 Hello and welcome to CMC Markets on Friday the 29th of June and this quick look at the week beginning the 2nd of July and as we come to the end of the first half of 2018 predominantly equity markets are not that far different from where we began the year if we look at the German DAX we can we can conceivably say that has underperformed. FTSE 100 again it's pretty much back where it was at the beginning of the year. The notable outperformer I think with respect to markets this year has been the rise in the value of the US dollar which I think to some extent has mitigated some of the declines that we've seen in equity markets from the highs that we saw at the beginning of this year. If we look at a currency table we can see that year today on G10 you can certainly see there's a certain level of risk aversion in there with the gains in the Japanese yen but the dollar has by and large been pretty much the most notable gainer out of the various G8 currencies. The pound has slipped back the euro has slipped back even the commodity currencies have slipped back despite the fact that oil prices are at the top end of their recent ranges and I think going forward as we head into to as we head into the second half of 2018 it's going to be the performance of the dollar that's likely to dictate where equity markets go to next because certainly we have seen an outflow of emerging markets we've concerns we've seen concerns about Chinese markets obviously trade is going to be a clear and present backdrop to the current risk narrative in equity markets and escalation in trade concerns has really I think hit the DAX probably more than any other index obviously the Chinese market has been affected quite negatively as well and in particular German car makers which have been coming under increasing pressure as the threat of tariffs on German cars or European cars into the US remains a clear concern for markets going forward. We've also got the narrative for the potential for further rate rises from the US Federal Reserve and in that context I think this week's data out of the US as well as the Fed minutes could play a key role in whether or not we still remain on course for another two rate rises this year but also the potential for three rate rises next year because at the moment the market is not necessarily pricing in the prospect of five rate rises between now and the end of 2019 but certainly that is something the Fed wants us to believe and this week's this coming week's Fed minutes on the 5th of July are expected to give some clarity as to I think policymakers thinking about not only the US economy but also I think their thinking on what effect the recent concerns about rising trade tensions could have on their outlook for the US economies so I think the key thing here is that policymakers still remain fairly bullish in the US about the US economy they didn't resale from making the case or at least another two rate rises but I think what I'm going to be particularly interested in is how tolerant are they for the prospect of an inflation overshoot going forward now if we look at the dollar index we can see here that we have made fresh highs for for this year match the highs actually for this year but today we've actually posted a very significant bearish reversal now depending on where this day close that could determine whether or not we get a little bit of a pullback in the dollar and a little bit of a rebound in the pound and the euro and it's also going to be a very key week for macro data not only out of the US but also out of the UK and Europe so in that context let's have a quick look at Euro dollar because Euro dollar the inflation numbers do appear to be showing that inflation is now starting to make a comeback in the euro area the latest headline CPI number came in at 2% which is the ECB's target when you consider that level was at 1.2% two months ago that's a significant turn around now obviously oil prices I've had a part to play in that rebound in the headline CPI number and with US and Brent prices at multi-year highs that could well continue to underpin consumer prices over the course of the next few months and could have significant consequences for consumer spending going forward that being said we've managed to hold above that 1.15 level in Euro dollar it's held on two or three occasions the the rallies are getting shallower but I think there is potential here on the Euro dollar while we remain above this 1.15 level for a bit of a retest back to 1.17 20 and even the highs up here of 1.18 20 30 which could in essence be the beginnings of a potential triple bottom but at the moment while we remain I think below this series of highs between 1.18 20 and 1.18 30 then I think the prospect the likely prospect is we're going to get a little bit of range trading going forward we've also got sterling against the dollar we've tested a long-term trend line from the 2017 lows we can show that on this particular chart here it's it's a fairly it's a fairly decent line we can see it from that lows there comes in around about there it also matches the 100 week moving average we bounced off that it's around about 130 and a half we have seen a slight overshoot on the daily chart but I think the response of this candle here if sustained could actually give us a potential bullish daily reversal on the pound and I think that would be very very welcome given the quarter that we've just had for sterling which has been unambiguously bad Bank of England failed to deliver on an expected rate rise in May you can argue the merits of why they did that or why why they decided to pull back from that but certainly the data that we've seen since the Q since the end of Q1 has I think been fairly unambiguously positive I think if you look at retail sales for April May they've been positive I think the June numbers are likely to be similarly positive given the World Cup and given the sunny weather I think we could be on course for a fairly decent quarter after Q1 GDP was revised up from 0.1 to 0.2 now that's the 21st consecutive quarter of economic expansion with the likelihood is that Q2 will be the 22nd so certainly I think some positive data next week some positive PMIs manufacturing and services PMIs could keep the case for a potential August rate rise on the table next week so I think we could see a little bit of dollar weakness over the course of the next few days as long as these current lows in the pound and the euro remain intact we've got the US employment report on Friday the 6th of July and we will be hosting our normal monthly webinar on that that will start at 1.15 and I will be hosting it and that will last for half an hour and I will be covering the numbers the payrolls numbers as they come out live now I think in the context of the headline numbers once again it's not really going to be about the headline number that's expected to come in around about 200,000 I think what is particularly notable about the payrolls numbers is the fact that they're consistently coming in around about 200,000 despite the fact that the unemployment rate is now at a multi-year low of 3.8% so that suggests to me there's still an enormous amount of slack in the US labor market given the fact that wages still remain very very not very weak but certainly on the low side from where they were at the beginning of the year in January we had wage growth of 2.9% we've been coming in around about 2.7 2.6 since then which suggests to me that ultimately while the labor market is fairly healthy pricing pressures wages still remain a little bit soft and that's a worry given that US oil prices are at a four-year high because that's going to put upward pressure on inflation and increase the pressure on the US Central Bank to keep their foot in when it comes to reducing the size of their balance sheet but also pushing rates up we've also got manufacturing PMIs on the 2nd of July on the Monday we've got services PMIs on the 4th of July which obviously coincidentally is also the as a US holiday so we could be fairly quiet in the middle of that week and we also have the latest bout of Chinese tariffs starting on Friday the 6th of July they kick in so the trade backdrop is also going to be a very clear and ambiguous narrative for the coming week but for the next few days we're going to be keeping an eye on the US dollar I think we're potentially due a little bit of a pullback a little bit of dollar weakness we could see the pound and the euro push-up and that could to a certain extent limit the upside in equity markets if we look at the UK 100 we can see that here we've got a nice little trend line that I've drawn in from the highs of a couple of months ago trading in a downward channel keeping an eye on this trend line resistance through here otherwise at the moment I think at the moment at the moment equity markets still remain I think very much a sell the rally type of trade so that's it for this week thanks very much for listening Michael Houston talking to you from CMC markets