 Good morning and welcome to CMC Markets on Friday the 17th of June and this quick look at the week ahead beginning the 20th of June But before we get to that, I think it's important to obviously look back at the catalyst For this week's big market sell-off We saw a little bit of a decline late Friday as a consequence of a much hotter than expected 8.6% US CPI number and There were reports out over the weekend last weekend that is that In the lead-up to Wednesday's Fed meeting there had been some anonymous briefings briefings to buy beneficials to Friendly journalists about the prospect that rather than doing 50 basis points This week as had been widely expected and widely briefed by Fed officials and Powell J. Powell in particular That the Fed was looking to potentially do 75 basis points on Wednesday and obviously that is That is essentially what turned out to be the case However, the way that it was done obviously raised more questions than answers You know the bigger question is what does one CPI print tell you that other Indicators don't and certainly a lot of the other indicators that we've seen from the US economy Have shown that there is an economic slowdown This week earlier this week after obviously the Fed meeting We saw housing starts and building permits fall quite sharply. I Think one of the concerns that Fed officials had I think in Undergoing this policy shift so late in the day during the blackout period Was that inflation expectations on the Michigan consumer confidence numbers which came in at record low We're edging quite a bit higher But you know inflation expectations come and go and they tend to be fairly transitory in nature Having said that there's that T word again But nonetheless To react on the basis of a single data point when the PPI numbers Do appear to be showing some signs of softening And have been on the decline Since the peaks that we saw in March they they fell back in April and they fell back again in May would suggest that Inflation pressures in the US economy are starting to plateau and that the Fed could have easily achieved its goal of Signalling a significant tightening of monetary policy by doing 50 basis points We're putting 75 basis points back on the table for July after Powell took the prospect of it off the table in His previous press conference so certainly communication on the part of the Federal Reserve was Severely lacking this week and certainly I think conducting policy by way of leaking to journalists is not a good look There are certainly more ways that these the Federal Reserve could have articulated its message Rather than the way that they did That being said the damage is done the Fed hiked by 75 basis points signaling a determination to get on top of Public enemy number one, which is high levels of inflation and more importantly than that To try and pair back long-term inflation expectations with a view to Potentially starting to cut rates towards the end of 2023 beginning of 2024 certainly the Fed dot plots Do appear to suggest that that's what the Fed expect to happen go hard and heavy now With a view to prompting a short sharp shock a recession By the end of this year beginning of next With a view to cutting rates later the only problem with that scenario is that the US economy could already be in a technical recession that's because in the first quarter we saw an economic contraction and given by The look of some of the recent data and the weak retail sales numbers that we saw this week for May there is a case to answer that potentially Q2 could be as weak or Not quite as weak, but certainly Could be a minus number for Q2 which innocence will be a technical recession So we could already be there That was followed up on Thursday the Fed rate hike of 75 basis points Which had largely been priced in but had already seen a significant sell-off in the s&p 500 in the lead up to the decision Before we got a late Friday bounce So Friday bounce late Wednesday bounce in the aftermath of decision followed by a complete meltdown on Thursday, so we've Basically, haven't been able to get back significantly above 3810 area which happened to be the previous lows So that remains the key resistance level on the upside So we're still making lower highs. We're still making lower lows and while we're below 3840 Though the previous reaction highs that we saw on Wednesday Then for me we still remain on course for a move towards three and a half thousand I think one of the reasons that Was responsible for the big sell-off Or exacerbated I should say the big sell-off that we saw on Thursday was surprised was the surprise decision By the Swiss National Bank to hike by 50 basis points That was a surprise. No one would really expect it at the hawkish pivot that we got it was significant in that it came completely out of the blue and while I think the expectation had been that the SMB would signal that they would hike rates in July There was never any prospect that they were going to pivot as hard as they did When they met on Thursday But that's essentially what happened and you can certainly see that reflected in the way dollar Swiss behaved yesterday And it's quite significant that we weren't able to break above parity against the dollar we've posted a Keyday reversal on the daily chart the day before And then of course the big big decline 3% decline in a single day and obviously we saw euro Swiss come lower as well So I think what's changed this week is that not only have central banks Become an awful lot more serious about tackling CPI They're going to be really aggressive going forward with respect to how they do it. They're going to target headline inflation to The exclusion of pretty much everything else. They the the trade-off is higher unemployment And if that's the trade-off they have to make that's what they're going to do The the upside of that is unemployment is at very historically low levels at the moment So they certainly got an awful lot of wriggle room to play with the same can't be said for the Bank of Japan the Bank of Japan has continued to remain on hold continues to Practice it's a yield curve control and on that basis We've seen a bit of a pullback in the dolly in so one that I think the thing that gives me pause here with respect to Dolly in is we saw a six. We saw a similar Bearish Kido reversal. We've seen a break lower, but now we're heading back higher again. So The dynamic here is slightly different, but nonetheless even though I think there's potential for dolly and to potentially go back through 135 and it was 137 the chart is in me is a little bit reluctant to To potentially go aggressively long at these sorts of levels Unless or until we break above these two twin peaks here at 135 50 So certainly in terms of a cautious, you know short position on dolly in I think You know that there may there may be some mileage in that with a fairly tight stop loss But certainly in the context of that chart there the pullback that we've seen on the back of this morning's decision Does suggest that the Bank of Japan is no closer To looking to tighten monetary policy. Maybe next week CPI numbers will do that And that's one of the key items that I've got on the agenda for next week. Japanese CPI Form a we've seen a 14% decline in the yen So far years a day and a central bank policy of neglect of the exchange rate As it tries to basically push headline inflation Above that 2% level and it currently is above 2% If you exclude food and energy is at 2.1 It's likely to remain in that sort of level, but korota has said that he wants it to Be maintained above That 2% target for a period of time So I think it's unlikely that the bank of japan is going to Tighten monetary policy Certainly in the short to medium term until we get clearer evidence That cpi headline cpi is well above that 2% level I think he could be You think he could be finding out the answer to that in fairly short order Given the big declines we've seen in the japanese yen over the course of the past Few weeks The big topic for this week the bank of england the bank of england once again Basically failed to deliver failed to deliver Flattered to deceive And yes, they did offer some fairly hawkish guidance but once again The 25 basis point rate hike at a time when inflation is expected to Not only be higher at the end of this year than it is now But also to be significantly higher At the end of this year in fact the bank of england revised up their inflation forecasts From 10% to 11% while at the same time Saying that it would be they would be prepared to act forcefully to rein in higher than expected levels of inflation Which sounds a little bit oxymoronic If you like because they're talking about the need to rein in inflation They're talking about the need to act forcefully to rein in higher levels of inflation They then upgrade their inflation forecasts and then only raised by 25 basis points And yes, they did hold out the prospect of much more aggressive tightening between now and the end of this year And the current base rate is 1.25 percent Now obviously markets are pricing in much higher rates Than that by the end of this year. In fact markets are pricing in another 1.75 percent in rate hikes between now And the end of 2022 Well, there's another four meetings between now and the end of the year The next meeting is august 4th That's when we get the latest set of economic projections and the economic forecasts And maybe there's a case to answer that perhaps the bank of england is going to hike rates more aggressively At its august meeting when it's in receipt of these new forecasts But between now and the next bank of england meeting the the federal reserve will be hiking by at least another 50 Or 75 basis points Given the fact the bank of england has already 50 points basis points behind the federal reserve And is likely to be and it's another 100 points behind by the 4th of august You could argue that they're falling even further behind that being said The promise of higher rates did prompt a big rebound in the pound on Thursday, but we saw a little bit of a rebound on wednesday as well Almost significant about that was that we managed to hold above that key support level That I highlighted and have been highlighting for several weeks now around about The lows that we saw back in 2019 apart from obviously that level there this 1951 20 areas big It's huge massive We weren't able to close below that the reaction of that suggests that we could we'll see Further sterling gains going forward and we could see a little bit of a period of dollar weakness now that Bias will only remain while we stay above this key level here But certainly I think the bank of england have probably done just about enough perhaps To put a floor under cable But what they need to do now is they need to deliver You know and there's an awful lot of water that can flow under the bridge between now and the 4th of august so You know it remains to be seen as to whether or not we're going to see a higher cable But certainly on the charts the daily charts The prospects for now Look fairly positive for a move off the lows back to these sorts of levels around about 126 And potentially higher. We're still very much in a downtrend on cable But there is encouraging evidence perhaps That we could be starting to See a little bit of a bottom and perhaps choose these cpi numbers for may Could maybe feed into that more bullish narrative because the bank of england has said That if it continues to see firmer levels of headline cpi That it will be much more inclined To hike rates more aggressively now that's going to be a big move if it happens if the bank of england hikes by 50 basis points Between now on the end of the year It'll be the first time it will have ever hiked by more than 25 basis points Since the npc came into existence in 1997 The bank of england have never hiked rates by more than 25 basis points. So 50 will be a big deal The fact they didn't act this week is disappointing And I think a missed opportunity. I think they had the opportunity to get ahead of it But nonetheless We are where we are we I think they've just done just about enough But you know this this particular comment on mine May well not last The next week or so it will remain to be seen but certainly expectations for may cpi Are for an increase in the headline rate from nine percent To nine point two percent with core prices set to remain In and around the six percent level I'm going to pay particular attention to The ppi numbers because the ppi numbers still remain very very high And if they continue to move higher on an annualized basis And in april they were at 18.6 percent on the input level We're expecting another raise to 18 point another rise to 18.8 That would suggest that we've still got more room for inflation to move higher ppi is 11 point is 11.1 That's expected to rise to 11.4 So I just can't help the feeling that the Bank of England didn't do enough And we'll probably need to make signal a not more hawkish intent When it comes to trying to put a flaw Under what we're seeing is underlying sterling weakness Which is exacerbating the inflationary impulse when it comes to food and energy prices And given the fact that obviously the pound is down over 10 percent against the dollar Over the course of the last 12 months, which is making matters even worse Euro sterling We've seen quite a lot of volatility in that we had an ECB emergency meeting This week where they announced the possibility of a new tool A monetary policy tool to deal with fragmentation in eurozone bond markets I'm still very skeptical about how that is likely to work Certainly the markets liked what they thought Would be a game changer But that lasted all of about 24 hours But it did have the effect of basically knocking out all those euro sterling short positions above 86 Going as high as 87 40 before falling back But what's different here is that we are now very much in an uptrend for euro sterling and Until or unless we break below this trend line here There is perhaps A chance that we could well head back towards those peaks that we saw earlier this week Really want to see a significant break below 85 and the series of lows around about 84 80 To signal that we're going to fall back into the range that we've been in over the course Of the last few months and as we can see that from here, you know euro sterling This is the first I think significant volatility that we've seen euro sterling over the course of the past few months But it's still very much chop, and I think it's still very much Is range bound when it comes to Where it's likely to go to next I don't foresee any significant Sterling weakness when it comes to movement in euro sterling. So To say certainly in terms of the data There's really not an awful lot to look forward to next week. Let's look at euro dollar Again, that 103 40 level continues to look fairly well supported Perhaps there's a perception that maybe the dollar has topped out Certainly, I think if you look at the way dollar swiss behaved There is a there is a prospect that maybe the ECB sorry the swiss national bank Could potentially Do further rate hikes Certainly, I think the sell-off that we saw in the nasdaq and the s&p Was prompted by concerns the swiss national bank might look to reduce its holdings of US tech stocks of which it owns quite a significant portfolio Owns big stakes in apple tesla microsoft amazon alphabet And that could well be behind why we've seen the big sell-off this week in the nasdaq. We are now at 18 month lows there What's significant about the sell-off that we've seen this week from the nasdaq Is that now that we've broken below the 50 Retracement level of this entire up move from the 2020 lows We haven't been back above it and I think there's a decent chance that we're going to see further losses in the nasdaq 10 and a half thousand is my next target for that three and a half thousand is my next target for the s&p I don't think the Losses that we've seen This week are the end of the story. I think there's more losses to come It remains very much a sell the rally type of market and We've gone to I think the sentiment has shifted from Fear of missing out to fear of holding on fomo to foho. Yes, there's a new acronym doing the rounds We are now looking at potentially fear of holding on so We haven't seen capitulation yet when it comes to the us tech sector I think certainly a retest or a test of 10 and a half thousand on the nasdaq is likely over the course of the next few days and weeks and similar declines in terms of the s&p 500 Certainly, there's no evidence at the moment That a base is in And we certainly we certainly need to be cognizant of the risk Of further declines. I've also seen this week is the footsie 100 fall back below the lows that we saw in may found a little bit of support seven thousand We're still above the lows of earlier this month Significant that seven thousand level has held. It also held back there in november last year Obviously, we saw a little bit of a spike below there. We didn't stay down there for long So perhaps we've seen a little bit of a short-term base In the footsie 100 As well, there certainly does appear to be a significant area of support in and around 69 87 So perhaps We're probably just seeing a little bit of a widening of the ranges when it comes to the footsie The german dachs also managed to hold above the lows of earlier this year, but certainly I think there is there is This feeling that maybe european markets are more vulnerable Um, certainly the there's there's risks of an earning slowdown I don't think the ecb is going to be anywhere near as aggressive It comes to hiking rates as federal reserve is likely to be or potentially The bank of england by nonetheless We are still on course for the ecb to hike rates in july I think the big game changer will be whether or not We see any progress on a fragmentation tool And we'll know more about that by the time the july meeting comes around another theme This week which has helped drive the equity market selloff has been the weakness in bitcoin And I really wanted to talk about this this week simply because of this support level Here at around about 19,650 19 700 Why is that important? It's important because it was the previous peaks and the previous resistance that marked the move up In december 2020 to the record highs that we saw Back around 60 000 here and another go at 60 70 000 we've fallen all the way back So that really this 19 000 there was the peaks back in 2017 It was the peaks for a while back in 2020 once we broke above that We moved significantly higher and I think if we're able to consolidate a move below That 19 600 area 19 700 at that area between 90 and a half thousand and 20 thousand Then you can see further margin calls Companies like micro strategy who have very big bitcoin holdings could well have to sell out of those positions Excessivating a move towards 10 000 So if we are if we do see a significant break lower in bitcoin that could spill over into a broader um asset market equity market selloff going forward um as people um Try to free up cash to me margin calls going forward um Brent crude prices once again No real sort of clues on that Still remain a little bit top here around about 125 126 It's significant The equity markets hit their lows Back in march When crude oil prices Hit those highs back in 140 We've retested The 125 area but we haven't as yet retested the lows In equity markets, I think further moves higher in oil prices could constrain Obviously equity markets going forward if they continue to move higher Certainly, I think it's going to make central banks much more Determined to push rates up if commodity prices continue to remain at their currently elevated levels What else am I looking at this week aside from cpi from the uk and japan? Not much we've got flash pmis from france germany in the uk But to be fair, I mean there are they're they're largely meaningless Because so they certainly don't signal that any of the respective economies in france germany or the uk Are experiencing economic difficulties and they undoubtedly are They're still in the mid fifties and they don't really give a significant indication Of how well or otherwise the respective economies are doing We do have us bank stress test results And these were basically laid out by the federal reserve earlier this year And I think they're important and I think they're important for the following reasons at a time when prices are surging consumer confidence is plunging The results of these stress tests could not be timelier Fortunately with the unemployment rate at a multi-year low of 3.5 percent This week's results should not have too much in the way of concerns Over the resilience of the u.s banking sector I think we know that it's in much better shape than it has been For quite some time, but certainly the direction of travel for bank shares In this case, we're looking at jp morgan chase And obviously owning season will be starting within the next month or so And obviously u.s bank earnings will be front and center of that These Back these stress these these bank stress tests are basically Done on the 34 biggest u.s banks And we'll see the results of a severe global recession With heightened stress in commercial real estate and corporate debt markets now this year's tests parameters include a 5.75 percent rise In u.s unemployment to over 10 percent over the next two years The test also models a 40 decline in commercial real estate values widening corporate bond spreads and a sharp rise in market volatility so um Furthermore banks with large trading operations will be tested against the collapse Of one of their largest counterparties. So they're going to be quite Significant I think an awful lot of the u.s banks are likely to pass them. Certainly this the systemically important ones Will be but nonetheless, I think they're that That there'll certainly be a good yardstick for or a good good setting up point for earning season which starts in a few weeks time On the earnings front We've got associated bridge foods owner of primark Um, certainly, I think if times are tough you would expect a company like associate bridge foods, which has a fairly diverse um Operating model to be doing much better, but it's very much in a downtrend There is I think some evidence that we could be forming a little bit of a base um Share price is at two yellows It's Flipped to a nine-year low briefly below the march 2020 lows in april here um Has since recovered But the thing with abf is it also has a food sugar and agriculture business So obviously costs there are going up costs in its supply chains Are going up But as a budget retailer and particularly in the context of primark Its business has rebounded quite significantly And in april the company reported a 25 rise in first half group revenue of 7.9 billion pounds So these q3 numbers um Are likely to be important in the context of the wider Retail story the wider consumer discretionary story now earlier this week fast fashion retailers ace or some boo boo boo-hoo boo-hoo Got absolutely pummeled on the back of their latest numbers and that suggests that You know fast fashion is starting to fall out of fashion pun intended um So it's really a question of budget retailers should Do well, you know have the shares fallen far far enough to be considered a bargain um, you know, and I think that's a big question that um Investors need to ask themselves In europe the bounce back has been much more muted consumer foot forward is still weak in europe u.s. Is trading well Food division seen a sharp rise in input costs, which is eroded its operating margins But nonetheless, you know the company is doing fairly decent You know it's doing fairly well Economic conditions notwithstanding and did announce an interim dividend of 13.8 people share Which is due to be paid on the 8th of july. So, you know, the bigger question is is this Are we are we near the bottom or are we got further to go and at the moment? You know, I think an awful lot will depend on this week's q3 trading update and more importantly how um Primark management associated British foods management see the outlook another key bellwether of How well the economy is doing Is logistics parcels and logistics and fedex? um A scene a very challenging year Um, certainly there's big resistance at $240 we saw a big spike In the share price earlier this week when fedex announced they'd be increasing the dividend To $1.15 to share as well as announcing a significant board board shake-up um Four-year profits guidance was kept unchanged in q3. They've been they they spent most of the last Nine months adjusting it down Adjusting it up adjusting it down adjusting it up disruptions caused by the omicron variant caused some Disruption staff shortages in q3 this week's q4 numbers um, are likely to see the effect of Fedex raising its fuel surcharge fees across all its shipping services from the 4th of april The costs of labor saw an increase of $350 million in q3 the fact they're increasing the dividend suggests that This week's q4 and four-year numbers should meet or beat expectations With q4 profits expected to come in at $6.87 share So certainly be a decent indicator of how well the u.s economy is doing Um, given the fact that obviously we saw a little bit of weakness in may retail sales and figures released Earlier this week also got carnival cruise line sector No respite there that looks pretty ugly um Carnival reporting first half numbers higher fuel prices are likely to impact them obviously disruption to flights and what have you Um, it's causing its fair share amounts of problems. It's q2 numbers this week They're still expected to see the company make a loss But bookings have started to recover strongly and hopefully the second half of this year Will be a vast improvement on the first half of this year So those carnival numbers come out on the 24th of june, so Um, that's pretty that's pretty much it for this week. As I say this we've had quite a lot to get through It's been a busy week. It still feels very much like a case of sell the rally type of market um The direction of travel for central banks Is very much towards higher rates. That's likely to be a case of um You know the type of dictate the type of recession that we're likely to Um experience over the course of the next 12 months and make no bones about it I think recession is never inevitable. It's really a matter of degree And I think as a consequence of that market volatility will reflect that So that's very much it for this week. Thank you very much ladies and gentlemen for listening. Have a great Weekend speech all same time same place next week. Thank you