 Good morning, welcome to CMC Markets on Friday 25th of June and this quick look at the week ahead beginning the 28th of June and it's been a slightly more positive week for equity markets I think investors are slowly, slowly but surely starting to adjust ever so slightly to the shift at the end of last week by the Federal Reserve in terms of the potential or a tapering of asset purchases I think or the oil bomb buying I think one of the concerns that some people had is that potentially the US could well start to raise rates in a much more aggressive fashion than perhaps they'd originally been led to believe. Ultimately I never thought that was really likely but nonetheless I think when you get different voices calling for different things and you get a split amongst and a fairly vocal split as well not a part of FOMC members it sort of does rather beg the question as to whether or not everyone is seeing from the same hymn sheet but ultimately I think that sort of discussion is a positive thing I think you know I think central bankers would be remiss if they weren't articulating concerns about the prospect of more persistent inflationary pressure but various comments from Jay Powell to lawmakers and some more dovish commentary which helped to balance the narrative from the likes of James Bullard and Robert Kaplan I think has helped to swage a number of concerns or some concerns on the part of investors that the Fed is not about to go gung-ho when it comes to outlining a not so much a tightening path but slightly outlining a route out of emergency measures I think is probably the best way to describe that contrast that with the Bank of England this week and the narrative couldn't really be more different yes we had Andrew Heldane chief economist last meeting before he departs the passage is new there was a broad consensus that the current level of policy was suitable and certainly I think that's absolutely right but there was little or no discussion whatsoever about the risks about more persistent inflationary pressures and I would be much more encouraged to see a similar sort of discussion going on in the Bank of England no one is suggesting for one moment that we shouldn't be holding rates where they are at the moment at the current moment but that's not to say that we can't discuss a route out and I think the fact that the Bank of England was much more dovish and wasn't following the Fed in terms of its outlook for monetary policy to me was a little bit a little bit concerning but also I think it just feeds into the narrative that the Bank of England knowledges in groupthink and I think and I'm hoping that the appointment of Catherine Mann the ex-chief economist Sidi Group who starts in September and replaces Gertje and Vlega will shift the narrative in that direction because the data certainly supports a less accommodative monetary policy I thought you know Andy Heldane wasn't suggesting an interest rate rise he was talking about a 50 billion pound reduction in the bond buying program from 150 billion pounds to 100 billion pounds you know that's not a significant move in the overall scheme of things but the Bank of England is reacting as if the economy is not improving and it is and I think they need to reflect that because when they do come to move they may have to move very very quickly and that could introduce a monetary policy shock if they have to tighten too aggressively they should start to think about the timeline for a potential rate rise because certainly the markets will start thinking and start pricing that in and in fact already are so that's that's really what we've seen this week is slight stabilisation on the part of market equity markets in general European markets have lagged but US markets have hit new record highs or more specifically the S&P 500 and the NASDAQ have hit new record highs and you can see that for now in this chart here and again it's the line of release resistance very much by the dip on the S&P by the dip on the NASDAQ by when it approaches support what's notable though I think is the fact that the Dow and the Russell 2000 haven't been able to hit new record highs even if the NASDAQ and the S&P has now that's not to say that we should be concerned about that because you know ultimately eventually they tend to play catch up in any case and if you look at say for example the DAX for example we have we've also seen a rebound albeit nowhere near as solid now I think we can now start to redraw that line because it's now looking an awful lot more messy so we can now draw that so that it goes through there more or less and I think that I think it is a little bit of a concern that European markets for some reason don't appear to be anywhere near as exuberant as US markets but then again European policy makers for all the noise they're making about the new fiscal stimulus plan and the recovery package it's certainly nowhere near as comprehensive as the US one and as for the FTSE 100 well again don't get me started on that let's just get rid of that line don't don't need it anymore so just remove it but if but if we look at the way the FTSE 100 is rebounded the rebound hasn't been anywhere near significant but nonetheless we still we're still in what I would call a fairly fairly broad uptrend overall and there's certainly no sign on my part that we can't still go back to the highs that we saw earlier in June and go through them and go above them over the course of the next few sessions so what are we looking at as we come towards the end of the month the end of the and and the end of the quarter well I think my main my main focus in the coming week is non-farm payrolls because I think one of the things we can take away from the narrative of the past week or so is that while the Fed is not unduly concerned about inflation and we'll see in the PCE deflator numbers later today which are likely to come in anywhere between three and a half and four percent well over double the Fed's inflation target what we took or what I took away from this week was the fact that the Fed is much more concerned about the labor market which brings me neatly to my main focus for the upcoming week which is non-farm payrolls which is due out on Friday we also have US consumer confidence US ADP payrolls as well so obviously we'll be paying particular attention to that they'll be out on Wednesday but I think non-farm payrolls is going to be the key indicator because I think one of the things one of the takeaways that I took away from this week was that there was concern that the fact that the participation rate is not showing the same level of resilience it's not rebounding back to the levels that we saw pre-pandemic just to remind you ladies and gentlemen that pre-pandemic the participation rate was at 63.4 percent now we're nowhere near that we're still around about 61.6 61.7 percent and I think the Fed is concerned about the impact the pandemic has had on the labor force where the people have permanently left it retired early setting up their own businesses there was an awful lot of concern about that but also the fact that compared to the expectations that we had in March of adding a million jobs a month that expectation has come in quite a bit because if we look at this year's jobs numbers since January we've added 166,468,000 in February 770,000 in March that was obviously the revised down number from the 916 278,000 in April which was revised up from 266 and 559,000 in May so it's it's very patchy and I think it's likely to continue in that vein going forward and if it does continue in that vein going forward then it's going to take the US an awful lot longer to get back to sort of the levels of participation that we saw back in the early part of 2020 now the June payrolls report expectations are for a number anywhere in the region of 650,000 to 700,000 but let's not forget that was also the expectation in May and we came in well below that now the unemployment rate again is that that is also expected to fall from 5.8 percent 5.7 percent but the labor force participation rate is currently at 61.6 so what does that mean for the dollar and more importantly what does it mean for bond yields well certainly US 10-year yields have stabilized at around about 1.5 percent and I think that's probably the sweet spot as far as the Fed is concerned but when it comes to the overall picture for long-term yields I think what we need to be paying more attention to is US 2-year yields and here we've seen a significant breakout from this level of resistance that we saw in this chart here now if I take this chart a little bit further out you can get a better idea of the extent of the breakout that we've seen you know you take that peak there back in June 2020 when it was about 0.22 we're now well above that so we've broken out of the range that were in between 0.1 and 0.2 and we're now back up at 0.27 percent now you can argue in the scheme of things that's not a big move but I nonetheless it is still very significant because it marks a breakout of the range that we've been in for over the course of the past 12 months and suggests that your short-term rates are likely to continue to move higher towards long-term rates so the yield curve is flattening a little bit and that's a bit of a worry for banks more broadly but putting that to one side banks are being supported by a whole new different set of factors namely the fact that Fed is set to relax the restrictions on buybacks and dividends at the end of this month and in their Q2 numbers which are due out in mid-July we could see an awful lot of money returned to shareholders so I don't think bank US bank shares are coming off anytime soon anyway I digress basically what we've seen with respect to the CMC dollar index is it rejected that 200-day moving average and that's the area that I will pay in particular attention to more broadly because I think the debate now amongst central bankers is not so much about how long they can keep monetary policy loose it's basically how long will it be before some central banks start to tighten monetary policy and it could well be that the Bank of England and the Federal Reserve will probably be first to start articulating that type of timeline as we head into I head towards the end of the third quarter and maybe the beginning of the fourth quarter obviously variance notwithstanding so that I think that's the big debate going forward if we so essentially the main focus for me this week will be non-farm payrolls on Friday the second of July which is also Independence Day weekend for US markets so you might find volume a little bit thinner than normal we've also got US consumer confidence on the 30th of June and that is likely to remain fairly resilient it's jumped quite sharply in recent months coming in at 117.5 back in back in May and we could well see a little bit of an edging higher back to around about 119.120 but I think it's also important to remember that US fuel prices are actually rising quite sharply at the moment and that could act as a break on consumer confidence because if it costs you more to drive anyway you're going to have less money to spend when you get there we've also got manufacturing PMIs coming coming out from France, Germany, Italy, Spain, the US, the UK and China they are still expected to remain reasonably resilient we've seen the flash PMIs and they still look fairly strong even if they have softened a little bit in June nonetheless they still point to a decent recovery in economic activity then we'll have the services PMIs the week after and one notable takeaway that I've taken from these indicators is input costs they've been rising quite sharply and at some point they will need to be passed on to consumers so that'll be another area that I'll be keeping an eye out for and then we've also got first quarter GDP final first quarter GDP from the UK so let's look at cable in the round because we're back below 140 which is disappointing but nonetheless we are still in the broader uptrend that we've been in since May last year so I'm not overly concerned by the fact that we've broken down below 140 which is a nice little pivot line all the way through here keeping an eye on these lows that we saw earlier this week around about 138, 13790 and then below that you've got 136 so we're still in a broad range I'm still of the opinion that cable's probably got more upside and downside and this bullish candle here would suggest that if we can get through 140 and the 50-day moving average we can head back to 14240 obviously if we break below this trend line here that rather undermines my bullish narrative but it's ultimately wait for the wait for the price action to tell you what the story is don't try and preempt it and the story is at the moment cable looks very much by the dip type of trade it's a similar sort of story for euro-dollar though I would be slightly more cautious about buying the dip in that yes we did again see a fairly bullish candle here we struggled to make gains in the short to medium term but given the fact that this candle here is a very it's a bullish engulfing candle that I would suggest that as long as we can hold above 118, 171, 19 then we could well see a retest of 120 and potentially 120 and a half over the course of the next few days just based on what the price action is telling me we saw a similar sort of reaction take place here albeit on a slightly delayed basis if you if you blend these two candles here you've got a similarly bullish breakout there though I have to admit we did actually accelerate quite a bit much more quickly then but as we're probably as we're coming to the end of the week the end of the month and the end of the quarter you may find that it takes a while for this to play out but as long as we hold above 118, 171 then we should continue to drift back towards 120 looking at euro sterling getting a little bit of a squeeze back all the way to 86 and we have we have seen a little bit of a bullish reversal there but it's in a sideways trend so what's it reversing okay yeah we have been drifting lower but is any different to that candle there you know that candle there they're more or less the same what we do know is this decent buying interest in and around 85 30 and if we do break below that then we've obviously got the lows there at 84 80 and then you've got a series of highs all the way through 86 and then you've got a series of highs through 86 40 so euro sterling is not going anywhere albeit i do have a slight downward bias for that towards 84 80 and 84 in the short to medium term um so that's um those those are the i think really the the main the main indices and currencies that have got my eye on at the moment have a quick look at Brent crude for you because we continue to break higher on the break above that 72 50 area that i identified in various video videos over the weeks we haven't been able to get back below it and that leaves us on course for a move towards $80 a barrel um now i'll pick plus our discussing about upping production and certainly there will be other meetings with respect to that it is certainly something that i don't think they need to look at there's certainly spare capacity for them to do so given the fact that output is way below the levels that it was pre-pandemic so the capacity is there it's really just a question of whether there's the appetite to release those barrels to market certainly i think the last thing opec or opec plus one is to choke off demand through higher prices and i think that's something that russia is probably a little bit concerned about going forward the global recovery remains very fragile and the last thing opec will want to do is kill off demand so that's oil prices quick look at gold held the 61.8 for financial retracement level of this entire up move here trading between 1800 and 1760 uh it's hard to say which way this is going to break if i was to hazard a guess given the way the price action is trading at the moment we could well trade back towards the 50 day and the 200 day moving average but at the moment gold's gold looks a little bit on the south side what are the things am i paying attention to this week well there's a couple of things we've got earnings out from the likes of associated bridge foods which owns the primark chain of clothes shops we've got Dix's and Dix's car phone which is going to be rebrand to curries before by the end of the year and then we've got a main stock or what has become a main stock bird bath and beyond let's just have a quick look at associated bridge foods because UK retail should be doing an awful lot better than it actually is given the restrictions have continued to be eased and are likely to be eased further over the course of the next few weeks and i think one of the things that we can i'll be looking for with respect to associated bridge foods latest numbers is a big rebound in consumer spending at primark we saw the company announce huge losses in that division despite the fact that grocery sugar ingredients and agriculture all saw higher revenues the hope is that closed retail will see a really big bounce back in terms of pent-up demand when they release their third quarter numbers on the first of July so keep an eye on that 200 day moving average in the series of loads through there we could we'll see a decent upward surprise on those numbers Dix's car phone electronics pc world and what have you well look at that that's a nice little uptrend currently playing out so i think the bar is probably pretty low and one of the things that i have noticed with respect to Dix's car phone you can read about it on the news and analysis section of the website which is here right there under insights that's where all the commentary goes and we'll be posted there on friday evening friday afternoon we found support the 200 day moving average we've got train lines support coming in through here it you know the stars appear to be lining up as long as we don't break below here for a fairly decent rebound in the soon-to-be Curry's PLC finishing off with bed bath and beyond that's joined the meme stock it's joined the meme stock category only recently and earlier this month bank of America along with a whole number of other brokers withdrew its rating on bed bath and beyond making the admission it was no longer trading in line with its fundamentals well who knew i can think of a number of candidates that could fit that description tesla and uber being obvious examples obviously game stop amc entertainment and what have you nonetheless they're reporting their first quarter numbers on the 30th of june so sign up for the non-farm payrolls webinar on the 2nd of july you can find that in the education section of the website otherwise i'd like to thank you very much for listening this is Michael Houston talking to you from CNC markets and have a great weekend