 Good morning. Welcome to CMC Markets on Friday the 4th of June and this quick look at the week ahead beginning the 7th of June Well, we get started a couple of risk warnings, but in my absence European markets Haven't really gone too far from when I did when I last did one of these videos They're traded in a broadly choppy fashion, albeit with a slightly Upward bias while US markets have traded in a fairly tight range albeit below their recent record highs So there hasn't been what I would call an awful lot of An awful lot of volatility. Yeah, we've seen a bit of a choppy range And while we've seen the DAX and the stock 600 make new record highs this week the modest gains that we've seen have been incremental That best has expectations about the speed of an economic re reopening Have ever been flowed over the past two weeks so I think as we look at The various indices it's pretty much business as usual in terms of Looking to buy the dip though what we have seen I think and what has been notable Is the fact that European markets are starting to outperform US markets By a fairly small amount US markets look as if they're going to finish this week slightly lower While European markets look set to finish the week higher though the FTSE 100 Continues to lag behind its European peers. We are now finally above 7,000 And we've managed to hold above 7,000 for the past two to three days But it's it's been it's been very much a a stop-start affair We haven't has yet been able to move above the highs of last month What has been notable though as we look at this trend line on this particular chart here is the fact that while we have Dipped below the trend line on a number of occasions We've closed well above it and I think that's important I think at the moment the uptrend continues to remain intact. Yes, there are certain parts of the UK economy That are underperforming But recent economic data has continued to show signs of improvement in May the the May PMIs Have really borne that out in this week's data the rebound in the UK services sector Hit a record high its further evidence of a strong UK economic rebound in Q2 However, what it can't do is disguise the fact there are still significant areas of the economy That are continuing to struggle and it's not hard to see where those those sectors are its travel and leisure particularly airlines as the there's the UK government continues to wrestle with the Rising infection rates and what is now known I think is the Delta variant or the old India variant of COVID-19 The fact remains though that I think we will see some form of easing on June the 21st I just don't think it's realistic to expect the whole scale removal of restrictions as has been touted For several weeks now, I think we will still see some limited restrictions remain in place And that's really I think what is helping to hinder and the rebound in airlines and Overseas and any other companies that I think are really exposed to the overseas travel Sector and that is obviously what is I think holding back the FTSE 100 to a greater or lesser extent Nonetheless while we remain above the 50-day moving average, I'm still of the opinion that we're likely to finish The summer or probably by the end of this month see a taking out of these highs in May and head up towards 7200 level in due course as long as we are able to hold above the 7000 Or the 50 day moving average around about 6,950 we're also waiting on today's non-farm payrolls numbers, which as of yet, I don't have sight of I Think they could be a group I think they're likely to be a fairly short-term arbiter of Volatility, but I certainly don't think that they are likely to affect the overall direction of equity markets Going forward the big headline for non-farm payrolls is Job gains of around about 660,000 in the wake of a very strong ADP payrolls report yesterday I think anyone who thinks that there is a correlation between ADP and non-farms I think really needs to get out more and they haven't correlated for quite some time and they're not likely to Going forward Ultimately, I think the numbers are probably meaningless in the overall scheme of things So so what does that mean? I think overall for US Treasury yields Well, let's have a quick look back at last month's payrolls report because if we look back at last month's payrolls report on the Reaction that we saw to that huge miss of 255,000 we were expecting a number of around about one million That was the reaction of the US bond market to that miss We spiked lower it's around about 145 1.45 but soon recovered that equilibrium fairly quickly And I think when we're talking about them that the main payrolls report I think what we need to put into perspective is the fact that While jobs growth It's probably not likely to be as strong as maybe First anticipated as we headed into as we head into the summer It doesn't change the fact that the US economy is still Lightly to grow quite significantly over the course of the next few months and one of the reasons why that why the the US Labor market is probably going to take longer to recover is it's simply on the basis that The unemployment benefits that are currently is Which were currently brought in as part of the March stimulus package aren't due to expire until September And these unemployment benefits are likely to continue to act as a break on rehiring levels in the US labor market At a time when vacancies are already at record levels are around 8 million now If you're getting paid more to claim unemployment benefit than to go back to the labor market You're not going to go back to the labor market now that in itself could cause an inflation surge in terms of Wages now that in the short term is likely to be a good thing for employees And I think the only concern I would have about rising inflation expectations is if it becomes More entrenched now at the moment There are no signs of that happening an awful lot of the reason you're seeing rising inflation expectations It's largely been driven by the rebound in oil prices You've only got a look at Brent crude prices and where they are now where they were a year ago now. Yes, there are supply chain Capacity constraints which are likely to feed through into the headline numbers and certainly agricultural commodity prices are also rising Quite significantly and are at multi-month and multi-year highs But I think the key thing for me is that while Consumers have additional disposable income. There shouldn't be a significant uptick in Inflationary pressure in a short to medium term now That's going to be key particularly next week when we get a good look at US CPI numbers for May now You know, we're talking about next week and we're talking about the key items that I'm keeping a particular eye out for next week US CPI is going to be one of those numbers that's going to be of a particular interest But also we've got the European Central Bank rate meeting the here and now US yields aren't going anywhere. They currently look toppy around about 1.7% They currently look well supported around about 1.5 None of the numbers that we are likely to see over the course of the next week or so are likely to change that and That should keep the risk profile or the risk premium for equity markets pointing towards the upside pointing towards buying dips in The overall scheme of things. So if we look at say for example the Germany 30 we can also see here That we have continued to edge higher over the course of the past few days So I expect that trend to continue the only concern that I do have when it comes to equity markets in general is the Nasdaq Now two weeks ago. I talked about this level here of around about 13,760 there or thereabouts That has continued to cap every single rebound and it also happens to coincide with this series of lows All the way through here. Okay, we've got a little bit of an overspill there But ultimately that does appear to be a bit of a barrier around about 13,800 when it comes to the Nasdaq and I think that could be why US markets are starting to underperform relative To the outperformance that we're seeing in European markets We're also seeing it less so in the S&P as well. We can see the record high back here 10th of May We've had a brief look Towards the upside on Tuesday this week weren't able to sustain those gains and start to roll back over So I think we could start to see continued divergence between US markets and European markets now You know, I could be slightly wrong on that But ultimately I think European markets probably Are cheaper on a relative valuation than in US markets. So there's potential for slightly more upside There we've also seen a bit of a rebound in the US dollar over the course of the past few days Well, actually the past 24 hours if truth be told and a large part of that was as a result of The fairly decent ISM numbers that we saw Um out of May, but also the fairly decent payrolls report From ADP now the big question is is whether or not that's sustainable I think US CPI could have a good part to play in that that's due out on the 10th of June and with the Fed meeting a week after The following week Certainly Fed policy makers have been making noise about modest tapering now. That's nothing to fear There is nothing to fear from a moderate modest tapering of asset purchase the Fed is currently buying 100 billion dollars a month in US treasuries and mortgage-backed securities. They don't really need to be doing that now They can really afford to start pairing that monthly amount back quite substantially without undermining The overall recovery in the US economy. We've already got the Biden administration talking about changing changing tax Levels we've also got them talking about another stimulus plan Ultimately the The Federal Reserve can afford to start thinking about tapering its asset purchase program and they're likely to start preparing a ground for that in the meeting In two weeks time But let's talk about US CPI because last month mark has got a little spooked when US CPI jumped sharply To 4.2 percent now that was well ahead of expectations of 3.6 percent and the highest level since September 2008 core prices also rose to 3 percent now a big component Of the increase was a big rise in news car and truck prices, which rose 10 percent as well as increased energy costs In the aftermath of this number as well as a big rise in PPI prices There's been much debate as to how much of this will drop out of the numbers and must be transitory Now if the recent april PPI numbers are any guy We could see well and even we could well see an even higher number Given how much PPI tends to be a leading indicator to see P.I. So as a reminder april PPI jumped to 6.2 percent It's highest annual level in over 10 years as prices in the goods index or increases of 18 0.4 percent that's 1 8.4 Now that includes some dairy meats as well as plastics and other materials So that's likely to create a trickle down effect or a trickle up effect in CPI now Market expectations for a rise of 4.6 for it to rise to 4.6 percent I wouldn't be surprised to see it go to five or even six percent in the coming months on an annualized basis That's important. It's in an annualized basis Core CPI which excludes food and energy is also expected to rise further to around about three and a half percent three point five three point six percent again This is entirely expected given the base effects that we saw from a year ago the big question is will these These these factors continue Into the end of the year and I think that's the big unknown and we're not really going to know that For at least three to six months for the here and now bond markets appear quite sanguine about it Certainly if you look at the 10 year hasn't really moved that much If it comes in well above expectations, we could see a spike up to 1.7 But again, it's really about how central banks manage the expectations around that So the us dollar looks as if it's on the cusp of a significant rebound certainly that is good news For euro dollar Because I certainly think over the course of the past few weeks The you the ECB has been concerned about the rise in the euro I don't think they need to be so worried about it now I think the dollar is about to make a bit of a comeback people have been writing off the dollar for years And they will continue to write the dollar off But ultimately what else is there euro? Please don't make me laugh The chinese from nimby. It's not liquid enough Ultimately in the absence of another reserve currency, the us dollar is still going to be the go-to currency If you're looking at a potential haven trade the euro at the moment is still got significant Obstacles to being what I would call a proper reserve Currency or a proper alternative to the us dollar. So we've got an ECB rate meeting this week It's likely to prove an interesting one given the recent rise in long-term yields that we've seen in not only um, german bunds, but also italian spanish and other 10-year yields because they've risen quite substantially particularly in the case of Italy Where we've seen we saw an initial move above 1% in the 10-year And before sliding back now this may not seem a lot You know 1% yield or a 0.9% yield on italian 10-year debt May not seem that much But when you compare it to german debt, which is minus 0.2% that's still a big gap and ultimately When you have a debt to GDP ratio in excess of 150 percent It soon becomes a financing problem if those use yields continue to go higher now They have slipped back and I think really how Christine Lagarde and the ECB manage expectations about their own Support program will be key in whether or not those yields start to wedge back up again The ECB has got a bit of a problem Given the fact that we're seeing rises in headline inflation um, and that is making some northern countries a little bit uneasy about The the large yes, if you like Of the ECB's current asset purchase program. There's been rising Chatter, if you like jibba jabba, whatever you want to call it About the risks in the ECB Managing its asset purchase program and certainly the monetary policy hawks Are going to be getting a little bit louder when it comes To scaling back the levels of support Particularly now there appears to be some movement on the pandemic recovery fund Disbursements Which could well start to get trickled out over the course of the next few weeks or months assuming that All of the ratification program or process goes According to plan so Some of the ECB's problems are outside of its control namely rising US yields But for the here and now The central bank does need to convince the hawks that now is not the time to start signaling the change of stance and pushing on putting upward pressure on Long-term long-term yields in the periphery at the moment We do appear to have topped out in euro-dollar Certainly on the basis of this chart that does appear to be a little bit of a reversal taking place and I think over the course of the next few days we could we'll see a retest Of this one 2070 area and this one 2050 area Given the fact that we look as if we're going to be posting a bearish weekly reversal on the Japanese candlestick chart As a result of the rebound in the dollar So what does that mean for the pound? Well the pound once again Has retested those 142 highs that I identified in a video two weeks ago And it's nice to see that that 142 40 level has been respected We've got a couple of data points out of the UK next week. We've got UK GDP for April Certainly the most recent economic data out of the UK Saw the UK economy enjoyed decent into the first quarter with an expansion of 2.1% for March GDP Overall the economy only contracted one and a half percent The further easing of restrictions on April the 12th with a very strong PMIs that we saw From there and the consequent even stronger PMIs that we've seen in April would appear to suggest that April GDP Is likely to be even stronger than March So we could see a number of 2.5 or 3% and may even stronger than that The big support level on cable at the moment does appear to be around about 140 80 That's these this this below here and the low from Thursday And if you actually draw a horizontal line through there, you can see there's a decent area of support through there Ultimately, we still remain in the uptrend that I've drawn in from these two lines here and also the 50 day moving average So for me Sterling remains very much by the dip trade Certainly in against the dollar and certainly also Against the euro and you know, I remain consistent in that While we remain below this resistance level of 87 30 We're in a bit of a range at the moment. We're near the bottom of the range on the Downside around about 85 60, but I still maintain that we should see a return back to the levels that we saw in early April of around about 84 70 in the short to medium term Going forward. We've also got UK manufacturing and industrial production for April on the 11th along with UK April GDP And we're expecting to see Expansion of 2% in the April numbers building on the gains that we saw In March as the economy continues to reopen and restrictions continue to get ease So those are the key Those are the key economic indicators for the week beginning the 7th of jen to so recap that We've got ECB rate meeting on the 10th of june US CPI for may on the 10th of june UK GDP and UK manufacturing production industrial production on the 11th of june in terms of Company announcements, we've got game stop which has been pushed back In to onto the 9th of june A meme stock or we've already seen significant volatility in amcm entertainment For me game stops still remains very much a lottery when it comes to Trading this particular market, but you can read about my thoughts on game stop on the website under the news and analysis section We've also got an interesting company called itm power This was picked out But by one of the digital Marketing people for me to have a look at and it's an interesting renewable energy play We've seen an awful lot of attention put on renewable energy companies and This is one such company in 2015 itm signed a deal with royal Dutch shell For hydrogen refuelling stations for cars a deal with a deal that was extended include buses trains and ships Now itm also developed solutions to capture surplus renewable energy by the development of battery Technology to store renewable energy using rapid response electrolyzers To store as well as release energy when there are peaks and troughs wind power now the shares that saw a big sell-off at the beginning of this year And one of the reasons for that was the fact that The company posted first-half numbers which were disappointing to say the least first half revenues fell 92 To 200,000 pounds now while some of that was probably due to covet 19 disruptions Losses also increased to 10.4 million pounds now the key test i think for this week Is whether what's been announced in the second half while a lake concerns over the outlook moving forward The company is looking to meet revenue targets to project annual revenues of 29.1 million pounds by 2022 Now that's a sizable jump from the record number that we saw pre-pandemic of 4.6 nine 4.6 million in 2019 so it's projected annual revenues, okay Of 29.1 million pounds. There's a record number of 4.6 million in 2019 First half revenues for 200,000 pounds So you can see that there's been a significant readjustment in investor expectations about this company And currently it's trading below the 200 day moving average and struggling to get back above it So those numbers should be very interesting when they are released on the 10th of june. We've also got british-american tobacco On the 9th of june, and they've been under pressure in recent months and days because of proposed U.S. Considering legislation to cut the amount of nicotine nicotine even in cigarettes To levels that are considered less addictive which sort of rather defeats the object of having Nicotine because that's the whole point isn't it? That's a feature not a bug if you like If you like and we've also got brown foreman's first fourth quarter earnings. That's the maker of jack daniels On the 9th of june, and we've also got the worldwide developers conference for apple Starting on monday now apples particularly interesting I think because if you look at this trend line that i've drawn in here We're also on the 200 day moving average and we're flirting with the trend line support So this $120 level is likely to be a very very key support level over the course of the next few days because These tech stocks do appear to be starting to lose a little bit of a mentor. What is this i see before me? Is this a potential head and shoulders reversal for apple? Could we see a move back down below 100 on a break below this level here? So this 120 level is I think is going to be very very important in the overall scheme of things as we look ahead to the next few days and the next few weeks so To sum up I think that's pretty much I think that's pretty much it for This week's preview. I've now tried to get through a lot after an absence of a week or so but hopefully Hopefully I've shed some light on some of the Things that i'm keeping an eye out for over the course of the next few days And hopefully the non-farm payrolls later this afternoon won't show won't throw too much of a spanner into The cogs of the market, but until next week. Thank you very much for listening. This is michael hueson talking to you from cmc markets