 Good morning. Welcome to CMC Marcus on Friday the 18th of June and this quick look at the week ahead beginning the 21st of June with me Michael Houston. It's certainly been an interesting week. The Federal Reserve certainly I think threw a little bit of a fly in the ointment of the markets thinking about the timing or otherwise of potential rate rises but ultimately really should it have done? I mean when you think about what the data has been doing concerns about higher than expected inflation should we really be surprised that the Federal Reserve is maybe concerned that some of the price pressures that we're seeing in some of the headline numbers PPI CPI are slightly slightly hotter than expected I don't think we should and I think there was an awful lot of complacency amongst market participants about the Fed's attitude towards price pressures. Let's face it when you went you know when we when we sit down and think about what's happened over the course of the past 15 months can anyone anywhere say with any degree of certainty how the recovery is likely to play out we are still seeing significant disruptions to supply chains we're still seeing significant base effects as well and we are seeing some significant rises in commodity prices so I think it's entirely credible for the Federal Reserve to be a little bit cautious and start to hedge their bets a little bit but certainly I think in the context of the data that we've seen thus far the inflation numbers continue to look a little bit hot yes we have seen a little bit of a slowdown in the US labor market but that was only on basis of preconceptions in March that we would be adding jobs back of around one million a month now we know that is not going to happen but nonetheless we are still seeing some fairly decent jobs growth albeit as a lower baseline than was originally envisaged at the end of the first quarter you know I think I think it's important not to underestimate the fact that an awful lot of fiscal support is still in place some US states are now starting to withdraw this extra unemployment insurance and as such when you look at the number of vacancies that are available in the US economy around about nine million and the fact that US unemployment is still higher than it was pre-pandemic and there are seven and a half million people fewer people in the US workforce than was the case pre-pandemic and yet nine million vacancies that would suggest to me that some people have dropped out of the workforce completely either they've retired or they're unable to work as of yet or ultimately they're not signing on for unemployment benefit because they don't see the need to because they're still living off the fiscal support from three big stimulus packages over the course of the past 12 months so I'm not overly concerned about a slower pace of jobs growth it should continue to remain fairly steady as the support packages the fiscal support packages drift away but one thing that I would take away from this week's Fed shift and it wasn't really much of a shift I mean let's face it I mean the Federal Reserve is talking about the prospect that we might see two rate hikes by the end of 2023 the bond buying program of 120 billion dollars a month is still in place and they've increased the rate on excess reserves by five basis points from 0.1 to 0.15 percent it's hardly what you might call a taper tantrum and yet to see the way that the bond market reacted you'd think the sky had fallen in and it wasn't there for a subsequent surprise to see the bond market yield the yields that we saw the yield spike that we saw Wednesday night Thursday reverse quite quickly the Federal Reserve still remains a long long way from raising rates back to the levels that they were at the beginning of 2020 so we are still very much in emergency rate cut territory and we are still seeing a significant amount of fiscal stimulus oh sorry monetary stimulus being chucked into the US economy now that doesn't mean that we won't get a taper we probably will we'll probably get it by the fourth quarter of this year and ultimately if the recovery goes as expected you would expect that to happen anyway so for me I think the market and investors in particular probably need to get a grip nonetheless we've seen a little bit of weakness in the latter part of the week for equity markets and none of that you know most of that has been really highlighted by the slide lower in the FTSE 100 largely as a result of a big sell-off in commodity prices which have I think been hit a little bit on the fact that the dollar is a little bit stronger but also they've been coming off their main peaks for quite some time now and all this talk of a commodity supercycle you know while it sounds great and in principle and you know it means that an awful lot of people click on headlines now super cycles take place over 15 20 25 30 years to be quite honest I struggled to figure out where commodities are going to be next week let alone next in the next in the next year or the next five years but what I what I have seen is evidence that commodity prices have peaked in the short term we've certainly seen it in the face of the lumber market which I which I may have pointed out in a video in a video quite recently but we've also seen significant drops in the prices of corn wheat soy and sugar so that in itself should allay some concerns about persistent inflation and would suggest that what we're seeing at the moment oil price is notwithstanding of course that an awful lot of what we're seeing is transitory I'm not going to say that all of it is because that would be painfully untrue but certainly on the basis of what we've seen in the past couple of days the decline in precious metals prices and basic resources what have you is hitting the footsie quite hard but what it's not doing it's not changing the overall direction of travel when it comes to the slow move higher that we've seen since the February lows and that's all we can ultimately ultimately go on now we're still in an uptrend we're still making higher highs we're still making higher lows until such times as we break the 50 day moving average or this trend line here I would prefer the 50 day moving average then the line of least resistance is for a move higher now this week we have made new record highs on the deck so again the direction of travel is quite clear another trend line another 50 day moving average so once again we remain very much in by the dip territory despite some of the softness that we've seen in the past 24 hours as I say we saw a new record high this week on the decks we've seen one on the euro stocks 50 we've also seen it in the stock 600 ultimately European stocks still continue to look fairly well supported simply because even if the Federal Reserve is mapping out a path for a potential tightening and monetary policy European central bank isn't anywhere near close and is not likely to be and despite all of the misgivings that we're hearing from some of the more hawkish members of the governing council it's going to be a very very tough ask for the ECB to even contemplate a tightening of monetary policy and that is why the dollar's rebound has been so significant and ultimately it could actually give the ECB a little bit of room in the longer term to potentially certainly not tighten monetary policy but certainly for it not to be as loose as it currently is the drop in the euro has certainly helped in that regard it takes some of the deflationary effects of a higher euro off and help the boost underlying inflation number which still in Europe remains well below the ECB's 2% target it's a different ball game if you're talking about the UK where inflation has finally moved above the Bank of England's 2% target and that neatly segues me in to what's coming up this coming week because we've got the Bank of England it's due to meet on 24th of June and that's likely to be an interesting meeting we've also got US PCE which is the Federal Reserve's preferred inflation indicator and I'll talk a little bit about that after I've talked about the Bank of England and we've also got US personal spending and income for May as well we've also got flash PMIs not really expecting too many surprises from those for June flash PMIs for June from the UK France and Germany and we've got a number of earnings announcements from the likes of Nike FedEx packaging company DS Smith and Barclay Group UK House Builder Barclay Group may not have time for all of them but there's certainly something to keep an eye out for so we've talked about the the FTSE 100 we talked about the DAX let's quickly just cover the S&P 500 before we move on to the Bank of England but as you can see direction of travel still remains fairly similar made another record high on the S&P 500 this week so even though we have seen a little bit of weakness towards the back end of the week the direction of travel still remains fairly decent this is obviously Friday this is obviously Thursday's post FOMC decline seen a little bit of a rebound and we're pretty much flat today with the US off for a government holiday so S&P 500 there and we've also got the NASDAQ which has continued to look very well supported as US Treasury yields trade back below 1.5 percent so one one of the one of the initial knee-jerk reactions for the change of policy on Wednesday was the US 10 year jumped from 148 almost to shy of 160 and now it's back below 150 again and consequently that's seen the NASDAQ move back up ultimately higher bond yields higher long-term bond yields tend to act as a little bit of drag on the more highly valued parts of the US stock market it's a little bit of a see-saw effect but the fact that US Treasury yields 10 new Treasury yields have fallen back 1.5 percent make the tech sector slightly more attractive from a growth point of view anyway talk about the Bank of England because Pound hasn't had a particularly great last couple of days which is a little bit strange given some of the data that we've seen out this week but I think what's really upset the Apple cart today I need to redraw this channel so I think I'll do that now is that we have been bumping against the upper part of this channel quite some time that's the thing with with channels and train lines sometimes you need to redraw them or tweak them ever so slightly you know as a broad as a broad range they can they're still fairly reliable but sometimes they need to be recrafted which is basically what I've done here now you can call it curve fitting if you like it's not really because we didn't really break too much above it and it just makes it look a little bit neater I could easily probably put it through that peak there or that peak there and that would then mean that you've got a little few little little intraday penetrations to that but overall the direction of travel is the pound is bumping up against the upper end of its ranges it's starting to trend a little bit lower and next week's Bank of England meeting could well give the pound an additional nudge one way or the other and I think one of the reasons obviously we've seen weakness today Friday is because of a rather disappointing May retail sales number which missed expectations by a surprise factor of nearly three percent we're expecting a rise of 1.5 percent and we've got a contraction of 1.4 percent but we also need to put that 1.4 percent decline in perspective it's coming off the back of three successive monthly rises the last two months of which were 5.4 and 9.2 so 5.4 and March 9.2 percent in April so even on the quarter we're still around about 7.7 percent up so we're still seeing a fairly decent decline and while the numbers were pretty ropey you know even I have to admit that the May weather at the beginning of May weather was also pretty ropey as well and that may have tempered a little bit of consumer demand at the beginning of the month at the end of the month we had half term and we could well we could well have seen a significant uptick in consumer or consumption towards the end of the month and that could prompt a slight output revision when the June numbers are released now obviously we've seen a delay to the ending of lockdown restrictions as well some people are amusing that what that could be another reason behind the pounds decline as well as the fact that the conservatives lost a very very safe seat overnight of Cheshire and Amisham by quite some distance and an awful lot of people are saying oh you know this could mark a paradigm shift in politics which is slightly overregging the narrative a little bit yes the Tories got a bit of a thumping but in the overall scheme of things does it alter that much for me the Tories have an 80th seat majority so if I was a voter and I wasn't particularly happy with the government I wouldn't have any compunction whatsoever in voting for the Lib Dems because it's a fairly low risk strategy you just reduce their majority you know by a couple of you know by a factor of two so you know to hear some of the narrative coming out of the newspapers you know that it's the end of the world in all honesty is you know it's not really credible and it's certainly not going to it's certainly not going to have a significant effect in the value of the pound you know ask me that question at a general election when the outcome is nowhere near as cut and dried and then see how confident people are about voting for the Lib Dems or for labor for that matter you know so for me it's about context and at the moment the context with this by-election you know with the Tories with the seat with the with the majority that they have you know it's really it's a fairly low risk strategy having said that there's no arguing with the fact that cable is down four five six days in a row so you can't argue with that and we're testing that trend line support from the lows that we saw all the way back in September last year so there is a risk that we could be starting to break down and obviously that 140 level was a very very key chart point so the big question now is whether or not we're going back and retest 138 I'm still minded to think that next week the bank of England will be forced to confront the fact that the UK economy despite the weak retail sales numbers for May is still doing okay and at the last meeting what was particularly notable was the bank's decision to announce it was reducing the amount of bonds it was buying on a weekly basis two three point four billion it also raised its annual GDP forecast to seven point five percent now I know we all know that Governor Bailey at the time suggested that the reduction on the bond buying program was an operational decision in inverted commas but for me it still marks the same thing it's it's a form of taper it's a form of reducing the amount of bonds that you buy on a weekly basis and that would be entirely in line with an improving economic outlook and a much more optimistic outlook even with the extent extension of some restrictions in to July you know the Fed has given the Bank of England room to basically give a much more optimistic outlook for the UK economy now obviously this assumes that there aren't any virus variant setbacks and yes infection rates are going up but the key thing for me will be not so much infection rates but hospitalization rates and death rates and if they continue to remain fairly low then I think it's highly likely that the economic data will show a continued improvement as we head into Q3 so it's also important to note that it's Andy Haldane's last meeting as chief economist and he's become an awful lot more free with his opinions over the course of the past few weeks and I think you know even even though the rest of the FO even the rest of the FOC even if the rest of the MPC the monetary policy committee is probably more dovish than hawkish ultimately they have to go with the data and the data is pointing to an economic improvement and you know Haldane's comments that the recovery is going gangbusters it's likely to mean that the Bank of England will be I think an awful lot more positive about the outlook and potentially follow the Fed in outlining a potential or hinting that a potential outline of a tapering of its bond or as asset purchase program particularly now that CPI inflation is above the Bank of England target of 2% and set to move even higher if the recent moves higher in PPI are any guy so I think for me there is potential for further sterling weakness back to around about 138 I would be concerned if we drop much below that but the big big level on cable is this level back down here at 13670 so you know stronger dollar could drive it down to that sort of area but overall I'm not of the opinion that the pound is about to fall out of bed at this moment in time and that can be shown by the fact that euro sterling still remains very much range bound solid floor around about 8540 8550 with various levels of resistance 8640 8670 and 8730 so still very much sell the rallies on euro sterling I see no reason to be bearish on sterling at this point in time certainly not on the basis of the charts that we're seeing right now now we're also seeing US PCE and I think amidst all there is concern about rising inflation the fact that the Fed has shifted monetary policy somewhat in the past few days will probably make this PCE number less important than it would have been otherwise nonetheless expectations are for a sharp rise to 4% which if it happens will be the highest level since the early 1990s core PCE deflator is expected to see a similarly sharp increase from 3.1 to 3.5% so what does this mean for the dollar index well we've seen a big breakout in that we can see that in this chart here the key level now on this particular chart will be the 200 day moving average now that we've broken above this trend line here and also this series of peaks through here so we are approaching if I think a fairly key level on the dollar index we could well see further gains in the short to medium term but we could run into a little bit of resistance as we head towards 960 and the 200 day moving average and that should well limit the downside when it comes to for example cable and to a lesser extent euro dollar same sort of thing with euro dollar I think we've seen a much more bearish breakout here we've broken not only the 50 day moving average but the 200 day moving average and that would suggest that we could well see further losses back towards 11870 but again here you could find a little bit of support in and around this sort of this low here and this low here there is a little bit of what I call stickiness in the bid where if euro dollar drops down to around about 118 and a half that could prompt a little bit of a rebound but nonetheless you know looking at this chart and I think it's the bias remains very much for euro dollar selling the rally we also saw a big declining gold as a consequence of this week's decision by the Fed what was interesting though was that we bounced off this 61.85 financial retracement level of this move up from the lows around about 1672 to the peaks at 1916 so this is a big level here 1768 we've respected it so far also happens to coincide with this series of lows through here so in that context it's quite important so while we could see a little bit of a rebound if us yields continue to fall back you need to be cognizant of the fact that we could see a little bit of resistance around 1800 which was also the 50 percent retracement and if you look at these peaks here here here and here you could see a little bit of resistance in the short term there as well so certainly keep an eye on gold prices and commodity prices in general because we have started to see a little bit of weakness there and that could be another reason why you're getting a little bit of softening in bond yields because the narrative could be well actually maybe an awful lot of what we're seeing in terms of inflation is transitory now that commodity prices are starting to slow down somewhat we've also got US bank stress test results due out on the 24th of June we've seen this week a couple of profit warnings or revenue warnings from the likes of JP Morgan and Citigroup these if these stress test results are important in the context of payouts the Federal Reserve could actually open the door to dropping all restrictions on shareholder payouts for US banks in the medium term June the 30 we'll see all banks that pass these stress tests we'll see all these restrictions lifted so the 24th of June should be interesting particularly given the fact that JP Morgan and Citigroup are both warned that revenues in Q2 are likely to be well below expectations and well below the levels that we saw in Q1 and on that note actually might have a quick look at a share price for JP Morgan chase let's just quickly open our banks let's just quickly open our banks watch list and then we can find the JP Morgan I can actually see it there we go so we can see the extent of that down move there you know and obviously there is potential for further downside with support around about these sorts of levels here so this looks quite an interesting chart for JP Morgan is this um this is this is this is a weekly chart so obviously two successive down weeks the the impulsive move lower is quite strong there you can see it an awful lot better there so be paying particular attention to this 145 area 146 145 in the context of the declines that we've seen over the course of the past couple of weeks um quickly just cover we got flash PMIs on the 23rd of June from the UK in Germany they'll give us a decent indication as to whether or not the economic reopening particularly in the UK um is able to sustain the momentum that we saw in March and April and obviously that could also be another factor potentially helping to arrest some of the sterling weakness that we've seen in the past couple of days um I say the main services PMIs painted a robust picture they hit a 24 year high at 62.9 manufacturing rose to 65.6 a record high you have to struggle to make the case for them to maintain that sort of hot streak but nonetheless um I think it'll be a positive if they continue to come in at levels anywhere near 60 um as the economy um as the economy continues to recover I think potentially the delays of the reopening in June could well have affected or taken some of the sheen or the shine of the June services number per se in any case um we could have a quick look at DS Smith they are reporting four year numbers on the 22nd the packaging company saw a little bit of a reversal earlier this week is the packaging boom over as people start to go out to the shops more will the number of people who do online shopping start to decline the shares are at record highs will the full year numbers um or the outlook for that matter be slightly disappointing so that could be interesting um what did DS Smith have to say about the outlook insane token FedEx online logistics again that chart looks as if it's breaking down towards the downside will there be any surprises in the FedEx numbers and they are due out on the 24th we've also got Nike on the 24th 4th quarter numbers as well for year numbers so keep an eye on all of them so I think that pretty much brings me to the end of this week's weekly market update once again I'd like to thank you for listening bearing with me bearing with my ramblings and I wish you all a very nice weekend and speak to you all same time same place next week thanks for listening