 Good morning. Welcome to CMC Markets and this quick look at the week ahead beginning the 19th of June with me Michael Houston. So what to make of this week's central bank announcements. There's certainly been plenty to talk about. It's been a positive week for equity markets, a really positive week for equity markets, which is perhaps a little surprising when you consider the hawkish nature of both the Federal Reserve and the European Central Bank. We heard on Thursday that the ECB intends to hike rates by at least another 25 or 50 basis points by the end of the year and having hiked rates by 25 basis points this week. We also heard the Federal Reserve intends to do the same, hiked rates by at least another 50 basis points by year end after raising their dot-plot projection for the terminal rate to 5.6% up from 5.1%. I think there had been a widespread expectation that the Federal Reserve as it paused rates this week was pretty much close to being done. Maybe we were going to get another 25 basis points in July but ultimately I think looking at the data there had been an expectation that we were pretty much close to the end of the rate hiking cycle and then really it's just a question of when can we expect to see the first rate cap? So when we got the dot-plot projections in the wake of the decision to pause markets were caught a little bit offside. We saw two-year yields spike sharply in the aftermath of that Fed decision. They didn't spend very long at their peaks for the week but they have now started to edge higher again, but if we actually look at this little chart here, we can see they went all the way up to around about 4.78% drifted back down yesterday and are now back up again today. So with the Federal Reserve unwilling to step back from its commitment to a pause this month and delivering on the expectation that they're going to keep rates unchanged the compensation effect was two more rate rises this year. Now, I'll put the terminal rate between 5.5 and 5.75, 12 Fed officials projected such a move despite the fact, you know, and I think this is I think this is the thing that markets are struggling with and I think it's important to understand this in the context of what markets are currently doing. Markets don't believe the Fed when they think that or when they say that they're going to hike rates by another 50 basis points between now and the end of the year and to be honest neither do I you know, the the the guidance doesn't best doesn't stand up to scrutiny if you look at the the data the inflation data headline CPI this week fell to 4% and Core CPI came in at 5.3 down from 5.5 Okay, so yeah, you could argue that that is still above the Fed's target rate for inflation but I need to remind you that headline CPI is at 4% The terminal rate is now between 5 and 5.25. So we are already restrictive and if you actually look at PPI producer prices for the US They're at 1.1 percent 1.1 and core prices are at 2.8 and they've been falling significantly quickly over the course of the year. So the direction of travel for inflation at the moment is very much towards downside and actually if you look at import prices in the US and export prices, they're in negative territory on the monthly and the annualized number. In fact, export prices fell to a record low earlier this week So the tune of minus 10.1 percent and we can see that here export price index Down minus 5.9 minus 6 percent was revised for April now minus 10.1 Import prices again minus 4.9 minus 5.9 So the direction of travel on a monthly basis. They're also negative as well And even if you exclude petroleum on in on import prices So there is a there is a definitive deflationary Disinflation whatever you want to call it impulse that's basically pushing through the global economy right now PPI in China There's been a negative territory for the last six months In Germany, we've just seen PPI go negative Germany is currently in Recession technical recession the EU is currently in a technical recession and yet we have Christine Lagarde the ECB Saying that they want to do another 25 basis points in July if she's pretty much said that's a done deal And we've had a number of ECB officials this morning Talking about the possibility the prospect of further rate hikes At the September meeting. I think the bigger question is will they be able to deliver on? That guidance now in the case of the ECB, I think there's a decent chance They may well do that but obviously it also increases the prospect of a policy mistake given the fact that growth is slowing headline CPI in the EU is Falling just as sharply as it is in the US and I think the bigger question now is whether or not either central bank Will be able to deliver on the guidance that it put forward this week in the case of the Federal Reserve. I'm not buying it Neither is the market if you look at what US two-year yields are doing. They're still below the lows Still below the highs of this week Which sort brings me on to a certain extent to this week's central bank announcement and the Bank of England But before I talk about that, we also had the Bank of Japan earlier this morning and again no indication at all that The Bank of Japan is going to be tweaking. It's currently loose Monetary policy settings even allowing for the fact that dolly and is back above 141 now. Obviously. This is one call I've got to hold my hands up here. I've got this massively wrong I thought that the Bank of Japan wouldn't be able to hold out Against the likes of the ECB and the Federal Reserve and the Bank of England and keep its monetary policy settings loose core inflation In Japan is 4.1 percent. It's well above headline CPI But Bank of Japan officials seem determined to keep monetary policy settings pretty much as is Which obviously is it heaping further pressure on the end and likely to push dolly in up to 142 and a half Though we are starting to approach very much Intervention territory when I was saying at the big start of the year that I could see dolly in back at 120. I Wasn't joking. I really did think that I thought that the Federal Reserve Would eventually have to call time on its rate hiking cycle We are now in June and they are still talking about another two rate hikes personally again What's what's driving the dolly yen higher is not an anticipation The the Fed is going to deliver on that but it's the fact that The Japanese central bank isn't any any nearer Tightening its own monetary policy than it was at the beginning of the year And I think that's one calculation that I think most people have got massively wrong Including myself. So the bigger question is now how far Can dolly yen go? Well, obviously the next target is 142 50 And When we get the next set of monetary policy projections from the bank of japan in july You know, that could be a time where perhaps we might start to see a turnaround But at the moment higher highs higher lows That's the call that basically you just have to take on the I have to take on the chin and say got that one wrong But then again, I wouldn't have been short I wouldn't have run my short this far might have been out long before now But certainly in terms of my mindset, you know, that that was that was a that was a wrong And when you get things wrong, you have to take it up take it on the best up and take it on the chin What I haven't got wrong is obviously european markets. They've done very well so far This year and despite the occasional pullback They continue to do reasonably well. We've got the DAX now trading close to New record highs This week As they continue to go from strength to strength the prospect of More china stimulus is helping to boost the DAX there Obviously, I think there's also an expectation that we are closer to the end of the rate hiking cycles than we are to the beginning and that ultimately We will start to see We'll continue to see Further gains going forward, but we've certainly seen we've seen record highs for the DAX this year We've seen record highs for the cat Caron this year and the one disappointment I think has been the footsie 100 which has lagged behind But it's still holding up fairly well on the one reason the footsie 100 has lagged has obviously been The big declines that we've seen in natural gas prices and oil prices So far year to date BP and shell a big components of the footsie and obviously the uncertainty in the banking sector Which is weighed on the likes of Lloyd's Natwest HSBC And what have you So that sort brings me on to This week's topic to Jure because having seen this decisions from the Bank of Japan the ECB and The Federal Reserve We now come on to the Bank of England And that Is likely to see Another 25 basis points right hike from them Um, I've been an awful lot of column inches devoted to The competence or otherwise of the Bank of England's MPC Um, I won't I won't regurgitate them But if we look at the UK two-year guilt Yield it's back. It's moved above the October highs Of the the guilt crisis then the LDL the LDI crisis then and that was basically because this week's wages numbers um claiming a 7.2 percent um average average average weekly earnings um surged In the three months to april And i'm not really surprised by that if you look at the wages data on the ons website You're seeing pay rises in some parts of on some sectors of the economy Of between 15 and 25 percent um, so Not I would not overly not overly surprised by the fact that wage growth Is continuing to hold up and it's not going to it's not going to slow anytime soon. We've still got the um The unresolved industrial disputes that are resonating rippling through the public sector And private sector pay growth is still fairly resilient particularly if you're um Able to get a big pay rise for moving jobs and the unemployment rate fell back In the three months to april from 4 to 3.8 um employment levels um 76 percent record high And and yes, while you can argue that there is still a high level of people who are not economically active um The labor market the uk labor market continues to Remain tight as more and more people return to the workforce to deal with the Rising cost of living so still expecting to see descents from the likes of ten raro and dingra But this will be ten raro's last meeting on the mpc To be replaced by Megan green from A us-based economist and some of her recent commentary has suggested that she won't be anywhere near There's dovish in her outlook as ten raro. So I think As we look forward to another 25 basis point rate hike from the bank of england this coming week that is likely to um Exert further upward pressure on the cable rate, which is now at 128 We've broken higher and still remain fairly constructive on cable Now that we're above these peaks here. I can now remove these particular retracements because we've now we're now above the my highs and We we could well head towards 130 and the highs back of april 2022 So we're looking at around about 130 150 Now for an x move higher in the cable right cable rate Now that we've broken through that 61.8 Fibonacci retracement level from The move down from the peaks back in may 2021 at 141 142 50 to the lows of 103 42 so Step up all those people who are calling for cable at parity I'm glad to say I wasn't one of them. I always felt the move was slightly overcooked having said that I think once people realize That the federal reserve is pretty much done When it comes to rate hikes and the bank of england isn't That is likely to potentially support the cable rate further. So certainly looking for 130 on cable um looking for euro dollar to revisit its recent range highs on the break higher that we've seen This week and certainly yesterday. We saw a big breakout on the euro dollar above the 50 day moving average Now back at 109 50 If we can get back through this level here Then we're certainly looking for a retest of the peaks that we saw earlier this year In may got around about 110 95 111 So certainly I think on euro dollar continue to expect further euro dollar gains there probably not to the same extent um against the pound euro sterling At the moment we're holding above this series of lows around about 84 35 83 35 83 40 my mistake We did see a bullish reversal here We haven't followed through on that But as long as we hold above This 85 30 area and then we could well drift back towards around about 86 but at the moment um 85 30 what am I talking about 85 35 85 40 if we break below there Then obviously the next area of key support back down here in the august 2022 low ultimately We're range trading in euro sterling The range is now slightly bigger now that we've broken below the series of lows here That's 85 65 70 so any rebounds Could well run into resistance around just below 86 Does look a little bit oversold But overall I think the line of least resistance for euro sterling is likely to be for continued slow drift lower We've also got uk cpi um Obviously that continues to remain fairly Resilient 8.7 percent we saw in the three months to april We're likely to see that soften further not as much as perhaps we would like to see But when the energy price caps cap gets recalculated in july then we could well see that The the cpi the the headline cpi rate comes down quite a bit further um We've already seen a big drop to 8.7 percent from levels of above 10 percent in the march numbers We could see a further big drop back to around about seven and a half percent When the july numbers are released in august we're just going to have to wait a while to Get side of those particular numbers Core prices the core prices which are 6.8 percent Could come back down to 6.5 but one other thing the key one of the more encouraging Um factors that we've seen In recent retail data was test codes came out today and said that they saw signs that retail Inflation was starting to come down having said that it's still really high It's around about grocery price inflation is still around about 17 But we're discounting and and everything else that should come down further But it's still well below current levels of wage growth Um, sorry well above current levels of wage growth So the the the pinch is going to continue to be felt Notwithstanding obviously the fact that We have a whole row. We all we have a whole load of fixed rate mortgages um coming out for renewal From fixes of two years ago back in 2021 when The stamp duty holiday was announced by the government and an awful lot of people Went out and bought properties. So we could we'll see second half of this year We could see a massive a massive break On consumer spending start to kick in as a whole load of mortgages come up for refinancing going forward Also got UK retail sales this week on the 23rd again, um, it's not expecting great things from that um Something in the region Of around about maybe 0.1 0.2 percent. We saw a 0.8 percent gain in April. I was surprised by that given the rise in utility bills that We saw as well as council tax bills that we saw during that month And and I think retail sales could be a bit of a struggle as as we as as we look ahead in terms of US markets Once again We've broken higher again. This is one that I've underestimated got wrong. I I felt that US markets would underperform relative to european markets They've done just as well. If not better having said that the The gainers in US markets have been a very small cohort of about 10 Big companies chip companies in video um We've got a meta as well Uh tesla done very very well big rebounds and microsoft All the big caps have rebounded strongly after the losses that we saw Last year so that was certainly something that I was surprised I'm surprised by given the fact that US rates have rebounded And gone quite a bit higher since the start of the year But it's been very narrow in terms of the breadth of the market But we are now starting to see evidence on a technical basis of a breakout Which could see the s&p head back Towards these peaks back in april 2022. So we're talking march 2022 four and a half thousand 4600 You know the trend isn't lying. It's telling us that the market is going higher So we do need to be very very careful Shorts are capitulating Um, certainly underestimating look at the nasdaq this week very big level approaching now 15,500 Which is obviously these these twin lows back in december 2021 We look as if we're going to retest these levels on a technical basis Um, you know, you could you cannot but you cannot buck the trend Um, and certainly if the market is right in thinking that the fed Is done or close to being done then It won't be long before this start to price in the prospect of rate cuts Which is obviously what the fed don't want them to do But ultimately markets being forward-looking mechanism. That is what they will do so um, certainly on the on the basis of those charts there, certainly we're looking at the potential for a retest of those peaks If we look at the footsie 100 We can certainly look to see a potential retest Or a test of the 50 day moving average But also test potentially of this trend line that i've just drawn in through these peaks through Through here. So in essence looking fairly constructive on stock markets Much to my surprise Still constructive on european markets on a value on a valuation basis anyway I still can't quite get my head around The valuations on us markets, but at the end of the day I have to park my distrust of that and just look at what the price action is doing the price action still remains fairly constructive crude oil prices Still remains subdued West texas 70 dollars a barrel Brent crude 75 dollars a barrel if we look at the way they're pricing We can see that the solid support on Brent pretty much all the way through there. I don't see much downside On Brent or wti on the basis that the us still needs to refill its strategic petroleum reserve So you've got essentially a little bit of a buyer of last resort down there That's likely to hoover up any oil on the on the on the cheap They're talking 12 million barrels by the end of this year, which probably doesn't seem an awful lot But at the end of the day if prices fall low enough you could find that they buy an awful lot more than that Um on the earnings front. It's fairly quiet We've got whip bread first quarter numbers on the 22nd premier and owner whip bread that give us a good decent insight into um US consumers how many people estate us consumers uk and european consumers Whether or not they're staying at home Deciding not to give the uh, not not to risk the airport And all the nonsense that goes on there Um, we've also got FedEx Fourth quarter numbers out of the us. That's always a generally decent indicator is into demand within the us economy retail sales there continue to remain reasonably resilient and we've also got Darden restaurants um who Basically own the olive garden and long longhorn steakhouse brands again fairly decent bellweathers of US consumers disposable income There one other thing might be might be market moving, which I haven't mentioned yet Chairman pow fed chairman pow is testifying on capital real To us lawmakers will be very interested to see whether or not um, he continues to pedal the line that The fader expects to see another two rate hikes by the end of the year And i'm imagining that he will probably face further cross examination from um his nemesis democrat senator elizabeth warren Who labeled him a dangerous man when it comes to his keenness for further rate hikes Though her attacks have lost a little bit of resonance given the fact that unemployment hasn't gone up since Even even accounting for the fact that we've seen 500 basis points of rate hikes from the federal reserve in the last 15 months, but nonetheless don't expect her to give him an easy ride Anyway, that's pretty much it for this week ladies and gents as I say the key key things next week Are the fed fed chair pal's testimony bank of england rate meeting uk cpi uk retail sales Oh and before I do before I forget flash pm is france germany and the uk. So that's it for this week Thank you very much for listening. This is michael huesen talking to you from cmc markets