will be front and centre and ultimately how do they see the outlook for the eurozone economy I would imagine that it'll be a copy and paste from the last meeting but who knows moving on it's also set to be a big week for company earnings we've already seen US bank earnings this week they've been by and large extremely positive as loan loss reserves get basically rotated back onto the bank's balance sheets and thus helping to boost profits but nonetheless we've seen some really decent numbers over the course of the past few months one other question that I was asked as a result of one of these videos was could I do some could I cover some more exotic currencies I will I will try and do that if time permits but ultimately I think one thing about these particular videos is that they preview what's topical in the week ahead and say something like sterling mexican or dollar or dollar south african rand is probably not that topical but what I can do is I can update the chart forums for those currency pairs and that's what I've done with sterling mechs and dollar south african rand they're in the chart forums you can find the chart forums in the news and analysis section there you display it there and it displays it here so sterling mechs for example I put some chart analysis in there you just click on that button there and then it displays it there and the analysis is displayed in the left hand column there so the chart forums is a great vehicle for essentially posting analysis of a particular market and essentially inviting feedback if you want it from other like-minded traders okay so moving on we've got company earnings from the likes of associated British foods johnson and johnson taylor wimpy and netflix so i'm going to start with netflix given the fact that we are potentially coming out of lockdown and netflix is starting to find competition heating up from the likes of amazon prime disney and apple and they those those those companies will be reporting in the week beginning the 26th of april but in particular netflix i'm particularly interested in netflix because it's the market leader now at the end of last year netflix managed to show it's fending off the challenges from the likes of disney plus apple tv and amazon prime by reporting 8.51 million new subscribers on posting revenues of 6.64 billion dollars in its final q4 numbers now this is key because it also projected that subscribe subscriber numbers in this first quarter would rise by six million with profits expected to come in around about three dollars a share now despite the challenges being posed across the entire sector next netflix has still been able to increase its prices which means the big question given the fact that it's increased its prices in this quarter is will it be able to um sustain the subscriber growth that has been that we saw that we've been seeing over the course of the last 12 months that will be the big test currently netflix subscribers are now north of 200 million 203.7 now the american market is saturated there's not much growth potential there but certainly international markets it's continuing to grow market share the company is also saying it's looking to target an operating margin of 20 as well as being cash flow positive by the end of this year now that's highly ambitious but these numbers will give us a decent indication as to whether or not netflix is it's only work on its way to achieve to achieving that goal downside risk as we look ahead to q2 are likely to be a slow down in subscriber growth as economies come out of their winter lockdowns and we start to go outdoors more and cinemas start to reopen i think that's the big problem so i think we could well start to see netflix management start to become a little bit more circumspect about their growth numbers as we look ahead to the rest of this year so that could mean that the share price that we've seen which has been pretty boring over the course of the last six months will continue to trade sideways albeit with a slightly negative bias towards the downside now i'm going to talk about johnson and johnson why because johnson and johnson has hit the news recently because of its jansen jab it's a one-shot covid jab it's and it's you know fundamentally different from every other vaccination shot out there which are two jabs this is a one jab shot but like astrazeneca it's an adenovirus and there are concerns about blood clots so it'll be interesting to hear what johnson and johnson have to say about that when they announced their first quarter numbers on the 20th of april the company's opt is optimistic about its fiscal year forecasting revenues are expected to rise to around about 82 and a half billion to over 90 and a half billion dollars for the new fiscal year so obviously divide that by four give you a decent indication of where they expect quarterly revenues to come in and first quarter profits are expected to come in around about two dollars a share but certainly in the context of where we are at the moment we're in a nice little uptrend be interested to see whether or not they're able to shrug off the concerns and get approval from us regulators and european regulators for their single shot jab that's johnson and johnson we've also got taylor wimpy the taylor wimpy has been a bit of a strange one when it comes to the recovery in the housing market we are still well below the peaks in house building shares that we were a year ago and that's not surprising simply simply by virtue of the fact that completions have been lower which is not surprising because the construction sector did briefly close over the course of one month between march and april of last year while they adapted their working practices to be more covid friendly operating costs have gone up taylor wimpy's margins almost halved from 18 19 percent to around about 10 percent in their last annualized numbers this first quarter trading update should give us an indication as to whether or not they've been able to start to widen those margins out again they are looking to restore those operating margins back to around about 18 by the end of this year with a view to getting them up to 21 or 22 by 23 24 certainly we've broken towards the upside the housing market still looks fairly strong and the stamp duty holiday has been extended so there are significant tailwinds with respect to taylor wimpy we've also got prime orchestra associated bridge foods their stores are starting to reopen so that will be a significant boost to associated bridge foods there are other business areas have actually done quite well grocery sugar and agriculture have all been ahead of expectations closed retailers has been a little bit of a drag with loss of sales around around around about 1.1 billion pounds so they will be hoping for a significant rebound there so and that brings to an end i think this uh this preview of the week ahead as you can see quite a lot to get through but nonetheless plenty to talk about so keep an eye keep an eye on bond yields over the course of the next few days if we continue to if we continue to move lower then that's obviously going to be fairly positive in terms of inflation risk of inflation expectations and obviously keep an eye out for any other potential sterling weakness as well given the fact that we've come off the back of some significant declines over the course of the past few days so that's it for this week thank you very much for listening this is michael houston talking to you from cmc markets have a great weekend