 Good afternoon ladies and gentlemen and welcome to this week's weekly market update webinar With me Michael Houston my colleague David Madden is giving him the day off today So you have the pleasure of my company for the next half an hour First and foremost, let's get the little housekeeping rules out of the way The obligatory risk warning so basically any of the any of the Levels that I talk about today With respect to chart points sort of port and resistance levels should not be taken as an invitation to buy or sell just key levels key potential trading levels that could Could mark could mark essentially a market turnaround Supporting resistance and what have you? But first and foremost once we got the miss mornings out of the way Think the key thing that I'm looking out for this week There's a number of key factors obviously the markets are coming off a very good start to 2018 coming off the back of two positive years for equity markets 2016 2017 The S&P 500 has made the best start to the year to a calendar year since 2003 I think the big question is Will we see further gains over the course of the next a few days? And weeks certainly I think there is some concern And it was it was expressed last week that bomb markets in particular Were at risk of a significant turnaround Certainly in terms of the bull market that we've seen in bomb markets over the course of the past 30 to 40 years But at the moment, I think it's very important not to get too caught up in the actual Headlines and actually look at the price action I've always been a big fan of trading what you see as opposed to listening to the headlines And I think there's no better place to start than this particular market here. This is the US 10-year Treasury yield and I think for me We are on the cusp of a potential turning point, but we are not there yet Ultimately what we've seen here I've drawn a trend line from the peaks that we saw in 19 between 1985 and 1989 Now that comes through the highs that we saw in the early part of this century around about 2008-2009 and Corresponds with the highs that we saw in the yields At the round about the middle of last year March not the middle of last year early part of last year Now these yields these these peaks here that I'm that I'm pointing out here Around about the end of 2016 and also the middle of 2000. This is a quarterly chart So it's important not to get too caught up in the the minutiae of these But ultimately there's a big big resistance level around about 2.63% those were the March highs of last year they also coincided with the reflation rally that we saw at the beginning of last year over Speculation that Trump's fiscal reforms or potential fiscal reforms could cause the Fed to raise interest rates much quicker than markets were pricing in We haven't as yet taken out these peaks here around about 2.63 And even if we were to do so we I think we'd still need to take out these peaks here In the early part around about 2013 which were around about 3% Why is that important because if you actually look at these two lows here around about 1.38% We could argue potentially that this is a double bottom for 10 year US Treasury yields So for me first and foremost the first obstacle to higher rates is 2.63 a break of this line on A quarterly basis or a monthly basis whichever way you want to slice and dice it Let's take it down a little bit lower so around about 30 years So that trend line disappears, but ultimately what we now have and this is important in the context of where we go to next is these highs here around about 2.2 0.54 which was obviously that the lows this year 2.2 0.63 Slightly higher up. That's the current price. You're seeing there, but those highs there 2.63 we can see that if we point the cursor there And we get and it actually gives us the horizontal line 2.639 or 2.64 then you've got the peaks here around about 3% If we just do a typical measured move on these two loads here in this peak here We can come on the way back to 3% and still be in the sideways range that we've been in for the best part of this particular Decade from 2010 to 2017 so We break the downtrend line if we break above 2.63 we then have to take out 3% to go to 4% So in the context of what could significantly Signal higher interest rates first indication is a break of the 10-year Treasury yield of 2.63% That could be any number of facts that could be Speculation inflation is making a comeback certainly there have been some indications in the context of commodity prices But we could see higher interest rates if we do get higher interest rates that could present a significant risk to equity Market valuations because ultimately if you get higher bond yields with equity markets trading at very stretched valuations the The incentive to own bonds is much higher as a yield play than it is for say for example US equities which have an average yield of around 1.82 percent So the attractiveness of stock starts to diminish the higher bond yields go Hopefully that makes sense for the moment. There's no evidence that markets are taking any notice of that if we look at the Dow US markets are closed today, so we probably won't see any US cash index Certainly in terms of the futures We're already higher than we closed on Friday. The Dow Jones is in touching distance of 26,000 Given where we started the year we were just above 24,000 that is a significant move higher So big week for US bank earnings. We've got JP Morgan Chase. Sorry. We've got Goldman Sachs and Citigroup later this week so again Likelihood of they're going to benefit from perceptions of higher interest rates US 2 year yields are at 2% US 10 year Treasury yields around about 2.54 percent look at the S&P 500 similar sort of story the momentum continues to Favour continued gains in US equity markets and ultimately if you try and push back against that You're likely to get significantly You're likely to come significantly unstuck What I'd like to see for this particular uptrend in the S&P to start to unwind We need to see a break back below 2695. That is quite some distance away from where we started the year so Certainly, I think the markets going to want to test 2800 on the S&P There are a couple of things that might throw that into doubt and I think it's important you guys Know that there is potential for a little bit of a spat between the White House and China later this week when Twin inquiries by the US common department could open the way for punitive measures against Chinese and steel aluminium shipments on national security grounds the Trump administration is studying a Report that could slap tariffs on Chinese steel and Chinese aluminium if that happens that could be significantly detrimental for Global trade the last thing that equity markets one at the moment is a trade war So keep an eye on headlines out of the US and China with respect to potential sanctions by the US on Chinese import shipments China already has already fired a shot over the bow of US policymakers with respect to that warning about US treasuries and potentially holding back So that could be a significant headwind now what has been surprising I think over the course of the past few days has been the performance of the dollar index The dollar has looked weak now whether that's as a because of the markets speculate that Ultimately while the Fed is expected to raise interest rates at least two or three times this year The expectation is that others other central banks could actually tighten more than anticipated It's difficult to estimate But I think the markets are anticipating that the different interest rate differential between US yields and European yields is likely to narrow in the euro's favor in the yen's favor in Sterling's favor, and that's why you're seeing the pound of the euro and the yen rise Against the dollar you're also seeing Significant outperformance against the Australian dollar as well the Australian dollar is doing particularly well against the US dollar Largely as a result of the rise that we've seen over the past week or so In gold and copper prices, which generally tend to be fairly Australian dollar positive obviously the performance of oil prices is also Acting as a little bit of a drag On the US dollar so the key level for me was this break of the 50% level on the dollar index from the lows that we saw mid-2013 to the peaks that we saw At the end of last year in the beginning or the end of 2016 beginning in 2017 We've closed below the 50% level for the first time since 2014 That would suggest that the potential for further dollar losses is quite high The only thing that would really I think reverse that scenario is if the dollar index closes back above 91 40 91 50 over the course of the next few days But certainly in the context of the moves that we've seen over the past week or so I think the perception is now that you're looking to sell the US dollar on Rallies as opposed to buying it on dips right. Let's look at The euro dollar because I think that's really the key level that I'm keeping an eye out for Now on this daily chart here. We've broken above the highs of last year 125 that was the catalyst for the move higher that we've seen over the course of the past couple of days And what's more important? I think in the context of this dollar move is we've also broken this 121 6570 level. Why is that important? That's important because in the context of the moves that we've seen since the highs in 2014 It's broken above the 50% retracement of that entire down move from 2014 to the lows That we saw at the beginning of 2017 so that would potentially Suggest that we could see further moves towards 126 euro dollar over the course of the next few weeks and months The only thing that would undermine that scenario is if we push back below this 121 6570 level on The euro dollar now The these these retracement levels are not set in stone This is a weekly chart so we could get an intro week pushback down But certainly in the context of this particular move on euro dollar I would only be concerned about further euro losses if we went back below These series of peaks here around about 120 80 125 why well, it's quite simply is because it's also coincides with these two peaks here. So Any any pullback in euro dollar is likely to find support back down here at 120 80 120 90 those are the key supports on the downside for euro dollar If we stay above these this this really this real support level here Then I think the likelihood of a move up towards 124 125 is The more probable outcome Similar sort of story for the pound against the dollar which again has outperformed over the course of the past few days We've moved back to 138 very very quickly. We took out these 2016 highs 2017 highs rather at 136 and a half That was a significant level that we've broken out from so now what I'm looking for is the next resistance level for the cable On a weekly chart so the first thing that I've done here is this 138 30 level is important In the context of this to these two lows here that we saw in early 2016 Prior to the Brexit vote. We've got a very strong rally of 138 30 We went all the way back to 150 before moving sharply lower We're now well above 135 if we can close the month Around about these sorts of levels that should be fairly positive for the pound and certainly signal a test of this 38.2 Fibonacci retracement level here Which is around about 139 75 140 I think while the support at 136 60 135 remains intact. We've been in this uptrend since the early part of last year While this uptrend remains intact, and I think it's quite likely we will see some form of test of 140 The only thing that would cause me to revise that scenario would be a move back below I think this low here around about 135 which is so far the lows of this year So the pound is likely to be volatile. We've got a host of economic data out later this week We've got CPI due out tomorrow at 9 30 Now the expectation surrounding that is for inflation to moderate headline inflation to moderate ever so slightly from 3.1% to 3% but There is a concern that we might actually stay at these these sorts of 3% levels for quite some time to come Certainly for the next two or three months in January We're looking at the December numbers tomorrow with January We will obviously have the rail fares increase come into the numbers as well And that's like an air fares have also gone up at the beginning of this year So that's likely to keep inflation fairly sticky in and around that 3% level Which in itself I think should be fairly supportive of potentially another rate rise Some time later this year from the Bank of England Because ultimately I think if the Federal Reserve is looking to raise rates three or four times this year The Bank of England will have to follow suit by at least one or by at least once or twice To track or keep the interest rate differentials the same And try and underpin the pound and keep inflation in check because headline inflation has been running It's quite significantly ahead of everybody else simply because of the results of the Brexit vote But also because of the Bank of England rate cut that we saw at the end of 2016 That has now been reversed and ultimately I think expectations further rate rises as long as economic data Continues to hold up should be fairly positive. We do have retail sales Also out on Thursday for December Expectations for them are likely to be on slightly disappointing side after the numbers of 1.2% in November But I think you also have to remember the fact that in the December numbers. We will have cyber Monday Because that came in the first part of December as opposed to the November numbers So there is an expectation that number could be negative minus 0.8 percent There is also the possibility given the very decent trading updates that we saw from the supermarkets that it might not be as bad as People originally estimate next week. We've got unemployment and average earnings numbers and hopefully they will Continue to be fairly supportive certainly in the context of the wages numbers, but in terms of inflation There's a very strong theme this week We've also got European Union CPI numbers and German CPI numbers out later this week And if they are in any way weak and they were in November We saw then slipped back to 1.4% on the headline rate and 0.9% on the core rate then I think markets may have to revise their estimates of How quickly the ECB looks to pay back its stimulus because at the moment they appear to be running Or the euro appears to be running a little bit ahead of expectations Certainly, that's my thought on where the euro could go next but ultimately I think momentum is on the euro side momentum is on sterling side And I think while we remain above these key support levels are around about 136 and 135 and a half I think momentum should continue to remain positive obviously Brexit headlines not withstanding looking at euro sterling I Think that could be certainly will dictate where we go to next at the moment Euro sterling is finding a little bit of a lid around about 89 20 89 10 as well as the hundred day moving average at the moment is struggling to close Above the 100 day moving average now It is finding support progressively higher levels, so we could go for a little bit of a run towards 90 But since October that 90 level has acted as a significant resistance level and could remain so for quite some time to come There are a number of other positive sterling factors that I have seen play out on The minor crosses this week if we look at sterling Aussie for example We can see on the daily chart that we've got a post we've posted a bullish Reversal on sterling Aussie now at the moment we are giving a little bit of a pullback But if we get a break above 174 on sterling Aussie, we could go for a little trip to the top side that is a bullish Daily reversal on the daily chart We've come down from the December peaks of around about 179 180. We've rebounded off 171 If we push back above 174 on the back of this bullish reversal We could move higher towards around about 175 176 in the short to medium term I've also seen a similar bullish reversal on sterling Kiwi Here we go similar one here again Have a look at these series of peaks on the four alley chart for a potential break out to the top side It's looking a little bit overbought in the short term But certainly if we look at this particular chart here, we can see 189 70 80 190 if we get a break above 190 Then we could go for a little bit of a run to the top side towards about 192 So that's another sterling cross that posted a nice Keyday reversal or a daily daily reversal Which could signal that over the course of the next few days and weeks We could see further sterling gains against sterling Aussie and against sterling Kiwi We've also got later this week Chinese economic data Q4 GDP industrial production retail sales They could be fairly positive in the context of how commodity prices do but Irrespective of that data if we get some significant headlines about trade Then that could basically overshadow the positive Chinese data that we're getting out Or we we we could get out later this week looking at copper that still looks fairly well supported We could dollar but also decent demand out of China if we break above 330 Then there's a good chance that we can head back all the way to the peaks that we saw in the early part of This decade at the moment there doesn't appear to be any evidence of that But certainly I think in the context of what we've seen thus far I think if we do break above 330 then we could see further commodity price declines at the moment We could be squeezing a little bit what we did post a weekly reversal in the middle of December So as long as we don't take out those 330 highs We could squeeze higher before starting to roll over and head back lower So copper could be a could be canary in a coal mine for equity markets If we're unable to take a take out this $3.30 this 330 area Which were the peaks we saw in December Looking at gold we've seen a fairly decent rallying gold prices over the course of the past week or so We've broken out to the top side from 1326 that is likely to be support on any pullbacks And we could get a move back to the highs that we saw in September around about 1360 on The top side any questions, please feel free to shove them over by virtue of the chat any questions Just reply to this message here So I'm just going to send that message out right now Also keep an eye on Brent crude because I think there's a danger that trade could also be getting a little bit crowded We saw it Last week with respect to a potential gravestone doji at the moment That doesn't look as if it's going to play out the way that I think it probably would have done But again here we look at the 2014 peaks We look at the 2016 lows and then we look at the 50% retracement level of around about $71.65 I think the air is starting to get a little bit thin for Brent crude and it is starting to approach some very key Resistance levels on the top side. So 7165. I think really is the next key level for Brent crude If indeed we do take out the highs that we saw at the end of Last week and that's this level here if we just look at it can just bring that up Show it 70 round about $70 40 $70 50 very very key level there looking also at WTI If Brent crude is going to break out then you would expect WTI to follow it So I'll also be keeping a very close eye WTI and again like Brent crude It's also approaching a very key resistance level of the 50% retracement of the entire down move that from the 2014 peaks but again momentum is on The oil prices side it is starting though to look a little bit stretched Which does suggest that if it's unable to get back above or move above This 50% retracement level then we could start to see a little bit of a pullback So keep an eye out for oil related headlines on Brent crude and WTI they're likely to be quite significant So even though let's move on to indices because what we've seen thus far this year is an out performance on the part of The FTSE 100 and also US markets with seeing a little bit of a pullback today Certainly in the context of the FTSE 100 it is starting to look a little bit stretched It has touched 7800 so we could see a little bit of a pullback or a little bit of sideways trading But certainly since we broke that 7600 level like the Dow like the S&P 500 we haven't seen Any evidence of a pullback we can pull back at least 200 points from where we are now Without derailing the upward momentum. It's been in place over the course of the past few months and what is interesting is that the doubt sorry the DAX and The cat Caron haven't been able to really Retake the highs that we saw at the end of last year. So that worries me a little bit Even though we've seen out performance in US markets We've seen out performance in the UK markets what we haven't seen is European markets Which are cheaper on an earnings-related basis Take out the highs that we saw at the end of last year. So that does really Make me a little bit cautious For say for example the DAX certainly I think the high euro is acting as a little bit of a headwind for the DAX and I don't think the political uncertainty in Germany is probably helping either there was that there was that agreement At the end of last week that the SPD is going to start coalition talks with the CDU and CSU But don't don't read into that a German government is going to be formed eminently It's not that blueprint was just to start talks between the two counterparties No guarantees whatsoever that those talks will be successful. So again I think the market's running slightly ahead of itself. But having said that political instability in Germany I don't think people are too exercised about that simply because the German economy appears to be doing okay So I think the less politicians are able to do the better when it comes to Financial markets and let's face it political instability is nothing new when it comes to Europe We've got Italian elections coming up at the beginning of March and they have potential to be a significant headwind particularly if Political instability remains the underlying theme for European politics, which seems quite likely going to finish off with Bank of Canada because we do have a rate decision later this week and it affects the Canadian dollar so we've seen decent performance by oil prices, which usually is Canada positive and certainly the Canada has gained over the course of the past few few weeks against the dollar the dollar slept against the Canadian dollar and There is an expectation that we could see the Bank of Canada raise interest rates this week by 25 basis points Matching the rate rise that we saw from the Federal Reserve in December Bank of Canada raised rates twice last year We had a decent employment report out of Canada a big big drop in the unemployment rate and There is an expectation now the Bank of Canada will raise rates this week by 25 basis points That is currently priced in I think and the key support on dollar CAD is 12380 124 we're just above that right now It also coincides With this key support that we saw in July But also these these lows in October, so there is a decent area of support around about this 12380 124 area I think the big question will be is if the Bank of Canada does raise rates this week What will its forward guidance be with respect to future rate rises? They did catch the market slightly unawares by Raising rates quickly in succession last year. Where are there any more in the pipeline? Will they continue to match? Federal Reserve expectations and I think the key canary in the coal mine that we also have to be aware of with respect to The Canadian rate decision is will this uncertainty around NAFTA? And the trade talks between Canada the US and Mexico Make the Bank of Canada slightly more cautious about its guidance as it basically guides towards exact guides market expectations towards the end of this year So in a nutshell the trend is your friend at the moment the likelihood is that we're going to see potentially further dollar weakness Over the course of the next few weeks Further euro strength against the dollar further sterling strength against the dollar and also further yen strength against the dollar but I think in the context of Where the dolly ends going we're still in a range and it's unlikely that we're going to break out of that range We are currently below the 200 day moving average We're currently below the lows that we saw in November That potentially means that we could we could potentially fall back down to around about 110 110 20 If I draw these retracement lines in here The likelihood is that we're probably going to come back to 110 15 having broken below that 111 level And that's sixty one point eight percent retracement of the entire up move From the lows in September to the peaks that we saw at the beginning of November. So Dolly ends likely to continue to range trade between The lows that we saw in September and the highs that we saw in November and I think the Bank of Japan will be largely Will be largely happy with that. I really don't see them getting too concerned about that unless We start to head back towards the hundred level a stable exchange rate is exactly what the Bank of Japan wants and As long as it continues to trade in the range that it has been I don't think there's going to be too much concern about that Let's have a quick look at Aussie dollar to finish off We've seen a significant move higher in that over the course of the past few days and that has broken significantly to the top side and Could well retest the 80 level But that's likely to run into quite a few sellers if it gets anywhere near that simply because it generally tends to be psychological resistance On a short-term basis, but again if you get a rollover in copper prices You get a rollover in gold prices that is likely to limit the upside for the Aussie dollar Going forward. So keep an eye on commodity prices If they start to roll over we could start to see the Aussie dollar start to roll over and head back towards 78 and a half over the course of the next few sessions So that's um, that's the brief summary of the markets for this week Is there anything there ladies and gentlemen that I haven't covered that you would like me to have a look at? If not, I can wind this up. What I will then do is post it on YouTube for you guys to listen back to Um, otherwise, um, that's it for this week's weekly market update. I'll leave the Wait a minute or so to see if there are any other questions Otherwise, I'll wrap it up and wish you wish you all a successful trading week