 Good morning and welcome to CMC markets on Thursday the 17th of May and this quick preview of the week beginning the 21st of May and We've had seven weeks of fairly decent gains for European equities and this week We've seen a little bit of a pause in that and I think it's not really too much of a surprise to see that footsie 100s back near it's all-time highs of around about 7,800 so you would expect that to be a little bit of resistance and I think a large part of the gains that we've seen Over the course of the past few weeks has I think largely been as a result of a slightly weaker euro slightly weaker pound that I think has helped support European markets to I think the to the disadvantage I think of US markets which have underperformed in the past few weeks and we've got a similar sort of story playing out here in With respect to the DAX was oscillating around this 13,000 level Momentum indicators or the oscillator certainly are looking particularly overbought But if we actually look at the long-term moving averages They are starting to turn marginally more positive if we look at the 50 day moving average that's starting to turn higher and the 200 day moving average from Being fairly flat over the course of the past few days is also now starting to turn a little bit higher as well So certainly I think momentum is starting to turn more positive. I think a large part of that has been down to a Stronger dollar which is pushing the euro down from the levels that we saw earlier this year and one of the reasons We've got this strong dollar can be really I think laid at the door of These particular charts here. This is the US 10 year Treasury yield We've managed to finally get that foothold above 3% more importantly the two-year yield If we look at the two-year yield as well That is now closing in on and looking to test at 2.6% And if you look at the actual gradient of this particular trend here in the two-year yield You could see how far we've come and what in essence is a fairly short space of time So certainly there is upward pressure on US rates that's being reflected not only in the In the short end of the US curve, but it's also now starting to Trickle its way down to the slightly longer end and the 10-year And I think in that context that's going to make this week's Fed minutes particularly Interesting and that's one of the key factors. I will be keeping an eye out for this week along with the latest UK inflation numbers the latest first-quarter GDP revision as well as UK retail sales data for April so I think when we look at The week ahead those I think are going to be the main events. We also have PMIs out of France and Germany flash PMIs for for my for May And we have seen a little bit of a slowdown in some of the headline numbers since the beginning of the year So I'll be certainly looking to see whether or not that trend is maintained But I certainly think in the context of where we are now with respect to equity markets I think the consolidation that we're seeing this week is born out of a number of factors Obviously concerns about trade at the moment. China and the US are in dole are engaged in Trade talks There has been some mixed signals coming from the US administration The sanctions that are imposed on ZTE Because of dishonest behavior suddenly President Trump has you turned on them obviously there is also the WTO ruling in Favour of Boeing against Airbus, that's likely to be used by President Trump President Trump as a stick to beat the European Union with and then of course we've got We've got the events taking place in Italy as the As the administration there looks to try and form a new government and it will be a populist government And that has pushed bond yields in Italy To their highest levels this year so there's lots I think to keep an eye out for and that's before we even start to think About the North Korea situation And whether or not that summit will take place in Singapore in June But for the here and now I Think we have to look at Euro dollar and those of you've been regular Viewers of these videos will know that I've been calling for Euro dollar to push down to 170 to around about the 118 level And we finally hit that target this week around about 117 70s minimum price objective And the big question now is where do we go to from here? Well, certainly, I think the direction of travel would appear to suggest that we're going to see a lower euro dollar If we look at the 50-day moving average that is starting to roll over quite Significantly and the 200-day moving average is also now starting to flatten out Which would appear to suggest that we could start to roll over here as well So I think if we do manage to break below 117 70 Then the next target for me is around about 116 But and then and the resistance levels a key resistance levels around about 190 and 20 and obviously the 200-day moving average Which we haven't been able to get back above Since we broke below it and I think in that context the Manufacturing and services flash PMIs will be particularly important in the context of how the European economy is doing Against a backdrop of once again very weak inflation core EU CPI came in at 0.7% that's the lowest level since January 2015 and That's probably the lowest in 10 years and January 2015 was when the European Central Bank Embarked upon its big massive quantitative easing program. So I think the sum total of Two and a half trillion euros of QE and negative interest rates Hasn't really given a decent return if you look at the inflation number So I think it's going to be very difficult for the ECB to pull back From it's currently very accommodated monetary policy if inflation repressions remain where they are On the subject of inflation brings me neatly on to the UK economy and the latest UK inflation numbers Which are going to be compared to the wages numbers that we saw Over the last few days now we saw them coming at 2.9% So now we know for certain that UK wages are rising faster and headline CPI Not RPI CPI Bank of England seems to think that headline CPI will continue to fall back much faster than they originally thought But they've also caveated that by saying that wages are likely to fall back as well this year as well from Currently where they are now to an average of 2.75% now Whatever you've you whatever your views I think on Bank of England I think I think you can take a fairly consistent view is that their view is usually wrong If you look at oil prices you look at the increase in pension Contributions if you look at the increase in energy prices from the utility providers and the rises in council tax As well as an our oil price $80 a barrel I fail to see where these deflation repressions of the Bank of England seems to think are going to come through are going to come from So I think in that context I think inflation could be a lot stickier than the Bank of England in visages Which means that we really need to hope that wages hold up We've got retail sales for April also coming out as well And we did see a very disappointing March number of minus 0.5 that was I think whether related I think we can safely assume that to be the case so we could see a rebound there the here and now With the cable we really need to move back above 136 20 to Stabilize but given that we've broken out of this potential double top formation I would be surprised if that happens I still think we're going to get a stronger dollar It's going to push the euro lower and by definition it will also push the pound lower and my target for the pound It's still around about 133 while we're below this 136 20 level here, which we have thus far been unable to get above We've got the latest Fed minutes. I talked about them a little bit They which the the Fed statement was changed at the recent meeting The firmer headline inflation numbers The the the tax was changed from run below to moved closer to 2% And the reference to monitoring inflation developments was removed completely else was the reference to the economic outlook strengthening Now if we look at US retail sales, if we look at the CPI numbers They're fairly positive at the moment But what is more concerning to me is the fact the price is paid inflation is Continuing to look fairly strong So I think this potential Belief that inflation is likely to remain benign Obviously it's not being reflected in the bond market and the bond yields And that could suggest that we could see further dollar strength going forward So to summarize I think if we do find Higher inflation expectations start to filter through the dollar could well get stronger That could potentially weaken the euro and the pound which could in essence support European markets But on the flip side of that it could also weigh on US markets. So that's it for this week Thank you very much for listening Michael Houston talking to you from CMC markets