 Good morning everyone welcome to CMC markets on Friday the 5th of March and this week's weekly market update with me Michael Houston where I look ahead towards the key events for the week beginning the 8th of March but also have a quick look back at the week's price activity over the course of the past few days and it's been one of those weeks where we've seen divergent fortunes for equity markets in general US markets continue to remain under pressure on the back of rising yields at the longer end of the US yield curve against a backdrop of market pressure that Fed officials start to push back or at least acknowledge some semblance of concern at the speed of the rise in US yields that we're currently seeing as of right now markets haven't really received their wish when it comes to J-PAL head of the Fed, Lail Brainard permanent Fed board governor in pushing back against the rising yields and I think there is a concern perhaps amongst some of those in the investment community perhaps that the Fed is leaving them to a certain extent to fend for themselves and to my mind that is the entirely correct thing to do for far too long now every time the markets have had a tantrum central bankers have rushed to the rescue and ultimately that distorts the market and we're certainly seeing some evidence of that right now unfortunately the lack of action or the lack of pushback by central bankers is going to cause a problem elsewhere in the global economy and that is I think really a problem going forward while the Federal Reserve has decided that it is going to be the US central bank it's sort of forgetting that it's also the world's central bank and the ripple-out effects of the rise that we're seeing in equity markets in general sorry the rise in the rise in bond yields that we're seeing in general is having a ripple-out effect in terms of rate levels long-term debt levels long-term rate levels in the likes of the German bond the Italian 10-year Spanish 10-year in terms of funding costs now at the moment I think concerns about that are slightly what I would suggest over inflated US sorry German bond yields are still well below zero minus 0.27 and minus 0.28 and yes while they are at elevated levels relative to where they were six months ago they're still pretty low I mean even even Italian yields and Spanish yields are inherently manageable levels for the moment but nonetheless it does give the European Central Bank a bit of a problem and I'll be talking about that when I talk about the ECB rate meeting that's coming up in the coming week on the 11th March because while the ECB has been much more vocal in coming out against this rise in US yields it's been notable that US officials have been a little bit more relaxed about it and Fed Chair Jay Powell made some comments on Thursday night to the Wall Street Journal event where he said he had his eye on the recent rise in yields but didn't really express any concern about them his reasoning was that they're an entirely logical consequence of expectations of a significant economic recovery and that may well be true but certainly there are inflationary pressures building up in the system you only got to see it in the recent prices paid data on the ISM reports that we saw in the first part of this month and obviously the rise the rise in oil prices is also is also a concern if we look at where Brent crude prices are right now and we look at this chart in particular and I think there is risk that in not deciding to cut production shall we say is that there is a risk that the Saudis may well be overplaying their hand when it comes to easing the production using the production cap because I think one thing that we can probably agree on is that if oil prices rise too high then you could well hasten the transition towards renewables much more quickly but also I think there is a risk that you could actually choke off the economic recovery as rising fuel prices eat into consumers disposable income so the rise in the oil price towards 70 dollars a barrel I think is a concern particularly if we return to the levels that we saw at the beginning of 2020 I think as long as we don't go above that I think it's probably manageable we can see from this chart here that this 72 dollars a barrel level is fairly significant in the overall scheme of things and we I don't think we will want to see a sustained move really above those 2020 peaks so I'll be keeping an eye on that I think on a more positive note the rise in base metals prices does appear to be running out of steam now last Friday I recorded a video talking about the prospect have we seen a copper top raising the prospect while we've seen some fairly decent gains in base metals prices we could be and this is very important in terms of the overall inflation debate we could have well I've seen a top and could well be about to correct lower now this copper chart which I showed last Friday I made the case for lower copper prices now obviously since last Friday we have come quite a bit lower nonetheless this could just be a minor correction in the overall scheme of things but nonetheless it is very welcome that we do appear to have found a little bit of a top overall certainly the weekly candle suggests that a top is in as does the daily candle and we've seen an even steeper fall in nickel prices so I think going forward if if if nickel if base metals prices continue to come off then I think that will be good for lowering inflation expectations and certainly it's no surprise that the selloff and copper that we've seen is also coinciding with selloff in US equity markets has been a fairly decent correlation between the two over the course of the past few months certainly what's leading the decline has been the NASDAQ which is obviously the one of the more richly valued areas of the US stock market and on a technical basis this particular move down below 12,750 does speak to potential further declines in the more richly valued parts of the US equity market space and certainly I think if we look at European markets while US markets look set to decline for the third week in succession European markets have actually held up fairly well and I think one thing that we can say and one thing that I have noticed is that while high yields in the US could prompt lower stock markets I don't think we can say the same for markets in Europe because even if yields do continue to age higher in the US it only becomes a real problem if US yields start to go through 1.6 1.7 1.8% and impact the evaluations of the more richly valued areas of the US markets European stocks aren't in any way close to being valued in the same way and as a result I think a US market selloff won't necessarily act as a significant drag on European markets certainly the declines that we've seen over the course of the past three weeks if we look at say for example the NASDAQ 100 here we've seen three weeks of declines in that which you would suggest is disappointing and certainly it is if you're a tech investor but if you actually look at say for example the German DAX and look at this chart in particular we posted a new record high this week and if we look at a weekly chart we're actually up on the week so the declines or the weakness that we're seeing in Europe is certainly outperforming what we're seeing in the US and I think when you hear about headlines of big selloffs in US markets talking about correction territory talking about bear market territory if we look at European markets you really can't make the same case again here the foresee 100 looks set to finish up on the week so again we are seeing what I would call significant divergence between US markets and European markets and that could well continue over the course of the next few weeks until we break out of the ranges that we've been in over the course of the past few months so that's my sort of backdrop in terms of what's happened over the course of the past few days another thing that we've seen is obviously the big selloff in gold and again that's not altogether surprising given the rise that we've seen in US yields and there is potential for us to move even lower over the course of the next few weeks particularly if US yields continue to rise now at the moment we are holding above this 61.8 Fibonacci retracement level of 1689 that's a very key retracement level in terms of this overall up move from the lows that we saw in March last year to the highs that we saw in August so we're at a key inflection point here but overall while upward pressure remains on US yields the likelihood is we could well see further weakness and the next key support level on gold below where we are at the moment is this series of twin lows here around about 1670 so gold remains very much reflective of how well US yields do okay so looking ahead to the week coming up there's a couple of there's a few items of macro items I've got my eye on one of which is the European Central Bank rate meeting so let's have a quick look at euro-dollar because we are now starting to drag back down and the ECB will be very very happy about this particular state of affairs we've fallen below these lows here and we now look set for a move back down towards this initial level here which is at 1870 this reversal here obviously didn't quite work at the time because of what happened here but overall my primary targets remain intact and I still think we'll see a retest of the 200 day moving average just based on the premise that the economic rebound in Europe is likely to take an awful lot longer than say for example the US or the UK why because of the speed of the vaccine rollout the fact that coronavirus cases are not going down in France they're not going down in Italy and even though while they're talking about easing restrictions in Germany they're still an awful lot higher than they should be and it's all down to the fact over the procrastination with respect to the vaccine rollout plan they still are very very slow in getting jabs into people's arms and there is some skepticism amongst an awful lot of the population as to the efficacy of the AstraZeneca vaccine which is probably one of the most portable vaccines because it can be stored at a much higher temperature than the Pfizer-BioNTech vaccine anyway looking ahead to the ECB rate meeting there is going to be a concern from the ECB that yields in Europe are starting to get dragged higher by the move higher in US yields and while the manufacturing sector in Europe appears to be performing fairly well while coronavirus restrictions remain in place the services sector will continue to struggle and that will be a particular problem for countries like Italy Spain and Greece who rely so much on tourism earlier earlier in the week we saw Spanish unemployment rise quite significantly and could well be higher than the current 16.4 percent level that it is now record number of Spanish businesses and failed in the early part of this month and that's only likely to continue to increase unless they are able to reopen their tourism and hospitality industry in the summer and that will be very very difficult and that's always assuming that people are allowed to visit without running the risk of not being able to get back into the UK after leaving the country that is going to be a big problem the problem of vaccine passports we've seen some decent rebounds in travel and leisure and hospitality stocks this week on the back of the UK budget but ultimately any recovery in airlines will be contingent on an economic reopening in Europe domestic travel won't cut it you essentially have to have a reopening in Europe and that is very unlikely on the scale that we would need to see to justify a big big rebound in economic activity certainly in terms of the travel sector so what can the ECB do well at the moment it's still the only game in town they're still arguing about the EU recovery fund the 390 billion euros of grants now Mario Draghi he's taken over a prime minister of Italy everyone's lord of him is the saviour of the Italian nation but ultimately for all his good points and for all Mario Draghi's competencies of which there are many he still has to contend with the same political infrastructure that has stymied every other single Italian leader over the course of the past 20 years and to pass any reforms he will need the agreement of the people around him the same people who stymied the efforts of Matteo Renzi Enrico Leta Mario Monti and all other Italian prime ministers before them and after them so while he may be able to push some changes through I think he will find the role extremely challenging even accounting for any good will we've also got China trade over the weekend in the wake of Chinese New Year obviously these are the combined trade numbers over the course of January and February and what we do know is the Chinese economy did finish 2020 on a strong note it's surplus hitting a record high in December with exports rising 18.1% and imports also gaining quite strongly at 6.5% now the big question is given some of the weakness that we've seen in recent PMI data is whether or not the end of year strength will get carried over into the first part of this year and with Chinese New Year I think it's always very very difficult to extrapolate how well or how badly the Chinese economy is doing one thing we do know is that it is very attuned to global demand and obviously a recovery in the US will help Chinese exports but more importantly I think in terms of internal demand that is also started to show signs of picking up as well so we could well see a bit of a surprise there even though we're seeing a little bit of a slowdown in the recent PMI data in terms of other economic data we've also got manufacturing production out of the UK on the Friday along with January GDP numbers now January GDP numbers it's not really going to be a surprise to most people that we're going to see a hefty decline there Bank of England is predicting a 4% contraction in the first quarter of this year but we did see a 1.2% gain in monthly GDP in December services in particular in January is likely to take an absolute hammering because of the lockdown at the beginning of January but we do appear to have avoided the dreaded double dip and the only unknown I think remains about how big the January contraction will be as well as the first quarter contraction will be so non-essential retail is not expected to return until next month the 12th of April schools are going to be reopening on Monday hopefully there won't be a big Monday the 8th of March hopefully there won't be a big spike in infection rates over the course of the next two to three weeks if that is the case then non-essential retail should open as expected on the 12th of April and we should see a slow crawl higher in terms of economic activity as much as restrictions slowly start to get eased now moving swiftly on it's moving away from euro dollars basically from euro dollars perspective we need to really get back above one 2040 to basically try and stem the declines that we've seen thus far but I can't help feeling that we're heading back towards the 200 day moving average and potentially around about one 1820 over the course of the next few trading sessions we've also seen a little bit of weakness in cable that again not entirely unexpected given what we've seen over the course of the past few weeks keep a close eye on this 50 day moving average here draw a line through these loads through here as well that's likely to be the next key area for me also this level through here 137 1020 that was the barrier 2030 that was the barrier for the break higher so given that it's the barrier for the break higher I think we can reasonably assume it should act as a fairly decent area of support on any move lower and that does appear to be where we're heading to in a short to the medium term due to the recent bound of dollar strength that we're currently seeing at the moment so we've got uscpi coming out on the 10th and obviously the recent sharp rise in bond yields suggests that some investors are concerned about upward pressure in prices in the weeks and months ahead recent prices paid data from ISM services and manufacturing suggests that we are starting to see inflationary pressures now that is likely to be as a result of supply shortages which is driving prices up whether or not that is transitory to basically quote a well worn phrase that central bankers love to use remains to be seen we're seeing fiscal stimulus payments already starting to go to seep into the system obviously we've seen a recent sharp rise in commodity prices which could well have significant pass through effects as well and obviously the recent cold snap in the US has had the effect of driving up energy prices in February which also hasn't helped so February CPI could well be on a month-on-month basis be quite frothy in January US CPI slipped back to 1.4 from 1.6 in December we could see this edge back up again in the short to medium term but we also need to bear in mind the oil prices a year ago were a little bit lower than they are now so you could see what I would call an energy pickup in terms of the overall CPI headline number as a result of where we were a year ago and certainly I think we are still well below the levels that we were a year ago when see your CPI was at 2.4% but we could we could well have seen the lows when it comes to headline CPI so keep an eye keep an arm the strength of the dollar over the course of the next few days in the next few weeks but certainly in the context of where we are at the moment we do appear to be on the cusp of breaking higher through the CMC dollar index and that would suggest that we are in line for further dollar gains over the course of the next few trading sessions we've also got the latest Bank of Canada rate decision let's look at the let's look at the loony as it's affectionately known we're in a nice little downtrend here the Bank of Canada is having to contend with similar problems as the rest of North America slow down in hiring trends heading into the winter at the end of last year hiring trends slowed sharply and in terms of the pickup in the jobs market the the pickup in the Canadian jobs market has lagged significantly behind the US labor market and the Canadian dollar has also been rising over the course of the last few weeks which is likely to place downward pressure on inflation so I think if the US economy does continue to improve that should have positive effects on the Canadian economy we're certainly starting to see the US dollar start to pick up gains against the Canadian dollar which I think the Bank of Canada will welcome and if we do break up through this downtrend channel here then we could well see and move back towards 128 I think with interest rates already at record lows of 0.25% and the Canadian dollar close to three year peaks central bank officials will be hoping that the loony has probably hit its peak so that financial conditions don't tighten further not expecting any changes in monetary policy from the Bank of Canada on the earnings front we've got a couple of items which could be interesting we've got Rolls Royce the four-year earnings they're likely to be a little bit of a nightmare shall we say but Rolls Royce shares have been starting to show signs of picking up at one point last year there was concern as to whether Rolls Royce would be able to survive in the wake of the collapse and air travel as a result of the pandemic since then it has been able to launch on various fundraising rights issues and what have you obviously the share price hit a multi-year low all the way back here in October of 35p the government the company is still reliant for 50% of its revenue on aviation air miles the company is certainly going to be hoping for a pick up in air travel over the course of the next few months at its last trading update the company estimated a free cash flow outflow this year of two billion pounds now this was based on a 2021 wide body engine flying hours of 55% of the levels of 2019 with an expectation of turning cash flow positive by the end of the next fiscal year for me this still seems a little bit optimistic given that air travel is unlikely to be able to return to any semblance of normal at all this year and obviously that's before allowing for various cuts to headcount and planned asset disposals so I think Rolls Royce will do well to get anywhere near to half its estimates for wide body engine flying hours of 55% for 2020 but we'll see hopefully Europe will be able to get its act together and transatlantic travel will hopefully start to return to normal particularly if the US starts to continue to roll out its vaccination program we've also got numbers from AMC entertainment in the US now they own the IMAX and Odeon cinemas and though these numbers will be particularly interesting given the volatility that we've seen in AMC's share price in conjunction with GameStop because AMC entertainment has seen its share price extremely volatile over the course of the past few weeks and unlike GameStop AMC management took advantage of the fact that when their share price was higher they actually managed to they actually managed to sell some stock on the on the back of the rise in their share price they managed to raise another 304.8 million dollars bringing to bringing the total sum raised since December 2017 million dollars however I think all that does is to help buy the business more time because we're not really looking for an economic reopening much before the end of Q2 certainly not here in the UK the US might come slightly before that expectations are offer a loss of over four dollars a share and they're also having to contend with the fact the revenues have fallen off a cliff and an awful lot of film companies now like Warner Brothers are releasing their 2021 film slate straight to streaming which means why would you go to the cinema unless you can turn it into a bit of an experience so we've seen a bit of a rebound in AMC but overall you've got a question as to whether or not they will be able to get back anywhere near to the sort of heady heights that we saw in January which actually put the shares and I've got a laugh at this back at the levels they were before the pandemic in 2018 even 2019 so they've been on a downward track for quite some time so it'll be it'll certainly be interesting to see how AMC management view the outlook going forward other people potential other companies to keep an eye on itv's four-year numbers ninth of March Morrison's four-year numbers the 11th of March and Bumble Q4's the latest IPO from Bumble that sprang out of the blocks when it was launched earlier this year online dating app made CEO Whitney Wolfe heard a billionaire overnight and the company raised 2.2 billion dollars let's have a quick look at that just out of interest hopefully I've popped it in my IPO watch list yep there it is and there we have it Bumble so it's popped higher on the open but since it launched this is a five-minute chart mind you so let's basically take it out a little bit to about a day see there it's not been trading that long but since it launched it's pretty much gone one way it's slowly been edging its way lower since it's launched just under a month to go certainly their Q4 numbers are likely to be fairly interesting reading in terms of the overall outlook anyway ladies and gentlemen thank you very much for spending another half hour or so with me thanks very much for listening hope you all have a pleasant weekend and I'll speak to you all same time same place next week thanks very much for listening this is Michael Houston talking to you from CMC Markets