 Good morning. Welcome to CMC Markets on Friday the 25th of February and this quick look at the week ahead beginning of 28th of February 2022 with me Michael Houston and well It's been I think a bleak and sober week this week not only for Europe But for the the world as a whole Russia's ripped up the international rule of law It's invaded its smaller neighbor Ukraine In a day, which saw European markets See big losses over the course of the last Week or so and particularly obviously on Thursday. Now. We've seen a little bit of a rebound today largely on the back of the fact that once again, we've seen procrastination on the part of political leaders when it comes to sanctions Sanctions are never pain-free for either side ultimately and Obviously national self-interest is holding up some of the more onerous measures say for example like Energy exports and grain exports at a time when commodity prices are but are basically Creating a massive inflationary pulse Through the global economy. We've only really got to look at what's happened to for example Corn and wheat prices if we look at wheat prices over the course of the past few days We've seen big gains there. We've seen a little bit of a pullback today But if we go all the way back on a daily chart and then go back even further here, we can see that they have been higher Previously all the way back in 2008 And it's a similar sort of story when you come to look at corn prices as well But that has significant impact obviously on agricultural Commodities As well as obviously Russia's place In terms of being the one of the main natural gas and crude oil suppliers for the global economy as well Which is I think why countries like Germany and Italy are so resistant to Implementing sanctions that might affect their ability To import natural gas and I suppose it's understandable that they take that view But I suppose in the case of Germany if you hadn't done away with your nuclear power Production capacity in 2012 in the wake of Fukushima You wouldn't be in the situation you're in right now. So I don't have a great deal of sympathy for them It was always likely to be a misguided view But they went ahead regardless. So basically this is where we are. We're seeing a little bit of a rebound largely on the basis The the market perceives that the sanctions that have been agreed Won't have a significant short-term impact on the Russian economy. And I think that's really All the markets are looking at at the moment having said that we have seen some nick it we have seen some significant volatility this week in in Russian exposed assets, particularly companies like polymetal on the footsie 100 and Russian minor Evraz, we can certainly see how that has played out this week in the case Evraz is up 21 percent today But it was a down at one point yesterday around about 40 percent And if we look at the way that has performed over the course of The past few weeks we can see that it's still down quite substantially and I think Evraz is the company that Roman Abramovich has a significant shareholding in so Certainly don't think the volatility there is likely to Diminish anytime soon. So what we've seen so far this week is we've seen some big declines in the footsie 100 We've thus far managed to hold above the 200 day moving average We have obviously broken below that 17,400 level that I've highlighted for most of this year is a fairly key support level So I think that for me remains the next key resistance level on any rebound higher for the time being I'm still of the opinion that the footsie 100 has probably got more upside than downside Certainly while we're above the trend line Support from the lows back in January last year and actually if you look at the way the footsie 100 has performed Over the course of the past few days It's only gone back to retest levels last seen just before Christmas. So yes, it's Given up its gains for the year, but it's still significantly outperformed the rest of the markets European and US alike but having said that it's under performed on the way up so And one of the reasons for that is obviously it's heavy exposure to The oil and gas sector which has insulated it from some of the worst declines, but also in a In a higher inflation re-environment Banks should probably perform better having said that we saw a sell-off of everything yesterday And it really does beg the question as long as we can hold above These two carry key areas of support then I'm still of the opinion that we can still see seven thousand eight hundred later this year When it comes to the rest of equity markets slightly different picture Looking at the German DAX we tried to rally today and even though we are Off the lows the the bias still remains For a move lower. We've seen the break below that key support level around about 15,000 We've broken all we've broken all the way back down to 14,000 We're rallying in the short to medium term, but certainly I think If we do break below 14,000 then really we're looking at a move back towards these lows that we saw Back in 2021 So the 2021 lows of around about 13,260 are likely to be the next key support level in the DAX and This is where I think we're going to get quite a potentially we could see quite a bit of divergence A lot of choppy trading. I don't think we're going to see Significant the clients in the DAX certainly not below the 2021 lows But who knows who knows in markets like this all we can do as traders is keep an eye on the levels and The levels for me the key level for me now comes in around about 14,000 I highlighted this series of peaks through here, which I thought my act is a little bit of a support at the moment We are below that but yesterday. I think it was significant that we didn't close below it So certainly I think this area between 14,000 and 14,200 is likely to be key For the future direction of the DAX but certainly in the context of what the long-term moving averages are telling us I think we're going to struggle to get much above 15,000 in the short to medium term certainly On the basis of the way the 50-day moving average is starting to roll over Let's look at US markets in the NASDAQ 100 fell into a bear market Yesterday on Thursday We did manage to rebound quite strongly off the 13,000 level We've obviously taken out that previous low the January low So for on a technical level that is potentially quite negative Taking out the January lows in and around that 13,700 area to trade as low as 13,000 Obviously, we did rebound quite strongly on the on on the back of the slightly Slightly weaker than expected sanctions and I think there could be an element of Location risk here in terms of the way US markets performed A geographical element with a perception that US companies might be better insulated from events that are currently taking place In Europe and that's probably why we saw the rebound Nonetheless, you can't change the fact that we have broken towards the downside And now what we're looking at is the potential for a retest perhaps of 14,380 and yeah, we have seen a little bit of a rebound here But overall, I think it's going to be very very difficult The US markets to rebound because we're currently now making Lower highs and we're making lower lows and until such times as we break that sequencing Then it's going to be very difficult to argue for a retest of the highs Also the 50 day moving average is rolling over below the 200 day. So you got a potential death cross there Which is likely to keep the bias towards the downside So with respect to US markets, the calculus has changed. It's very much case of a cell a rally Type of market similar sort of strategy really needs to play out when it comes to the S&P 500 Again, I think what was notable about this was that we actually Managed to hold above this support level here around about 4100 and have since rebound but again, the calculus remains the same What is significant though is obviously the 50 day moving average is well above The 200 day moving average, but certainly again Drawing in a trend line resistance through there We can move all the way back to 4500 very very easily in the short to medium term without undermining The downward bias that we're currently experiencing at the moment. So once again We could both see a rebound back to the 200 day moving average and this downtrend resistance here. So again, the bias Remains very much to sell into strength rather than anything else Moving on to currencies euro dollar Saw another steep fall Yesterday we made a another marginal new look new low lowest levels since back in May 2020 and I think the big debate as we look towards next week is the dynamics between US monetary policy and ECB Monetary policy or European Union monetary policy. What do current events in the Ukraine mean for the ECB? What do current events in the Ukraine mean for the US and the both banks battles with rising Inflation now earlier this week Robert Holtzman who's one of the more hawkish members of the ECB governing council was talking about the prospect of Two rate rises this year one before the bank had ended its asset purchase program. That was on the Tuesday of this week Yesterday he walked those comments back given the recent events coming out of Ukraine. So There still remains a significant element of two-way risk when it comes to the ECB Will they raise rates this year? Well, they need to end their asset purchase program first if you're going to be doing proper sequencing It seems rather strange that you raise rates all at the same time as buying assets But it probably wouldn't be the first time that central bank has done something that probably doesn't make a great deal of sense on the face of it What we're seeing here at the moment is the bias very many remains very much towards the downside For euro-dollar. I don't think events in Ukraine will materially Effect the calculus for the Federal Reserve when it comes to hiking rates in March The only calculus will be whether they hike by 25 or 50 basis points now With the data that's coming out over the course of the next few weeks That could be a key determinant and obviously one of those main data items is non-farm payrolls which is due on Friday Friday the 4th of March and That's coming on the back of a really really strong payrolls report that we saw in January There had been widespread expectation Head of the January report that we were going to see a disappointing number Particularly given that the ADP report for January showed a figure of minus 301,000 so everyone was thinking poor ADP Poor payrolls that wasn't what we got. We got a big jump in hiring in January to 467,000 that was well above expectations of 125,000 While the December payroll report was revised higher from 199 thousand to 510 thousand So the US economy added over 900,000 jobs that was 800,000 over what was likely or 700,000 over what was was going to be expected over the Christmas and New Year period so Despite all the concerns about a big hit to hospitality retail due to COVID absences food and drinking places saw gains of 108,000 during that period Retail trade saw 61,000 new jobs added in January now That doesn't quite tally with the big jumps that we've been seeing in the weekly jobless claims having said that they have Started to come down But what was particularly interesting about last month's payrolls report was the fact that Wages data also came in much better than expected They think these saw a jump from 4.9 percent to 5.7 percent in January and we've seen since then we've seen some really strong retail sales numbers and a whole host of other ISM not ISM PMI's that have come out. I'm significantly better than expected. So Have we gone from a low expectations report for January to a high expectations report for February? What are we expecting? We're expecting Around about 400,000 jobs to be added big question for me is what does wages do? Do they go up from 5.7 from? So do they go up from 5.7 to say towards 6 percent? Obviously that would be a positive given where inflation is more importantly the participation rate that saw a big jump In January it rose to sixty two point two from sixty one point nine So big jump if we see a further jump in the participation rate if we see a further jump in wages It's going to be very very difficult For the Fed to steer the course away From potentially going 50 basis points. That's still not the base case But there are some on the Fed who are starting to lean in that direction. So that could be another Potential dollar positive story. I think it would also depend on what core PC deflator comes out at later this afternoon Obviously, I don't have sight of those numbers as I record this video But certainly I think that will potentially be a key determinant in whether or not We start to get a more hawkish Fed as we head into the numbers if we look at US 10 year bond yields We can see this is this is a daily chart for the last six months There does appear to be some evidence that potentially we might have seen a little bit of a top in the 10 year So what does that mean for us rate hike expectations? It's a difficult one to pick Because US Treasury yields are being pulled in two different directions They're being dragged higher by higher inflation expectations and the potential for for the Fed To act more aggressively But on the downside to that the geopolitical Considerations that are taking place between Ukraine and Russia and the Russian invasion is driving Flows into US treasuries pushing yields down So you've got that push-pull effect going on with respect to the buying of US treasuries as a safe haven But also the selling of US treasuries and the expectation that you're going to be getting higher yield So it's very difficult to sort of draw a picture as to what's happening with respect to the inflation outlook But certainly inflation expectations are starting to increase further Given what we've been seeing in energy prices what we've been seeing in agricultural prices And also what we're seeing in industrial metals prices with aluminium at record highs And let's not forget aluminium is one of those metals that is likely to be in key demand as we transition towards renewables Along with copper. So we've got a very significantly fierce Inflation re-outlook going forward. So non-farm payrolls is the key It's the key Macro item that I'm looking at for this week. We've also got PMIs got PMIs coming out France Germany and UK They were all stronger the flash numbers Earlier this month Both all of them came in much better than expected for February So all of these all these PMI numbers are likely to simply confirm what we already knew We also have two central bank meetings. We've got the RBA And we've got the Bank of Canada now I'm not going to focus on the RBA because I certainly don't think that we will see any significant shift in policy But I think what we could see given the rises that we're seeing in commodity prices and on which Australia Is extremely exposed to is a shift in the language of the RBA I think they're going to have to pull forward into this year their expectations For raising Infest rates and that's likely to have a significant upward effect On the Australian dollar relative to the US dollar given the fact that Philip Lowe RBA governor Played down the prospect of a rate rise this year. I don't think he can do that any longer Moving on to the Bank of Canada This is where we could see some policy action on the part on the part of the Bank of Canada I think it's entirely possible We could see a rate hike of 25 basis points to front run the Federal Reserve Rate decision that's coming on the 16th 17th of March The Bank of Canada has already finished its bond buying program Canada is also facing similar issues to the US rising inflation CPIs at a 30 year high A labor market that's recovering In January the central bank did warn that inflation was likely to be higher than forecast through most of this year And for a good part of next So why wouldn't you raise interest rates against that backdrop? So I think 25 basis points is entirely plausible The big question is if it does raise interest rates, which I think it should Then how does it couch its guidance its guidance? It's likely to be very important in the context of where the CAD goes to next big resistance around 12950 I think that is likely to be the cap in the short to medium term Particularly given the Fed Federal Reserve meeting comes not two weeks after the fact So keep an arm Bank of Canada and the Australian dollar next week. We could see big moves there We've already seen big moves in the Aussie this week. We've seen an awful lot of choppy moves But what's interesting about this is that the Aussie is struggling at 7280. We're not really seeing What I would call significant We're not seeing a significant impulsive move to the upside and let's not also forget Even if we do break higher, we've also got the 200 day moving average and and and this move This move here that's causing quite a few Problems in the short to medium term this this this peak and trough through here 7290 73 That's a really big barrier in a short to medium term fairly decent support around about 71 7080 and I think that's probably likely to be the extent of it But again, if the RBA is in any way dovish next week, then we could see the Aussie start to slip back lower again So keep keep an eye out for that Looking at cable Bit of a disappointment with the cable. We've dropped lower. We've broken below this support line here That would appear to suggest that we could be at risk of a further decline Back to these lows down here around about 130 160 That's going to be the next key support level for me on the cable Now that we've broken lower 50 day moving average is acting as a little bit of a resistance in the short to medium term. That's around about 134 134 135 134 50 134 134 60 134 80 There are there abouts We need to get back above the 50 day moving average. Otherwise we run the risk of drifting lower Euro sterling has barely moved Obviously, we've got the ecb coming out in two weeks as well So we need to pay particular attention to that But I think of all the central banks that's unlikely to be hawkish the ecb is probably Near the top up near the top of my list, which would appear to suggest that euro sterling The risk at the moment You know, you can throw a blanket over this 80 to 80 84 60 and I think that will continue to be the way of it for the short to medium term But my bias is still towards the downside for euro sterling more than towards the upside on the earnings front it's um They've sort of been lost in the fog of war this week a little bit actually before we get on to that Let's look at Brent crude prices because we can see from here that we are starting to run out Of a little bit of momentum on the upside. Look at these very long upper shadows on the candles particularly yesterday so Brent crude is Even though we are still pointing towards the upside the lack of the lack of follow-through buying Does appear to be Does appear to suggest to me that the market's becoming a little bit stretched. Let's hope so um because You know with them with with petrol prices at nearly one pound 50 a liter I think we could do with a little bit of relief for our wallets going forward So this for me is a little bit of an encouraging sign that it's not being able to follow through All of the gains on a day-to-day basis But the fact of the matter is it's still edging higher So I think while we're above 90 dollars a barrel I think the buyer still remains very much to buy the dips on Brent crude and crude more broadly In terms of the earnings numbers we've got to Primark Associated British Foods They've got their second quarter numbers They've underperformed over the course of the past Past few weeks hit a five month high back in January Given the fact they don't have an online operation They've done pretty well, but I think the thing with the so say Associated British Foods easy for me to say Is not they're not just about Primark They're also have an agricultural business They have an ingredients business. They have a sugar business a grocery business So it's not just about Primark and all of the businesses have been doing very very well so The retail business should do should have improved because of the removal of plan B guidance to the end of jan So we could see an upside surprise. I've actually been a little bit disappointed at how poorly The numbers Have done since that update back in january So we could well see a little bit of a rebound in the event that we get a decent set of numbers one particular item dark trace that has proved to be a hugely controversial Um company since its IBO it's only been a turbulent few months We do start to be appearing to find a little bit of a base It has attracted attracted the attention of short sellers shadow fall Who've cast doubt on its business model and obviously the mike lynch stuff Hasn't really helped in terms of its overall brand nonetheless The company has signed some fairly decent deals in the past Three to six months only this week. They paid four hundred and four four forty seven 47.5 million euros the cyber sprint A netherland based attack surface management company which should enhance its current offering So I think the tug of war between the bull and the bulls and the bears on dark trace Is likely to continue But really want to see and move back above this these two sets of highs through here around about 415 p For evidence that perhaps we have seen a short term base of that particular stock housing market taylor wimpy again Underperformed really The current week. This has largely been driven obviously by concerns about cladding costs and the the the sector's exposure to That particular problem The government's decision that house builders need to contribute to a cladding fund To address the issues thrown up by the grenfell fire As I think Limited some of the gains that we've seen in house builders But you know the order books still look fairly solid and the only concern I would have is obviously further rises interest rates might crimp demand But at the moment forward bookings still look fairly healthy. So there is I think a sizable bit of bad news already baked in to that ITV we've got we've got their numbers their four-year numbers um Coming out and again another disappointing share price performance there that businesses has improved Obviously cove it as an effect on advertising but I think with the reopening of All the restoration of international travel then we should see an awful lot more advertising Revenue coming into that particular Area of the business and ITV studios continues to do Pretty well cove your restrictions notwithstanding having a little quick look at that particular Trend line there keep an eye for that and that those numbers are due out on the 3rd of March Other other companies to keep an eye out for this week with plenty of them We've obviously got target The us retailer Walmart posted some really decent numbers Last week. So I'd expect to see a fairly similar Sort of result from target those shares have really underperformed Not really surprising when you're given the fact that we've seen a big big sell-off on us markets So it'll be it'll be interesting to know how that's doing. We've also got zoom video We've got room as well the online New and used car seller coming out as well. Just quickly finish up with a quick look at the gold Um price broken broken out towards the upside Headed back towards those peaks all the way back through here The big level I think for Gold is around about $2,000 an ounce. We weren't able to get Particularly close to that on thursday We've come back all the way down But I think while geopolitical risk remains high And it's likely that we will get a test towards that level Not before we see a little bit of a sideways consolidation with perhaps a drift back down Towards leaves lows around about 1870 or 1875 So that is it for This week ladies and gentlemen once again, thank you very much For listening to me today. Um, don't forget non-farm payrolls next friday at 1 15 between 1 15 and 1 45 Please tune into that as we cover the numbers live Hopefully they should give us more information as to The thinking or the potential thinking of the federal reserve As we look as we look towards the march federal reserve Right me thing. Thanks very much for listening and have a great weekend