 Good morning. Welcome to CMC Markets on Friday, the 8th of April and this week beginning and the week beginning, the 11th of April. It's been another positive week for the FTSE 100 as it looks to close higher for the fifth week in a row. However, markets on the other side of the channel have struggled to some extent. The CAC 40 in France in particular has come under pressure ahead of the first round of the French elections which are taking place this weekend. We've also seen the DAX come under pressure this week as well. European markets slid back for the third day in succession on Thursday as investors continue to absorb the messaging from Wednesday's Fed Minutes and the Outlying Plans to reduce the size of the balance sheet by $95 billion a month with a potential start date potentially as soon as next month at the main meeting when the Fed is also expected to raise rates by 50 basis points and by and large equity markets have managed to pretty much absorb the impact of that announcement fairly well. If we look at US 10-year yields, for example, we've seen them hit their highest levels in quite some time by moving above 2.6%. We can see that on this chart here. I mean, if we look at what US yields have done since the beginning of the year, they're up over 110 basis points and yeah, equity markets are in the US, that is equity markets are only down fairly modest amount around about 5 or 6%. If we then extend that out and look at say, for example, at over three years, we are at three-year highs for the US 10-year treasury. There is potential for them to go higher. There's certainly an awful lot of discussion at the moment amongst US policymakers about where the Fed funds rate is likely to be by the end of this year, where the neutral rate is likely to be. On Thursday night, we had Rafael Bostic of the Atlanta Fed and Charles Evans of the Chicago Fed who said that they envisaged the Federal Reserve raising rates towards the neutral rate by the end of 2022, this year, potentially early 2023. That does raise the question as what the neutral rate is when you've got CPI. US CPI, which is likely to move through 8% next week currently at 7.9%. One of the key items that I'll have my eye on in the coming days is the US CPI print for March. Which is due out on the 12th of April. In February, it was at 7.9%. It's likely to move well above that in the March meeting. Certainly, not the March meeting in the March numbers. The reason for that is the big jump that we've seen in the prices paid components of the various ISM indices that we've seen released in over the course of the past couple of weeks manufacturing and services. They both jumped sharply in March. Again, the story is inflation. Very much so. Very much inflation. We've got UK CPI next week for March. We don't even have the energy price rises that kicked in this week or 54% for domestic consumers to absorb. They haven't been absorbed yet. The tax rises in national insurance, which kick in this week. They won't be in the numbers quite yet. The rise in council tax, rises in council tax, that also will be in the April numbers. We won't know what they are until May. The worst is yet to come for the UK consumer, notwithstanding the measures that the Chancellor announced in his recent budget, which ultimately are unlikely to have a significant effect until July. The change in the national insurance thresholds, for example, that the Chancellor announced in his spring statement won't actually kick in until July. We'll have three months of national insurance rates or thresholds that are at the slightly lower level and won't kick in until the changes are implemented in July. The outlook for inflation still remains a pretty dark one, certainly as far as the UK and the US is concerned. On the wages front, we've got the UK wages data, which is due out on the Tuesday, as well as unemployment number. I think that is probably one of the saving graces if you can call that in this global, and it is global, this global cost of living squeeze. If we look at the cost of UK, long-term borrowing, guilt prices, guilt yields, they're also edging higher, albeit not at the same level as US Treasury yields. The US dollar is back at levels, the US dollar index is back approaching the 100 level, its highest level since May 2020, as rate differentials and the hawkishness of the Fed helps to drive the US dollar higher pretty much across the board. The biggest losers this week have been the Japanese Yen and the Euro. But certainly in terms of interest rate expectations, the outlook I think for UK rates is likely to see further rate increases. Will we see another rate hike in May? That is probably less of a certainty for the UK central bank than it is for the Federal Reserve, but nonetheless, I think the Bank of England may well be forced into it because of the weakness of the pound, particularly against the dollar. Given the fact that most commodity prices are in US dollars, I think it's in the Bank of England's interest to at least try and hang onto the coattails of the Federal Reserve when it comes to raising interest rates. This still seems a certain element of doubt as to whether or not Federal Reserve will actually be able to implement the number of rate rises that they are potentially talking about, given concerns about the US economy. But as I say, that remains to be seen. Looking at the key chart points on the major indices, FTSE 100 up for the fifth week in a row, approaching those previous highs that we saw in February around about 7,686. That's the next key resistance level if we take it back even further than that. Obviously, we've got the record highs that we saw back in May 2018. So we are holding up fairly well. I think the weakness of the pound is probably playing into some of that. Obviously, the strengths of commodity prices, although oil prices are slightly weaker this week. But overall FTSE 100 is holding up fairly well. Less obvious is the direction for the DAX. That is still looking a little bit on the soft side. I think obviously there is an element of proximity concern there with respect to events in Eastern Europe. Obviously, Germany's reliance on Russian fossil fuels is playing into the weakness in German equities. The potential for an embargo on Russian oil and gas is pressure for Germany and the EU to act given events in Ukraine and the Butcher massacres and other potential atrocities could well see further pressure brought to bear for Germany to cut its reliance on Russian energy imports. I think that is potentially weighing on German equities more broadly. Certainly, if we can look at the direction of travel when it comes to the highs here, downside pressure remains. We really need to see a break of this peak here around about 14,800 even if we do break above this downtrend line from here. But certainly momentum does appear to be waning when it comes to the direction of travel for the DAX. S&P 500 slightly more positive. We've managed to move above the previous highs that we saw in February, albeit very, very briefly. We have since slipped back. Obviously, we hit three months highs on the S&P 500 last week. So you're going to see a little bit of profit taking on the back of that, particularly given the direction of travel when it comes to US monetary policy and some concerns about the resilience or otherwise of the US consumer. At the moment with unemployment rate back at pre-pandemic levels, wage growth around about 5.6% are fairly positive payrolls report. I think there is some optimism that the US consumer will be able to absorb some or for the most part the cost of living squeeze that most consumers are undergoing. But given the US consumer credit numbers for February, I think maybe there is an underestimation or an overestimation perhaps of the amount of savings that US consumers currently have. US consumer credit for February jumped from fairly low figure in January to $41 billion. US consumers borrowed $41 billion, a record high in February of that credit card debt jumped from $3 billion in January to $18 billion in February. So if you've got savings, why would you put money on credit cards? And certainly why would you go and borrow money on credit cards at a time when interest rates are likely to go up quite significantly over the course of the next few months? That doesn't sit right. Having said that, it's important not to place too much store on one month's numbers. But certainly that big jump does raise questions about how much excess savings, excess in inverted commas US consumers have. So I think that's something to keep an eye out for. US retail sales, US personal spending over the course of the next few months. Because that could give a good indication as to how much disposable income US consumers currently have. And certainly I don't think they're going to fill the pinch in any way the same way that UK consumers are when it comes to higher energy costs. I mean, they're still filling the costs from high gasoline prices, but certainly with the fact they have their natural gas prices are much lower. Certainly the costs of doing business are slightly lower. So in terms of the numbers that are due out this coming week, we've got UK wages and unemployment for February, which is due out on the 12th of March. Certainly I think the more dovish commentary from the Bank of England has been weighing on the pound. The big support level on cable, this is for our chart, it's 130. It's the March lows that held in mid-March and we saw a rally back to 133, which coincided more or less with this sort of series of lows through here. This is really worrying for me in terms of the reactions of the lows. The highs are getting lower. The rallies are becoming much more difficult to sustain. So the big question is, can this 130 level hold? If it breaks, then what are we looking at thereafter? Certainly if we look at that chart there, the momentum is clearly towards the downside and that is a worry. So if we do break 130, then the next move is back to this area here of around about 12820. And if we take Fibonacci retracements of this move here from 114 to 14240, 50% of that is 12825. So 130 is a really big level. So we really need to keep a close eye on that because if we break below that, we could see a series of stop losses triggered and a reaction towards the downside. So I'm keeping an eye on 130 and stops down to 12960 because that could be a trigger for a move lower. Wages are expected to remain fairly resilient on the plus side for the UK consumer. They're currently at around about 4.8% for the three months to January. They are likely to continue to go higher. We've already seen the fact that upward pressure on wages is already forcing UK retailers to move prices higher. Tesco's is reporting in the coming days and they've already announced a 5.5% pay rise for their employees and that's likely to be increased. Sainsbury's has been doing the same. Aldi and Little have all been putting their wages up more than by 5 or 6%. So that is likely to support wages going forward. Of course that's not going to come anywhere close to offsetting the rise in the cost of living that we're about to see in April but it will certainly help and when the national insurance thresholds in July get raised obviously that will help as well. CPI currently at 6.2% certainly likely to go higher over the course of the next few months expecting a move towards 7% in the March CPI numbers. If we look at EU CPI that jumped quite significantly in March to 7.5% from 5.9%. Well if you extrapolate that out to the UK jump that we expected to see in March numbers then 6.2% we were in February we could well go through 7%. Expectations economists forecast are expecting a move to 6.7% that could well be an underestimation. RPI that looks even worse. So certainly in the context of inflation it's not likely to be a pretty picture. As far as euro sterling is concerned that's like watching paint dry but you've got to think that if we get a strong inflation number that is going to increase the pressure on the Bank of England to hike rates in May in addition to what we saw obviously at the previous two meetings where they hiked in consecutive meetings so we could well see a move to 1% base rate at the May meeting. Talking of interest rate increases we've got the Bank of Canada this week. They for they for went or foregoed the decision to raise rates at their last meeting which I felt was a mistake and now they're going to be playing catch up when they meet on the 13th of April. With the Fed having raised rates themselves already now the Bank of Canada now has cover to do the same I think the big question is will they raise rates by 25 basis points or will they go by 50 so raising them from 0.5% to 1% given the hawkish commentary that we've been hearing from the Fed over the course of the past few days. My hunch is they'll go by 50. I think the market expectation was for 25 at the beginning of this week that has shifted slightly over the past few days we could well see a 50 basis point rate move from the Bank of Canada. If they go by 25 basis points I don't think that's going to cut the mustard so certainly expect to move a 50 basis points from the Bank of Canada when they meet later this week. We've also got an ECB rate decision. I expect more fluff from the ECB this week in the minutes that were released on Thursday. I think there was an awful lot of complacency about the risks that higher prices are likely to have on the Eurozone economy. Unfortunately for the ECB they're stuck between a rock and a hard place. I mean the March CPI number went to 7.5% a record high and other parts of the Euro area it's even higher. I talked about this at great length in the Baltic states we've got inflation rates above 10% now even in the bigger European northern European economies like Germany the numbers are now well above 7% and at post unification record highs so I don't see how the ECB can avoid raising rates at least twice this year given the direction and travel for prices. If they continue to push back against the possibility of a rate hike then this trend line here is going to come under enormous pressure. We've seen this trend line we've talked about it, we've talked about it before from the lows back at 103 in 2017 a break below 108 is certainly likely to trigger quite significant Euro weakness. We're already seeing the dollar index push back to the 100 level and if the dollar continues to push higher and there is an increasing reluctance on the part of the ECB to acknowledge the fact that there is a significant stagflation risk in terms of doing nothing then the Euro is likely to come under further pressure so ECB rate decision on the 14th just before Easter it's a shorter week shorter week this week. The ECB doesn't have the luxury of doing nothing. People like the Bundesbank, Jürgen Nagel of the Bundesbank has already articulated his discomfort about the direction of travel when it comes to rates so you're going to find that the hawkish voices are likely to get ever louder as inflation continues to push higher. So that's the outlook let's have a quick look at Brent prices. I think one of the one of the one of the more welcome outcomes of this week has been that the fact that oil prices continue to come under pressure and this is despite calls for stricter embargoes on Russian oil and gas. Obviously we've seen two reserve releases another reserve release over the course of the past couple of couple of weeks and oil prices do appear to be tracking lower. This is likely to be temporary but I think what's certainly helping prices fall is the COVID-19 lockdowns in China. We've got China trade numbers due out on the 13th of April it'll be interesting to see whether the various lockdowns the various restrictions have hit demand in the Chinese economy I would suggest that it'll be very very surprising if they haven't when you put a city like Shanghai of 26 million people into a COVID a strict COVID lockdown you're not going to get a significant pickup in demand you're going to see a massive drop-off in demand and certainly China's zero COVID policy is being tested and in my opinion it's completely unsustainable and ultimately that will break. The big question is where that breaking point is big level on Brent crude $98 a barrel these lows back in March we are looking for a potential push lower we're not likely to see much downside but certainly I think a break of $98 could see the potential for further declines going forward so let's look at Tescos we've got Tescos four year earnings on the 13th 200 day moving average big big support level as well as the March lows I think the big question for me is not so much about how well Tesco has done over the course of the past 12 months they've done very well certainly the direction of travel the share price has been fairly solid I think the big question for me more than anything else is how much of their costs increased that I think is going to be one of the key tests for Tescos and the big challenge going forward in the face of competition staff rising supply chain costs rising energy costs to squeeze on consumer incomes which is likely to quick squeeze supermarket margins so not so much about the backward looking numbers it's about how Tesco sees the outlook going forward I think and that could have a big impact on where we see the future direction of the share price which to my mind you know the share price is still very undervalued easy jet we've got easy jets latest numbers as well Q2 seen a little bit of a rebound since March obviously we've seen all of those headlines of cancellations COVID enforced sickness which could well have impacted its Q2 numbers one thing we can say I think with a certain degree of certainty is the load factor in Q2 is likely to have improved quite significantly fuel costs to 60% hedged at $504 per metric ton compared to the current price which is much higher the airline has said that Q4 capacity on sale is back to 2019 levels with an expectation that the current quarter could come in above 67% of 2019 levels obviously recent events could well have a part to play in that but I think if you think that things are going to start to get back to normal and this present bout of absenteeism is a blip then potentially there's more upside and easy jets share price than there is downside US bank earnings it's the start of US bank earnings season I'm not going to look at anything more than JP Morgan their numbers are due out on the 13th but we also have Citigroup Q1 numbers on the 14th and we've got Goldman Sachs Q1 numbers on the 14th but I'm going to look at JP Morgan the numbers here have been in the slow move lower over the course of the last three months large part of that has been concerns over the impact that rising interest rates is likely to have not only on consumer demand but mortgage demand you look at US mortgage demand that has fallen quite significantly US mortgage rates have gone up quite substantially over the course of the past three months you've only got to look at the 10-year yield to understand that US consumers will now be paying more on their mortgages than they were at the beginning of the year if we look at say for example JP Morgan profits most of the profits over the course of the last 12 months have been boosted by releases from loan loss reserves obviously that is not a factor that the JP Morgan will be able to price in going forward higher rates the last set of numbers prompted a 26% fall in home lending revenue credit card and auto loan demand also saw revenues fall 9% in Q4 to five billion dollars that's the trend that's likely to continue in Q1 and the Russia situation will have a significant impact on JP Morgan as well as Goldman Sachs as well as Citigroup all of those banks had operations in Russia so the withdrawal from Russia is also likely to have impacted their Q1 numbers all will be acknowledged in future numbers for the rest of the year so and JP Morgan has already said that is expected to see losses of one billion dollars and its Russia business as a result of its withdrawal from that so pay particular attention to the Russia exposure for US bank earnings when the numbers are released later in the week so that's pretty much it for this week once again thank you very much for listening ladies and gentlemen I hope you all have a great weekend and I'll speak to you all same time same place but on Thursday next week thank you for listening