 Good morning. Welcome to CMC Markets on Friday the 11th of June and this quick look ahead at the week beginning the 14th of June with me, Michael Hueson, before we get started. Just have to do a couple of risk warnings, but it's been a little bit of a strange week this week, if truth be told, because I think most of the week we've spent pretty much treading water, searching for a little bit of direction for equity markets, albeit with a slightly upward bias. Ultimately, while we've struggled to go anywhere, there hasn't really been any downward momentum pushing down on equity markets and the FTSE 100 looks to be on cause to finish the week higher, even if European markets more broadly have been struggling and we've seen another record high for the S&P 500. As far as equity markets is concerned, it's been a little bit of a mixed bag. Nonetheless, it's certainly been an interesting week when it comes to the two key events of this week, which I think most investors had been focusing on, namely the European Central Bank meeting on Thursday, but also the US CPI numbers, which provoked a rather odd response. A rather strange thing happened after US CPI hit its highest level since 2008 at 5%. Bond yields went down. Core CPI hit its highest level since 1992, 3.8%. Which sort of brings me on to the main focus, I think really, of this week's video, because next week, or in the next few days, we've got the latest Fed meeting. I think it's going to be very instructive as to what effect federal reserve policy makers will make of the big jumps that we've seen in inflation. Judging by the reaction of bond markets at the moment, bond investors are thinking remarkably sanguine about the prospects of inflation being transitory. The T-word has been used quite a lot on financial TV, I guess used an awful lot by central bankers and more broadly by investors as well. But for me, I think it is a concern. You can talk about base effects. You can talk about obviously the big decline that we saw this time last year, or just over this time last year in commodity prices. That was in March and April or April and May. By the time June had come around, commodity prices were rebounding. So we were certainly off the lows. There has been some evidence over the past few days that commodity prices are starting to top out a little bit. So obviously that will bring us a little bit of relief, particularly when it comes to agricultural commodities. But I think what's more concerning more than anything else is well, CPI is coming out higher than expected. PPI numbers, which tend to be a forward-looking indicator, are also still rising, which suggests that while CPI is rising, the fact that PPI is still rising means that we've got at least another two or three months of potentially sticky inflation going forward. And I think the big debate at the moment is as to whether or not what is perceived to be transitory starts to become more persistent. And at the moment, bond markets appear to be buying the narrative that central banks are peddling, that the inflationary pressures that we're currently seeing are just a resetting of the status quo pre-pandemic. Let's just hope that they're right, because if they're not, then we could see a bit of a spike in bond yields. But certainly on the basis of this price action here, we can see that the lows are getting lower and the highs are getting lower, though. So that suggests to me, despite the fact that we've come such a long way since August last year, we do appear to have topped out, and there is certainly potential. Certainly on the basis of this chart here that I'm looking at, which is the US 10-year Treasury yield, on the basis of this chart here, that we could actually well find a little bit more weakness play out when it comes to US Treasury yields. And we could actually potentially come all the way back here to 1.35%. Certainly, I think that's a viable target, particularly if you look at it in the context of, say, for example, this move higher that we've got here. So we've come from 0.5% all the way up to 1.77%. We could even conceivably come all the way back to 1.2%, which was the original breakout level in February of this ratchet higher all the way up to 1.8%. So at the moment, on a technical basis, irrespective of what you think of the inflation numbers, on a technical basis, this 10-year yield chart would appear to suggest that we could well see further weakness in yields. Now, that is likely to be very positive for stock markets. Certainly, we've seen that play out this week with respect to the S&P 500, which is, once again, hits a new record high. Hit it yesterday, currently trading in the pre-market here around about 42.40%, with the prospect that we could well continue to wedge up. And certainly, on the basis of this chart, there's nothing to stop it from doing so, because if we look at the way the highs and the lows are behaving, pretty much the line of least resistance when it comes to the S&P 500, we are slowly trending higher. And while we're above the 50-day moving average, which is obviously this red line here, then the bias remains towards the upside. But of course, as we look ahead towards next week, the upcoming week, we do have the small matter of the Federal Reserve rate meeting. We've also got US retail sales. We've got UK retail sales. We've also got UK unemployment and UK CPI, as well as a couple of important earnings announcements in the form of Tescos and Whitbread's first quarter numbers, which should give us a decent indication as to how the UK economy is doing vis-à-vis, obviously supermarkets, but also premiering and bookings and what have you. And as I say, we stayed in the premiering a couple of two to three weeks ago now, when we went away for a week. And I have to say, the service was pretty decent. So as a stopover visit on our way up to Scotland for a few days. So I hope we'll be having a quick look at the Whitbread and Tescos share price, as we're obviously looking ahead to the key support and resistance levels on the various indices. So we've gone with the S&P 500. We are now starting to look as if we're going to retest the highs on the FTSE 100. We do appear to be now above these series of highs at 7120, looking to retest the peaks of last month around about 7160, 7165, with a view to heading towards 7200. I'm still of the opinion that the FTSE 100 has plenty of room to go higher. There has been some speculation that the UK Government made delay the reopening of the economy, the UK economy on the 21st of June. And while that has seen a little bit of weakness in airlines and travel stocks, I think as long as it's only a week or two, then I don't think it'll alter the overall economic picture too much. The latest GDP numbers out from the UK economy in April showed economic growth of 2.3%, following on from the 2.1% that we saw in March. So May should be a similarly decent number. We've also got UK retail sales, which is due out on Friday. We've got unemployment numbers. Against that backdrop, the pound has continued to look fairly well supported. So we can look at the pound in the overall context because at the moment that's really been range trading, particularly against the dollar. If we look at the Sterling Index here, we've got a series of peaks all the way through 1020. I'm still minded to think that we've got the potential for further upside in the pound against the dollar. And that would be, I think that would be a natural outcome if we saw further declines in US Treasury yields. If we see a move below 1.4 on the US 10 year, then we could well see further Sterling strength. But as we can see from this chart here, the 142.40 level is a really key level, I think in the short to medium term. It's the highest this year. I'm still of the opinion we can head back to 145. I think as long as we can hold above 140.5 on the short term, these series of lows through here, more importantly, I think is the 140 level. I think if we can hold above 140, then I think for me the line of least resistance is removed towards 145 over the course of the next few weeks. I've been bullish the pound for quite some time. I've seen no reason to change my view on that. And that really, I think brings us towards Euro Sterling as well. Again, there has been some evidence that perhaps we might see a little bit of Euro strength. I'm not convinced of that myself. The bigger level I think on Euro Sterling is 87.30. But we do have a significant area of resistance at around the highs this week, which is around about 86.40, 86.50. At the moment, we're trying to get a bit of a range between 85.60 and 86.50. So for me, I think the bias is for a move lower back towards the lows that we saw at the beginning of April at 84.70 and potentially back to 84. Looking at the way the economic data is going, I think the UK economy still has potential to jump an awful lot higher and regain an awful lot of the lost GDP that we've seen over the course of the past 12 months. Now, going chief economist at the Bank of England, Andrew Haldane, is of the same view. So much as it pains me to actually agree with a central banker, they're not normally right about anything. I think the fact that Mr. Haldane is leaving probably means he's slightly freer to speak his mind and generally they tend to say what they think rather than toe, the group think line. So I think for me, I'm probably more bullish on the UK economy. Infection rates are lower here than they are in Europe. Obviously, I think you've also got concerns about the new Delta variant. The fact that Europe is reopening when infection rates are higher, I think is a bigger risk for them than it is say for the UK where we've almost got herd immunity and maybe another couple of weeks, even if the restrictions get extended for another couple of weeks, that should be enough for a much more broader economic reopening as we look towards July, August and September and the third quarter. So UK retail sales is due out on the 18th of June. Expecting a little bit of a slowdown. I think if anything, I think the markets are potentially a little bit too pessimistic about retail sales for May. We had another stage of the economic reopening. We did see a big rise of 9.2% in the April numbers in the wake of the 12th of April easing. And I think further relaxation in May is likely to have given an additional boost to the numbers. And if the recent BRC retail sales numbers are any sort of leading indicator, then we could will see another decent retail sales number in May. As far as the British retail consortium was concerned, total sales increased by 10% in May compared to 2019. And by more than the same number in April on a two-year basis with clothing retailers, the biggest beneficiaries of a return to the high street. We also had consumers booking time away over the half-term break. So that should be a net positive. And if recent May services, PMIs or any guide, we could still see a fairly decent month for consumer spending in May. Unemployment numbers, again, it's difficult to really set much store by them given the amount of people that are still on furlough. But I think there's still a fairly decent indicator of how the economy is doing in terms of the net numbers employed now to the numbers a year ago. We do have UK CPI. Now, again, if you take Chinese CPI and US CPI as your benchmark, we're probably going to see another big jump in UK CPI. But I think more importantly, we won't see it move. We'll see it move closer to 2%, but I don't think we'll see it move above 2%. In March it came in, sorry, in April it came in at 1.3, 1.5. We've seen rising factory gain commodity prices. Obviously they're going to reinforce the concerns of a slightly higher number. Food prices generally haven't been showing any signs of upward pressure, I think, which is probably the most important narrative more than anything else. So we could well see the headline CPI jump from 8.1.5 to potentially 1.7, 1.8, and core prices could jump to around about 1.5, 1.6. We could hit 2%, but as the Bank of England has shown in previous instances, they don't generally tend to react to inflation numbers jumping above their target rate. We saw that in 2011 when they did absolutely nothing when it jumped to 5%, because they perceived it to be transitory when it was really anything but, hey, this time is slightly different because obviously we saw a big price drop over 12 months ago. So I think it's going to be easy for them to look through it. But overall, I don't expect it to move the dial too much when it comes to interest rate expectations as a potential pairing back of stimulus, even though I think we are getting to the point now where the Bank of England will come under pressure to rain back. It's a bond buying program. It's an asset purchase program on a weekly and a monthly basis. They've already started to do it already, and I think the likelihood is and the reason they've started to basically slow down their bond purchase is to actually e-count the amount of bonds available into next year. But I have a feeling that they will probably have stopped well before then. So looking at Eurodollar, which I haven't looked at, I'm not really expecting too much of a change here. We're in very much a range trade, but we do appear to be starting to show signs of rolling over. And that's another reason why I think Euro sterling can go down because while I think cable can go up, I'm not so nearly convinced of the case for a high euro against the dollar. And this price section would appear to bear it out because we do appear to be rolling over. And if we look at the long shadows on these candles here, it would appear to suggest that it's very difficult to sustain buying interest near the highs of a particular day. That's not to say that we're going to come crashing off, but I certainly think there's potential for us to head back towards around about 120 and a half. If we can't get back above the highs that we saw earlier this week at 122.20. So 122.20 I think is the key level for me. If we can stay below that, then we'll probably continue to drift back down, take out the highs that we saw on the 4th of June last Friday, and head back towards 120 and a half. In terms of U.S. retail sales, again, expecting a weaker number there after the big gains that we've seen in the past couple of weeks, couple of months, what am I saying? April's number was actually a little bit weaker. Unsurprisingly, after such a strong March number, the April numbers fell back sharply, coming in flat. Now, we were expecting a 1.1% rise for April retail sales for the U.S. We didn't get it, and that's a disappointment. And if you actually look at the driving data for the U.S. economy, U.S. consumers are driving less, not more. Now, obviously, I think part and parcel of that has been due to the fact that there's been fuel shortages in some parts of the U.S., and that means that obviously there's fuel shortages and you're not concerned about filling up your car. You're not going to drive anywhere. But we've also got the fact that higher fuel prices are obviously tempering people's appetite to travel, even though U.S. theme parks have started to reopen, holiday parks have started to reopen, and the vaccine rollout plans continuing to pay. So I would suggest U.S. retail sales. You're probably going to see a little bit of a slowdown on the back of the fact that they did have fuel shortages for April and May as a result of the colonial pipeline problems, and obviously the hacking attack there, which prompted fuel shortages at some U.S. service stations. Okay, so as regards the Fed rate meeting, that is obviously going to be a key event risk when it comes to bond yields, and I think we may hear some more noises from some of the hawkish members of the FOMC, Robert Kaplan, for example. He's already been suggesting that we could see a taper before the end of this year, and I think that's a sensible discussion to be having, because even if you take the view that you're looking at an outcome-based data outcome when it comes to changing a monetary policy, and Jay Powell, Jim and the Fed, has said that he wants to see more evidence of a big jump in hiring, the fact that we've seen two weaker than expected payrolls doesn't really negate that. We've still seen numbers that are fairly decent. The only reason that I can see why hiring isn't jumping anywhere near as much as people had estimated is because of the extra unemployment benefits that are being paid out. If you look at the number of vacancies in the U.S. economy, 9.2 million, that's a record high, they far outweigh the number of Americans that are out of work now than were out of work 14 months ago. That's 7 million higher. So you've got 7 million fewer Americans in the workforce than was the case pre-pandemic, and yet you've got 9.2 million vacancies. So the problem isn't workforce supply, it's the fact that an awful lot of these people either may not return to the workforce, or may be quite happy to take their unemployment benefits while they're still available before they consider a return to the workforce. Now that's not going to happen overnight. It could take another two or three months for that to play out, and certainly a number of U.S. states have suggested that they will end their unemployment benefits payouts in July, and they'll completely finish in September. So we could have at least another two to three months of below par jobs growth. Now that's not going to basically move the Fed in the direction that perhaps we want it to, but certainly I don't think there's any reason for the Fed to be buying $120 billion a month when you're looking at those sorts of numbers, and you do have concerns about more persistent levels of inflation. I think the Fed can afford to taper without spooking the bond markets, but also giving a direction of travel that they are prepared to move as and when the data suggests it's sensible to do so. So in summary, line of release resistance I think in terms of U.S. markets is for a slow drift higher. We are getting a little bit of stagnation in Europe, but we still managed to hit record highs this week for the DAX. Again, we're in a fairly decent uptrend for the DAX, so I wouldn't expect any of these dips to be particularly sharp. If we drop below the 50-day moving average and hold below the 50-day moving average, then I would have some concerns about that. Certainly on the basis of these charts here, we still remain very much of the opinion that it's very much by the dip market. Certainly, if we look at the NASDAQ, what we've seen here is we've finally broken above this resistance level that I identified last week, and that would suggest that we're probably going to retest the record highs that we saw back in April. I think that seems more than a probable outcome, given the fact that U.S. yields are now below 1.4, U.S. tenure yields are now below 1.5%. Now that we've seen that break below 1.5%, we've held below that. In the absence of a surprise, then I think the NASDAQ will start to play catch up with the S&P and start to set new record highs over the course of the next few weeks. What are likely to be fairly quiet summer markets? In the absence of bad news, generally markets tend to rise on inertia more than anything else. As for Bitcoin, Bitcoin appears to be back in favor. There was some talk earlier this week that we might see a move below the 200-day moving average and a move below $30,000. We haven't as yet seen that. For stabilization, we need to move back above $40,000 back towards the levels that we saw in the middle of May. We haven't actually closed the gap quite yet with respect to this. As long as we hold above $30,000 and I would expect Bitcoin to start heading back higher again, that again is likely to be very choppy and very volatile over the course of the next few sessions. Brent Crude has broken higher. We've finally aged above those previous highs that I identified all the way back in 2019 and 2020, which would suggest that on a technical basis, we could well head back towards $73,000, $74,000, $75,000 a barrel, but probably more as a symptom of a weaker dollar than anything else. Gold prices, look as if they could well retest the highs of earlier this month, 19-20, that's the next big resistance level. If you look at the long shadows on these up candles here, it would appear to suggest that the bias is for a higher gold price. That will continue, I think, to be the case as long as US yields remain soft. If US yields start to head higher again, you could see gold prices come under pressure, but if yields head back to $135,000 or $130,000, then gold really has to start heading back towards the highs that we saw earlier this year. Let's quickly look at Tescos. That's been an interesting chart over the course of the past six months, and I know what you're going to say. What happened is that big drop in February? Well, that was quite simply a consequence of the £5 billion special dividend that Tesco issued to shareholders in the wake of selling its Asia businesses. If you take £5 billion out of the business, the share price is going to drop. It doesn't mean that the business is doing badly. It just means that the business is worth less than it was in February. In terms of what we're expecting with respect to its first quarter numbers, I think the numbers look fairly positive. What surprised me, I think, a little bit is why the shares haven't really made any progress since that first quarter. I think one of the reasons for that was that management said that they expected sales volumes to decline as lockdown restrictions eased. However, to offset that, costs were also expected to decline as well. We'll see later this week whether or not that's translated into better margins. Obviously, I think the fact that the economy is reopening, more people are basically going outside, dining outside, having barbecues and what have you, you should see drink sales improve, you should see food sales improve. As a consequence, I would be very surprised if the share price drops below the lows that we saw in early March. We could see a retest of that 240 level, which we last saw in the beginning of February. Those numbers are out on the 18th of June. We've also got Whitbread Premier In's numbers. They are also due out on the 17th of June. Again, these are first quarter numbers. Now, when Premier In owner Whitbread reported its four-year numbers, it reported a loss of 635.1 million pounds at the end of April. The shares did dip back briefly to the lows that we saw there, but they've since rallied a little. Now, they have found a little bit of a top in and around here, but with the summer season getting in full swing and everyone having to stay at home, you've got to think that even if their city centre venues struggle, their coastal venues should do very well indeed. The company's packaging of rooms on an individual basis supplemented with various meal deal opportunities ought to offer a decent platform at its more touristy locations to offset any low occupancy rates in city centres. Obviously, the reopening of theatres and cinemas in London and the West End will help if that, happens, because then it will be worth basically going for a trip into town and maybe staying at your Premier In in the city centres. But I think in terms of Q2, Q1, we're probably not going to see much of an improvement in the finances. The asset test will be Q2 and Q3 and see what revenue per room is as we head in to the summer months. Okay, so I think that's pretty much, I think that's pretty much it for this week. Once again, thank you very much for listening until the same time, same place next week. I'd like to wish you all a nice weekend, a pleasant weekend. Hopefully the weather will be nice and I'll see you all the same time, same place next week. Thank you very much for listening.