 Good morning. Welcome to CMC markets on Friday the 31st of March and this quick look at the week ahead beginning the 3rd of April with me, Michael Houston. Obviously we're coming to the end of the month, the end of the week, the end of the month. More importantly, the end of the first quarter of 2023. The last two weeks, we've taken some of the gloss of the performance of the FTSE 100 after a relatively strong performance in January and February. But I think what has been rather surprising is despite the volatility that we saw in post 8th of March 9th of March, the German DAX has managed to reverse most of the losses in the aftermath of the collapse of the credit of Credit and looks to finish the quarter over 10% higher. FTSE 100 has also managed to recover some of the losses of the last couple of weeks, but it still remains well below the levels that it started at the beginning of the month. I think the larger part of the reason for that is obviously that the banking sector is still yet to recover the losses that it's seen. This month, if you look at the best performers over the course of the past four weeks, hasn't been the banks. I've been the worst performers, obviously. The FTSE 100 has got a heavy weighting for banks, unlike the DAX, which is on course to finish the month or actually finish the quarter over 10% higher than when it started it. FTSE 100 is still expected to finish this quarter higher, but it looks like the gains could well be around about in excess of 2% as I record this video. Lower energy prices, I think, have also weighed on the FTSE 100 as well. Obviously, oil and gas prices are lower now than they were at the beginning of the quarter. So that's acted as a little bit of a headwind for the FTSE 100, but I think when you consider where we were on the 9th of March or in the week after the 9th of March, the fact that we've seen a decent recovery at all, I think it's encouraging. Looking at the FTSE 100, it's interesting to see that we actually held broadly above this area of support in and around these lows here in November 2022 and December 2022. Yeah, we did have a brief spike down, or we actually closed. Well above this particular support levels in and around the 70s and 50s area. So that remains a key level for me on the FTSE. Similarly, despite the set-off that we saw in March and we can see that here, pretty much back to where we were 2-3 weeks ago, obviously that's really encouraging. And I think one of the reasons for that has been the decline in headline inflation that we're seeing pretty much across the entire Eurozone. German inflation fell back in the recent March flash CPI numbers, not as much as perhaps people would have liked or expected, but it did fall back fairly sharply. It fell back even more sharpish in Spain, where it almost halved, and it's almost halved in the Netherlands as well. But unfortunately, that presents the ECB with a new problem because ultimately while headline inflation is halving, in some cases, before inflation is doing no such thing. And that, I think, presents a problem for the Euro area. And more importantly, I think the European Central Bank, because I think one thing that I think the events of the last 2-3 weeks have shown us is that the more aggressively you raise interest rates, the more chance you have of introducing significant stresses in the financial system. And we've seen that play out in recent weeks in the way that bond yields have been behaving. Now, last week I showed you a chart of US 2-year yields. Now, if we just basically display that to show year to date, we can see that we've seen quite a big range just in the past month. We were around about 5% at the beginning of the month. We fell as low as close to 3.5%, and we're now back at 4.1%. The consequence of that has been for the NASDAQ to have a really, really strong quarter. And an awful lot of people have said, oh, well, you know, this means that essentially markets are looking to price in rate cuts. And there certainly is, I think, there has been a sharp fall in central bank's terminal rate expectations when it comes to how many more rate hikes are likely in this particular cycle, and then how soon rates are likely to get reduced over the course of the rest of the year. But here's where I struggle. I struggle with the idea that central banks are somehow going to start cutting rates as soon as this summer. So as some people are projecting, I just think that's wishful thinking on so many levels. We can certainly see the way that the NASDAQ has performed and people are talking about, you know, the NASDAQ is up over 17% on the quarter. And certainly if we look at the way that the NASDAQ has performed, it's been a fairly decent quarter. But let's not get carried away here. The NASDAQ was trading quite close to its October lows at the end of last year. So it's been playing a bit of catch up. If we drill all the way out and go back to the highs of 2021 or even the highs of last year, it's only merely retraced 38.2% of that entire down move. So the rebound that we've seen in NASDAQ has been fairly modest. And at the end of last year, it really did struggle to rally. So if we then compare that to this 38.2% level, it's around about 13,000 give or take, which is currently where we are at the moment. If we compare that to the S&P 500 and we do something similar here, again, similar record highs there. October lows there. We've retraced 50% in February. We then drifted back down. So by the end of last year, the S&P 500 had rallied an awful lot more from its October lows than the NASDAQ. When the S&P was up here, the NASDAQ was down here. So what has happened this quarter is the NASDAQ has played catch up with the S&P. And we're seeing a fairly equal rebound off the October lows. It's just that people are taking the starting point as the end of last year beginning of this year. And say, oh God, look how wonderful the NASDAQ is doing. It's an absolute nonsense. You're not comparing like with like because you're taking completely different starting points. So in terms of the rally off the October lows, the S&P 500 is around about 12% higher. The NASDAQ is around about 15 or 16% higher. Does that mean that suddenly we're on the cusp of a new bull market? No, it doesn't. It just means that we've rebounded quite nicely from the October lows. But we are still well below the 50% retracement level. And we haven't got anywhere close to reversing the downtrend that we've been in over the course of the past 12 to 18 months. So sometimes a little bit of perspective is required when looking at related markets. If we look at the Dow, the Dow is flat on the quarter compared to the NASDAQ. So sometimes it pays to look at markets on a broader level rather than looking at markets in isolation. Ultimately, if interest rates don't get cut over the course of the next two to three months or two to three weeks or whatever, or interest rate expectations don't adjust in the context of current market pricing, then NASDAQ could find it very, very difficult continued to move higher. And I struggle with the idea that with inflation, and we've got core PCE, US core PCE later today, we've got EU core CPI and flash CPI, headline CPI later today. I struggled with the idea that somehow central banks are going to start cutting rates at a time when headline inflation for all of them is nearly three times their target rate. I mean, the only scenario I can see the central banks would start to reduce their headline rate is if we see significant financial instability, and I certainly wouldn't rule that out, but also evidence of a sharp economic slowdown, which by itself will obviously act as a drag on not only headline inflation, but core inflation. But I can't see that happening, and I certainly can't see it happening by the summer. So I think there's an element of wishful thinking going on by some people in the market who seem to think that rate cuts are coming as soon as the summer. I really don't see it unless something breaks. And we have seen, when I say something breaks, I mean something significant. I don't mean another localized blow up in the banking sector or concerns about commercial real estate. Tensions of ease as we've come to the end of the quarter. The big test now, I think will be payrolls next week, this coming week, US non-farm payrolls. There's no evidence currently that the US labor market is getting or showing any evidence that unemployment is set to move higher. Certainly in the payrolls number for March next Friday, we're still expecting to see a number in the region of around about 220,000. We've also got ADP payrolls report next week as well. And again, they were fairly solid in February. They rose to 242,000 in February, likely to see another 200,000 plus number in March. Wage growth, again, fairly steady, trending at around about four and a half percent or average hourly earnings. But again, they're not particularly accurate reflection of what actual wages are doing. What we're also seeing in the US is an increase in the participation rate, which suggests that people are now returning to the workforce. Now that could by itself push the unemployment rate up, but it doesn't mean that the US labor market is deteriorating. There are still around about 10 million vacancies, even accounting for the fact that a number of companies are now starting to announce widespread job losses. And I think the big concern I have is an awful lot of these companies that are announcing job losses, they tend to be in tech, which overhired during the pandemic. And some of those jobs are likely to be higher salary jobs and they're not being replaced by similarly higher salary jobs. So essentially the 10 million vacancies at the lower, they're at the lower end of the salary scale. So you could have a mismatch there in terms of the jobs that are being lost and obviously the vacancies that are still available. We've also got services PMI's next week on the 5th of April. So we've got non farm payrolls on the 7th, we've got services PMI's and ADP on the 5th and obviously weekly jobless claims. They are still on a weekly basis below 200,000. So they're still very low, which again doesn't to me to me to show that the US economy is suffering at the moment from a significant slowdown. Yes, there are pockets of weakness, but certainly I don't think there's anything at the moment to rule out the Federal Reserve hiking rates by another 25 basis points in May. If you'd asked me that question two weeks ago, I might have been less certain of that. And if you ask me again in two weeks time, I again might be less certain of that. But given where we are now, and there is a risk that we could be in the eye of the storm. When it comes to recent events and essentially what's happened this week has been a bit of end of month end of quarter portfolio readjustment as we head into Q2. But as we look ahead to Q2 things have settled down and assuming that we don't see any other unpleasant surprises. I don't think this is this is no way a repeat of 2008. That's not to say that we're not going to get any further blow ups, given the fact that rates are now much higher now than they were 12 months ago and that will cause stresses and strains. That is going to be the challenge. The central banks going forward. So certainly looking at core inflation is going to be key. Looking at the labour market is going to be key. But at the moment, I don't see any evidence at the moment that central banks are persuaded that they need to stop hiking. Now they could temper their language. I don't think that we're going to get much more than say one or two more rate hikes from the Federal Reserve, maybe one of the most. But then we could get a long pause. And I think that's where the pricing mismatch is. Even if the Fed has stopped hiking rates and the rate hike that we saw a couple of weeks ago is the last one, rates could stay right where they are now for the rest of this year. And markets aren't pricing that at the moment. They're pricing a pause. And then two or three months later, central banks will start cutting rates. As I say, I mean, unless core prices come down quite significantly over the course of the summer, I can't see that happening this year. But, you know, I always reserve the right to change my mind. You know, once the evidence supports me doing that for the here and now we've seen a fairly decent recovery in European markets in the first quarter. The bigger challenge now as we look ahead to Q2 is whether or not we can sustain that. And really, I think looking at all the major indices that we've seen thus far, we are still very much in the uptrend that we've been in since those October loads for the DAX. The next key level is obviously the highs of earlier this month. Can we overcome them in Q2 and revisit the highs that we saw back in 2022. So a bit of a harder road back for the FTSE 100. But again, I think the losses in the banks are overdone. UK banks are much better capitalised now. The biggest concern I have about UK banks more broadly is obviously the fall in house prices that we are now starting to see, as well as the fact that an awful lot of people may well be coming off their fixed rate mortgages over the course of the next three to six months. And that could act as a little bit of a break on demand going forward. And obviously, April, we also see the new tax rises kick in as we start a new tax year. Now that the government has decided to press ahead with its ill advised, I think is probably the best way I can frame it hike incorporation tax rates from 19% to 25%. I think that's a massive own goal. It's going to really it's going to really impact on businesses. And it's basically like trying to drive off with the handbrake on. I really don't I don't really don't see how that is going to help the UK economy at all. I think if they left corporation tax where it was at 19%, I would argue that 19% and something is better than 25% and nothing. But hey, what do I know. Also looking ahead to next week, we've got a couple of central bank rate meetings. The RBA Reserve Bank of Australia and the Reserve Bank of New Zealand. Not so much, not particularly concerned about the RBNZ. It's been one of the more aggressive central banks over the course of the past 12 to 18 months at its last meeting in February. The RBNZ hikes rates by 50 basis points, pushing their headline rate to 4.755%. Now at the time, the head of the RBNZ did suggest that more rate hikes were coming. The big question I think now is whether or not recent events have caused a reassessment of that. If we look at the Kiwi, we can see that on this particular chart, we're finding a little bit of a top in and around these sorts of highs around about 6290. But the highs, the lows are getting higher. So we could start to edge higher, not because the Kiwi is particularly strong, but probably because we're starting to see a significant improvement in the Chinese economy. And also US rate hike expectations are likely to start to get tempered back and the dollar is starting to fall. The dollar is starting to weaken somewhat. So I would be very surprised if the RBNZ moves again next week. Similarly with the RBA, whose headline rate is 3.6%. And as I say, it raised rates in March by 25 basis points. But what's interesting about the RBA was the fact that the tone was markedly different to the tone in February when the central bank that said further increases in interest rates will be needed over the months ahead. This tone changed. This tone changed in March, which came just days before the sharp declines as a result concerns about the banking sector. The March rate rise was accompanied by a change in the language to a more data dependent approach. So that opens up the potential for a pause when the central bank meets next week. We've also seen a fall in headline inflation back to 6.8% in February, which suggests that the spike up to 8.4% that we saw in the end of last year was very much a one off. And it may give policymakers some confidence that a pause may be appropriate and let's not forget the Australian economy is also heavily reliant on its own housing market. So I think in terms of the Aussie dollar, we may see a pause at 3.6%, a reiteration of the data dependent nature of further rate hikes going forward. Certainly the 200 day moving average is I think is a fairly decent resistance level around about 6760 6780. But again, I think the improvement that we're seeing in Chinese economic data and the rebound in services and what have you, as well as the prospects of a week of dollar could act as a as a as a fairly nice tailwind for the Australian dollar. But obviously we have the offset that we've got the ADP Rated Payrolls report next week we've got services ISM as well and obviously we've got non farm payrolls on Friday. So all of those factors are key things to bear in mind when we look ahead to what's coming up next week, which is a quiet week. In terms of company earnings there's not really that much to really get your teeth into. April earning season starts in earnest around about the 13th of April. That's when US banks start to report. And those will be particularly interesting given the recent volatility Silicon Valley Bank signature bank. First Republic Bank, the big US banks looking to bail out an awful lot of these smaller regional banks. I think it'll be an interesting conversation to have how the big US banks see the outlook for the US economy as we look ahead to Q2 and their latest earnings season numbers. If we look at the currencies euro dollar now does appear to be looking to push higher through 10950 towards 110. Certainly again we're seeing fairly decent rebound off the October lows. It's interesting to see the way your dollar has behaved and the DAX has behaved. And I think if you think your dollar if you think the DAX has potential to go higher than the likelihood is that your dollar will probably do the same there. It does appear to be a nice correlation between the two. And it'll be interesting to see whether or not ECB officials continue to be as hawkish as perhaps they once were given the concerns about the European banking system cable again. Pretty much a range trade this quarter. I think if you're looking at the prospect of a weaker dollar. Then the pound should benefit from that at the moment is pushing up against the upper boundaries of the recent ranges 124 and a half. That's a big level. And I'm well below that. I think you've got to be a little bit worried. I think you've got to be a little bit cautious about being overly long a cable at these sorts of levels until such times as we break inclusively above 124 and a half. But overall, I don't think I would be I would be surprised if the pound drops significantly back to the levels that we saw at the beginning of this month, around about 118. I still think this is a fairly decent range trade on the basis of the fact that it has been for the last three months or so. Again, that could be upended if the risk, if the outlook for risk deteriorates markedly. Euro sterling. Well, there you have it. I mean, basically, just look between the blue lines. This is really the extent of it for Euro sterling. Again, nice little uptrend line all the way through these loads here. We've got the 200 day moving average down there. We've got the 50 day there. The price is compressing and it's very much a range trade. I think the trade for Q2 is going to be Dolly N. That's going to be worth keeping an eye out for because now we've got a new governor, the Bank of Japan. There has been some talk that the Bank of Japan might look to try and exit your curve control. If it does do that, then the potential for further Dolly N losses towards the lows that we saw earlier this quarter remains quite high. At the moment, we're starting to move a little bit higher. We could move all the way back to the 200 day moving average without really undermining the bearish narrative for Dolly N. We still remain very much in the downtrend from those peaks back in October. I still have an end of year target of around about $120, $125 for Dolly N. I haven't changed my mind on that while we're below the 200 day moving average, weaker dollar, stronger yen on the back of a slight policy tweak or a slight policy shift on the part of the Bank of Japan. So, I think pretty much that's it for this week and this quarter. As I say, it's been a positive quarter for stock markets. It's certainly looking a much better picture now than it was around about two or three weeks ago in the wake of the Silicon Valley Bank sell-off that we saw on the 9th of March. And then obviously the events in Switzerland surrounding Credit Suisse. So, as we look ahead towards the next few days, the main focus over the course of the next week will be on US non-farm payrolls. And I will be hosting a webinar live covering the numbers on the day in question. US ADP payrolls report, as well as the latest ISM services report from the US economy. And particularly the employment components as well as the prices paid components for any further evidence, the inflationary pressures are continuing to abate, particularly in the services sector of the US economy. Until then, thanks very much for listening. This is Michael Houston talking to you from CMC Markets. Thank you.