 Good morning. Welcome to CMC markets on Friday the 8th of July and this quick look at the week ahead beginning the 11th of July It was me Michael Houston It's been an interesting week albeit. I've only been back at my desk in the last couple of days But in that time we've seen markets particularly the German market hit It's a new low for this year before rebounding a marginal low and you know for this year We've also seen a fairly decent rebound in US markets slightly more different in different performance for markets in Europe Although we have seen a slightly more resilient tone in the past few days and at the moment markets are caught in sort of cross currents of fares over Inflation and concerns about recession and if I look back to where the footsie was just Around about two weeks ago When I signed off footsie 100 isn't really that much different to where it was then slightly higher But the backs is quite a bit lower and I think part of them pardon pardon parcel of that and weakness in the decks is partially down to Germany and Europe's exposure I think to Rushing gas and the fact that the Germans are already starting to ration the use of Gas in their own domestic economy already and it's not even when to yet So while an awful lot of the narrative this week has been very much UK focused and The announced resignation of Prime Minister Boris Johnson yesterday The noise of that Has rather overshadowed What has been and could well be a further decline in the euro Parity now those of you with who are regular listeners to these These commentaries these videos will know that in April I suggested that euro was on its way to wards Parity and potentially even lower We remain much closer to that goal now than we were then Also the fact that we've seen the ECB European Central Bank Announced that they're making progress on their frig fragmentation tool personally. I have my doubts about that I think it's going to be More noise than anything else. I think it'll be very very difficult for them to design a policy That will prevent fragmentation without running into Problems with respect to the capital key and the amount of Italian bonds they can buy relative to German bonds But that's the discussion for Another week potentially two weeks from now when the ECB meets on the 21st of July and Certainly a significant tightrope for ECB President Christine Lagarde to navigate as we look ahead to the Upcoming week We've got quite a bit of fairly important macro data coming up but we've also got the start of US earning season and I think Given the current weakness that we're seeing in Stock markets generally Yes, this this earning season is likely to be very important in the overall context of where US markets go next over the course of the past few days. We've seen four days of gains We're heading into US payrolls this afternoon The debate at the moment Amongst Fed policy makers this week or the minutes the Fed minutes from this week Suggests that the Fed is entirely focused on inflation. They don't have Any concerns about recession or if they do they're certainly not manifested They haven't manifested themselves in the minutes where there was no mention of recession despite the fact that US GDP For the first quarter was confirmed minus 1.6% and The fact that in the second quarter things haven't been looking that much more rosy so You know raising the prospect that the US economy could already be in Recession particularly if the Q2 GDP numbers which we get at the end of this month beginning and next month Also show a very weak GDP print Just as a reminder a recession is technically two consecutive quarters of negative growth And we've obviously already seen one minus one point six We may seen we may have seen a bit of a rebound in inventory In Q2 which may well save the US economy from a technical recession But if we look at all the the main indicators retail sales consumer confidence Even the recent ISM numbers, they're starting to show that inflation is also Starting to slow down potentially as a consequence of weaker demand the various PPI numbers PCE numbers have also been in decline for the last two or three months and we've got US CPI coming up later in the week along with US PPI for June and I think this is one of the big conundrums that US central bankers are currently faced with because This week's minutes. Obviously the Fed policy makers reiterated their hawkish stance You had Christopher Waller Fed Governor Christopher Waller and James Bullard of the St. Louis Fed Reinforcing their belief that 75 basis point rate hike is coming in July this month, and I think that's pretty much a done deal I think the Fed have to do that, but I think this afternoon's payrolls report Could play a part in the overall narrative when it comes to what comes after July at the moment the expectation is for some aggressive tightening front-loading rate hikes 75 in July a potential 75 or 50 in September But the next week or so could undermine that September narrative We've also got Jackson Hole as well in August. So there's that but next week US CPI is expected or forecast to rise from 8.6 percent To 8.8 percent now that for me seems rather counterintuitive and the reason for that is that PCE Which is the Fed's core? Inflation mandate has been in decline since February Since it peaks in February PPI has also declined from the numbers that we saw in March down from 9.6 percent in March falling to 8.3 percent in May So and we've seen PCE also come down more than expected in those recent numbers now We've seen the yields jump Over the course of the past week or so the US 10 year yield has jumped up from Closing at around about 2.88 percent last week Well, we saw a big decline in yields and around about Just below 3% now around about 2.97 But obviously today's payrolls numbers could move that dial quite can significantly one way or the other a decent number a Decent payrolls number could push that 10 year back above 3% a week number and by a week number I mean anything less than a hundred Could actually temper those rate hike expectations Particularly if CPI next week Doesn't rise from 8.6 percent to 8.8 percent But actually falls because I think what we're seeing at the moment is US CPI Expectations are moving in completely the opposite direction to PPI and PCE that doesn't ring That doesn't sit right with me now That's not to say that it won't happen and that's not to say that potentially we could see we're seeing some services prices filter through into these numbers But you would expect PPI to be more forward-looking and that's been in decline for the last three months So why isn't CPI going in the same direction? We'll find out more on the 13th of July when we get the CPI numbers And then we get PPI the following day. We've also got US retail sales next week and They actually fell back 0.3% in May And that was slightly unexpected, but really was it was it really when you've got consumer confidence Which has been falling significantly over the course of the past three months and has now dropped below 100 a Michigan consumer confidence is at a record low June retail sales are forecast to come back at around about 0.9% now Let's not forget the only decline in US retail sales we've seen this year was in those main numbers So we could get a bigger revision lower in those main numbers or we could get a weaker June number At the moment retail sales probably aren't telling us the whole story when it comes to how the US economy is doing But I find it difficult to square Cratering consumer confidence with buoyant consumer spending I guess we'll find out on the 15th of July Anyway in terms of the rebound that we've been seeing thus far in US markets It's been a fairly decent rebound over the course of the past Couple of weeks from the time that we made those lows on the 17th of June We've been slowly trending higher, but we're still very much in the context of the overall downtrend That's been in place since those peaks back in March. So I'll be paying particular attention to how NASDAQ behaves around these peaks here around about 3950 but also the 50-day moving average and see whether or not we get a move back towards 4,000 I think 4,000 is probably the most important level there in the NASDAQ When it comes to the S&P 500 it's a similar sort of story again Taking the peaks from March drawn a line through the peaks there and again 50-day moving average And I think 4,000 level there. In fact, that's what I was looking at in the first place So it really helps if I actually start paying attention to the charts that I'm looking at my bad Ladies and gentlemen, you'll have to forgive me. I've drawn a slightly different line here with respect to the peaks on the NASDAQ simply on the basis that is a much more volatile index So what we've got again is the 50-day moving average We've also got the peaks back in the end of June, which is around about 12,230 the big level I think for the NASDAQ remains around about 13,000 Why because it coincides with these lows here and these peaks here So that for me, I think will be very important in the wider context of Whether or not we get a significant turnaround and rebound in the NASDAQ 100 Let's have a quick look at the weekly chart to see whether or not we've got any evidence of a Bullishing golfing a little bit a little bit of a potential for a for a bottom with the 200 week moving average So that's certainly worth keeping an eye out for given the fact that it was a fairly decent support area back in March 2020 So we are very much at a tipping point when it comes to the NASDAQ 100 and the 200 week moving average So it's worth keeping an eye on that over the course of the next few days in the next few weeks Let's also quickly look back at the S&P 500 and similarly look at the 200 week moving average on that And again here we are back here and it's also three and a half thousand Is also the 50% retracement of the entire up move from the 2020 lows to the peaks at the start of this year So certainly the 200 week moving average is likely to be the next key support level on any future move Towards the downside and US earning season will play a key component Into that given the fact that the Federal Reserve has shown little sign That it is going to ease up on its rate hiking cycle That's all brings me on to I think the narrative for next week because we've got JP Morgan Chase Morgan Stanley and Citigroup second quarter earnings And I'm going to start with JP Morgan Chase simply on the basis of the fact that it's the biggest US bank And I mean this this this picture really tells the story We're very much in a downtrend for JP Morgan Chase as we have been for Morgan Stanley And Citigroup the direction of travel has been clear despite the prospect of higher rates US banks have performed poorly And they although they aren't the worst performers in the S&P 500 this year The sector is still around down around 25% the year to date And I think it's really concerns about a recession by year end if obviously we're not already in one But also the impact that the higher cost of living will start to have on consumer spending In the face of rising energy And food prices We've also seen weak Housing data that has also Fed in to the weaker banking narrative A flat to inverted yield curve Isn't helping the banks either with you got the US 2 year yield above the US 10 year yield, which is a significant Recession warning an imminent recession warning when I say imminent we're talking three to six months out Always assuming that we're not already there By any measure though JP Morgan's The numbers have still been fairly solid, but it's really about the direction of travel. It's really about the potential for only earnings growth and then at the last set of numbers Home lending was down 37% Mainly due to the higher interest rate environment And I think this is a trend that looks set to continue over the course of the next few weeks and the bank announced at the end of June That it was looking to reallocate over 1000 employees from its mortgage business. So that gives you an idea I think of How the US banking system is adapting to lower demand for mortgage another concern Was the bank was setting aside one and a half billion dollars in various loan loss provisions due to rising inflation risks so I'll be paying particular attention to the following when it comes to US bank earnings, and that's not just JP Morgan or city group Wells Fargo and Morgan Stanley it will be What are deposits doing and q1 JP Morgan deposits for up 9% Credit and debit card spending were up by 21% and card loan balances were up by 11% Um, so all of these were rising in q1 Will they continue to rise in q2 or start to see a slowdown? Certainly the consumer credit numbers that we saw at the start of this year Do give me a little bit of pause in terms of how sustainable The record consumer credit numbers we've been seeing over the course of the past few months We've seen numbers of 40 to 50 billion dollars a month increase. I mean that's just Crazy stuff when you consider where it was at the end of last year Still expected to see decent profits from most of these banks, but I think the bigger question will be Surrounding the outlook. How do these banks see the outlook for q3? So JP Morgan a Jew on the 14th as on Morgan Stanley City group is due on the 15th of july So if we look at all of these charts in turn we can see straight away pretty much Pretty much a similar sort of pattern drifting lower Maybe we're starting to carve out a little bit of a base at around about these sorts of areas of 45 dollars We will have to wait and see but certainly I think the earnings outlook Is likely to be fairly challenging for US banks going forward And it'll be interesting to see how they see Economic conditions, loan growth, business investment, and what have you over the course of the next quarter We've also got Chinese second quarter GDP And Chinese retail sales Next week as well, and I think the China numbers could be fairly significant. They probably get Probably get They'll probably be a little bit discounted Given the announcement this week that the Ministry of Finance in China is reported to be Bringing forward around about 220 billion dollars of stimulus from next year into the second half of this year But I think what is going to be a bit of a sobering Sobering number is the Chinese second quarter GDP number and the expectation because I think whichever way you slice and dice it China's GDP target for this year now looks completely unattainable Let me just remind you of what is expected when it comes to second quarter to four-year GDP The target at the start of the year was 5.5 percent First quarter GDP came in at 4.8 percent Second quarter GDP is probably going to struggle to get anywhere near to that given the covid lockdowns That we saw pretty much across the entire country and particularly in Shanghai and Beijing over the course of April May and for most of june and the stop start nature Of these zero covid policy is likely to make it Extremely difficult to get anywhere close to that 5.5 percent GDP target In fact, I'll be surprised if they get anywhere close to three and a half percent Given the current zero covid strategy. So We've got retail sales. We've got China GDP the GDP for China is expected to come in at minus 2.3 percent on a quarterly basis and One percent on an annualized basis. So 4.8 percent was the first quarter number on an annualized basis We're expected to see a rise of one percent on an annualized basis But on a quarter on quarter basis We're expected to see a 2.3 percent contraction retail sales are also Um expected to rise ever so slightly After seeing a 6.7 percent decline In may we're going to see a 0.4 percent rise In june as some of the some of the chinese economy Started to reopen and people were able to go out and actually spend some money having been locked down Almost or April and may so we're likely to see a fairly weak number In june and if we do get a positive number Well, you know that that will that will at least be something but certainly There's no indication of a significant rebound on the cards quite yet. We've declined 11.1 percent In april for retail sales 6.7 percent in may We may eke back into positive territory in june But i'm not going to be holding my breath as for industrial production We're expected to see a rise of 4.3 percent in june Up from a 0.7 percent rise in may so That's industrial production In terms of the wider wider wider markets Let's look at the footsie 100. This is a weekly chart. I'm just going to change it back to a daily chart and We're still very much stuck in a range. I've seen no reason to Um change the range that we've been in for the course of the past 12 months the bottom of that range is just below 7 000 top of the range around about 7 600 the recent weakness that we've seen in oil prices Hasn't really impacted the footsie 100 that much Although we have seen a little bit of a sell-off in bp and shell shares But certainly if we look at say for example the dax The dax has been much more affected by the recent weakness breaking below this trend line here Which I can now remove and trading back towards the march lows of earlier this year making a marginal new low only a marginal one but still At around about an 18 month low 19 month low Earlier this week, but we're able to hold above it. So that level 12400 Still very much a key support area for the dax We've also got euro dollar which is now continuing now having broken below that 103 40 area Really does now open up the move towards parity If we look at it there and we zoom it all the way out we can see that When I zoom that out like so We've got the potential now to head towards 96 20 I talked about this back in april this break Of this triangular consolidation here that's been playing now over the course of the past four or five years We broke out of it Which suggested that we could we'll see a breakdown towards parity We are now starting to see that unfold and if we break below it if we break below one Then my minimum price target is for 96 20 but overall If you take it to its ultimate conclusion Then euro is probably heading towards 90 over the course of the next three or four years As a consequence of this pattern breakout and this is why I like that analysis while it may not Give you an indication of very very short-term moves in terms of direction It can be it can be a very valuable tool So certainly in terms of the overall direction for euro dollar The prognosis does not look positive and it would take a significant rebound For me to change my view of a lower euro dollar Over the course of the next few months the next resistance now is 103 40 50 now that we're below that That should now act as a significant area of resistance As does this obviously trend line through here Which we would need to sort of see a significant move above to break The downwards cycle what does that mean for cable? Well, unfortunately cable is getting caught up in the strong dollar move and we've seen that play out With this break of 1985 This does not look promising For further cable gains the fact that we broke below 1985 Potentially does open up now open us up now to move down towards 116 and 115 And if you think euro dollars going to go down Quite a bit lower Then you've got to take the view that cable is probably going to do the same thing. Maybe not to the same extent But nonetheless The strong dollar view that I have is going to take a significant It's going to take some significant means to dislodge it Given the technicals that we're currently looking at right now So certainly I think unless we can get back above 121 and hold above 121 then It's very difficult to make a bullish case for cable, you know, and I think for me I like to try and find a bullish case for cable because it's very easy to chop the pound down You know, it's something that an awful lot of people do And and it's hard not to it's really hard not to when you look at the fundamentals surrounding it But unless we get a break back above the 50 day moving average In the in in the medium term Then the line of lease resistance for cable is to sell the rallies. It's again. It's a strong dollar story. What does that mean for euro sterling? Well, we did break lower We broke that trend line from the lows in april We're now back towards 200 day moving average, which is acting as a little bit of support But you've got to think if euro dollar is going to move quite a bit lower then euro sterling should also Go the same way though not to the same extent if we look at euro sterling. It's been very messy It's been very hard to predict Uh, but ultimately the fact that we've broken below These series of lows here suggests that any pullbacks around about 85 2030 Could well be a decent area to Sell into for a move back towards 84 and then 83 going forward Um, Brent crude. Let's have a look at Brent crude Very quickly. We broke below that line here But what we haven't done is broken below that line here on the 200 day moving average And we've also got potentially a little bit of a bullish reversal there Certainly a weaker oil price helps It would also help if the pound didn't go down as well But certainly the the rise that we've seen in Brent crude prices in the subsequent fall From the dune peaks has helped soften the blow when it comes to Higher fuel prices though not not that you'd know it if you looked at the price of the pump right now, which um means that ultimately The the government needs to look at potentially cutting duty on Petrol prices even further to alleviate the cost of living crisis For ordinary people, but this 200 day moving average And the support from those previous lows is a key barrier to further oil losses But certainly oil can go lower. But the reason for oil going lower Um will be a negative one it will because the global economy is going into recession Amid spheres of demand destruction Um more broadly so, you know, even oil going lower is probably not going to be the most positive thing Um in terms of the global economy, but what's the alternative? prices up 140 150 which ultimately will do the same thing in any case so That that's essentially where we are anyway, so That's I think it for this week one other thing. We've got a bank of canada rate decision. I almost forgot that on my sheet um looking at the bank looking at dollar CAD I think expectations for next week for the CAD are for another 50 basis point rate hike From the bank of canada. There's also they've also there's also a payroll report later today from From from the canadian economy and again wage growth here is likely to be the key driver for the canada jobs numbers But certainly the expectation is having seen the bank of canada go by 50 basis points at its most recent rate meeting We could well see them go by 50 again though If the Fed is going to go by 75, maybe the bank of canada could do 75 next week So that's certainly worth bearing in mind But certainly we'll get 50 next week from the bank of canada outside chance We could get 75 basis points as it looks to front run the Fed ahead of its july decision okay, so That's pretty much it For this week once again. Thank you very much for listening. Um, this is michael hueson talking to you from CMC markets