 Good morning. Welcome to CMC markets on Friday, the 11th of March and this quick look ahead to the week beginning the 14th of March with me Michael Houston. It's been another volatile week for markets here in Europe. The DAX fell to a 15 month low In the early part of the week before a really huge rally on Wednesday And the FTSE 100 has also seen a fairly decent recovery after a big fall in the early part of the week And I think as we look back at the events of the past few days, it's actually quite surprising that we could actually finish the week higher But does that mean that we're out of the woods? Well, certainly I think if you look in terms of the headline risk The situation remains very, very fluid. We've seen Brent crude prices this week move up to within touching distance of $140 a barrel And when I look back over the course of the past few days to where we were a week ago and where we are now The volatility has been really quite startling. I mean, when I was speaking to you a week ago, the FTSE 100 had just broken this trend line here Now I've taken it out, but I'll quickly pop it back in for you to give an indication of the extent of the move that we've seen over the course of the past few days When I was talking to you a week ago, the FTSE 100 was around about here and I suggested that we had the potential to retest the 6800 level Well, I didn't expect that to happen within a couple of days of me recording this video, but that's essentially what happened And even though we actually tested below that 6800 level, we've come back to within touching distance of the 7200 level In the space of a few days, the Wednesday rally, I think, you know, while it was driven by hopes of a ceasefire You know, the prospect of a ceasefire still remains as far away as ever The meeting between the Russian Foreign Minister Lavrov and his Ukrainian counterpart Koleiba turned out to be about as much use as a chocolate teapot I don't think there was any indication that Russia was interested or is interested in a diplomatic solution It's mostly optics Russia still is making advances, albeit at a great cost I think this talk of chemical and biological weapons is very, very concerning It's going to be very difficult, I think, for NATO to ignore any such use of potential weapons And as such, I think the outlook remains very, very concerning going forward And that is likely to mean that we're going to have to get used to further face ripping volatility The fact that we saw a 12 month low or a 10 month low for the FTSE 100 and an equally stark rebound is testament to that But ultimately we're still trading very much on a technical basis The technical levels are holding, yes, you are getting a little bit of an overshoot, but that's not surprising Mark is always overshoot to the upside or the downside when you're faced with this sort of headline risk That unfortunately is inevitable, so on the downside for the FTSE 100 if we look at a weekly chart We can see that the technical levels continue to hold more broadly So 6800 on the downside, if we are going to get a rebound Then I really want to see the move back above 7200 and for that level to hold So that's really the key resistance level on the top side When it comes to the FTSE 100 on a weekly basis, on a daily basis it's pretty much the same and the 200 day moving average And I think it's very important in the wider scheme of things that these key technical levels hold on a daily and a weekly basis This time last week we were approaching 13,115 on the downside And I said at the time that we were likely to get a retest of that What I didn't think was that we'd get it the very same day, more or less the same day We did, we've tested low, we've gone back through it We haven't gone back to the 50% level of 12,130 But I think while we're below 14,000 on the upside Then the risks are we could well see a retest of that We've seen a little bit of a rebound, we've seen a little bit of a pullback Could this be a little bit of a reversal on the daily charts? It's possible, but we certainly saw that in the Wednesday rebound But what we really need to see now is a recovery back above 14,200 To have any confidence that potentially the bottom is in And at the moment I don't have that confidence that the bottom is actually in Shouldn't have removed that, let me just bring back to this week Watch list Now in terms of the S&P, US markets have been slightly more tempered in their response And the reason for that is purely a matter of geography European markets are much more exposed to the headwinds of geopolitical headline risk US markets not so much and I think it's notable that we haven't as yet taken out the January lows That we saw earlier this year or the lows that we saw earlier this year in February rather We did take out the January lows in February on the S&P What's significant was we actually didn't take out the 4,100 But we're still in the downtrend and that's important I think every bear market generally tends to have these really extreme rallies As markets pull off the lows and start to retest But let's make no bones about this In terms of the technicals we're still very much in a downtrend when it comes to equity markets in general We've got the makings of a death cross on the S&P 500 Now I'm not going to read too much into that I think the bigger level on the S&P is this 4,480 level because it happens to coincide with this line here But also the 200 day moving average more broadly And this horizontal line that I've drawn in here So in terms of the technicals all of the technicals and all the major indices are still painting to sell the rally type of scenario And that doesn't look like it's going to change in the short to medium term In terms of the NASDAQ 100 we're still very much in this downtrend here But even if we do break higher then you've got this 14,380 level through here So obviously we've seen a lot of the headlines when it comes to the sanctioning of Russian imports from the UK and the US Germany is still very much reluctant to do that given its reliance on Russian energy And that needs to be taken into account in terms of the overall sanctions story Europe more broadly is very much more reliant on Russian energy And if we look at the way Brent Crude has traded this week We can see how far the market has come in such a short space of time Last Friday I talked about the 126 area as being a key resistance level Well you know that level basically didn't even hold And we've actually busted all the way through it this week We haven't closed above it What we've actually seen is a very stark move higher and an equally sharp move lower For Brent prices and we can see that through here So it's actually bizarre that even though we've made a 14 year high for crude oil prices We actually could finish the week lower And when it comes to equity markets when we've made some multi-month lows The stark reality is we could actually finish the week higher So that gives you an indication of how uncertain things are when it comes to try and pricing these markets And that's why it means that you have to be very very careful when it comes to entering and exiting particular trades You have to get your timing absolutely spot on And certainly in terms of what commodity markets are telling me They're telling me that while the risk is very much to the upside We still remain very very vulnerable to sharp countertrend reactions And that's essentially what we saw on Wednesday and we saw it in gold as well We saw it very starkly illustrated in the gold markets We retested the record highs of back in August 2020 We weren't able to get back through them and we corrected sharply lower And that's a bearish engulfing candle Which suggests to me that potentially we could see a retest Of the 1940 level the 1965 level is thus far acted as support Which is this series of previous peaks through here We got the test of the previous record highs We weren't able to test or move back above them We've seen a countertrend reaction to that test of those highs And that would appear to suggest that positioning is very very stretched When it comes to the gold market and as such that would suggest we also remain vulnerable To a retest of this 1965 and potentially a move back to 1940 Particularly given the fact that we've got a Federal Reserve rate meeting later this week The Bank of England meeting later this month rather in the coming week And we've just come off an ECB rate meeting which delivered a little bit of a hawkish surprise When it comes to what the ECB might be doing when it comes to their asset purchase program And there has been some surprise and maybe a little bit of criticism That perhaps the ECB is looking at potentially reigning back in stimulus measures And when I looked at Euro dollar a week ago We didn't even look as if we're going to come close to testing the trend line from the lows back in 2017 But we have actually tested that trend line We were well above 110 110 we've tested sharply lower and we've seen a rebound since then And we've come back and retested these lows here at around about 111.20 So that's something that we really need to get back above in terms of the short to medium term To suggest that we won't see a retest of those lows We look at that 111 area there That's a significant resistance level only pullback from that trend line support Does that mean that we will not see another test of this trend line support? I think while we're below 111.20 I think it's quite likely that we will see a retest of that at some point If we're able to get back above 111.20 then we could see a move back to around about 112 or 111.14 Again it's about levels When it comes to currencies or any other market it's trading around key levels Last week it was 111.14 on the upside This week it's going to be in the coming days and weeks it's going to be 111.20 When it comes to where we go to next So the key support on the downside is 107.70 108 We saw a retest of that this week We've recovered off that If we look at the weekly chart We're still looking very much at that being a key level And I talked about that last week We've managed to hold that level The big question is whether or not we can hold that level and prompt a little bit of rebound and much will depend I think On what the Fed says and does next week We are expecting a 25 basis point rate hike Rate hike that is a given I think it will be very surprising if the Fed didn't do Anything over and above that I think there has been some talk of a 50 basis point rate hike I think that's unlikely In terms of what the Fed decides going forward I think is going to be the biggest story We'll get 25 basis points, but what will the Fed signal Beyond that People like James Bullard are talking about 1% by July So another 75 basis points between now and July What is the Fed signal with respect to that? What is the Fed signal about balance sheet reduction? Certainly in terms of the impact on the pound We've seen a significant move below that 131.60 level that I talked about last week And we've actually broken below that And I didn't expect that to happen So that has caused me to shift my thinking when it comes to cable Certainly in terms of Euro sterling it's also had a significant effect as well When the facts change I change my mind And my view on cable has always been very much a case of buying the dips I'm being forced to revise that slightly because I didn't expect to see the move below 131.60 And I think while we are now below these reactions Highs here of 132.120 I think there's an increased risk now that we could move back to 128 And this blue line here So if I think that we're going to see further sterling weakness It then stands to reason that we could we'll see a continued test towards the downside in Euro dollar What the Euro dollar chart is telling me at the moment is we've seen a significant rebound off that trend line support Which is a very very key support level in the short to medium term but cable started to break down So essentially that means that Euro sterling downside is likely to be much more limited So in terms of where we are at the moment unless we see a significant rebound back above 132.20 Then I think the risk of further sterling weakness has increased and as such we could see a retest of a break below 130 And then a test down towards 128 and a half in the short to medium term Again that will really depend on how hawkish the Bank of England is when it meets in the coming days Certainly in terms of where we are Euro sterling We've seen an unwelcome rebound off these lows at 80 to 80 in the 82 level here And we've seen a retest of 84 20 84 30 and we could come back as far as 84 80 and even 85 We're still in the downtrend but what we're seeing at the moment is a significant short squeeze on Euro sterling Which could squeeze any sterling long positions So the next level on Euro sterling. I'm really looking at is below this line here the 200 day moving average as well So we could see further sterling weakness and further Euro strength in the short to medium term Depending obviously on how the Bank of England reacts at this at the at the me at the meeting that's coming this week So I talked a little bit about that my expectations for the Fed are for the Fed to hike rates by 25 basis points I also expect the Bank of England to do the same thing. It would be a big surprise if the Bank of England does nothing I think when we look ahead at the inflation outlook they have to do something now you can argue whether or not they should But the big question here for me. I think it's about The transitory playbook people are talking about inflation being transitory. I think you can tear that argument up The central banks are faced with a very difficult situation Before the Russian invasion of Ukraine some market pricing was suggesting we might see seven Fed rate rises this year And while some are suggesting that might not happen now there is an argument that it might be the lesser of two evils Why do I say that? Well the Bank of England the Federal Reserve they have to balance the risks of tightening too quickly And tipping the economy into recession or allowing inflation to do it for them Either way the economy the global economy is heading towards recession either as a result of higher energy prices Or higher food prices or higher base metal prices It's a question of which is the lesser of two evils. Do you anchor consumer inflation expectations by tightening monetary policy To basically head off inflation expectations one or two years down the line Or do you allow inflation to let rip? You know it's a Gordian knot if you like. There are no good outcomes either way You either allow inflation to let rip and basically kill the economy that way Or you raise inflation or you raise interest rates and try and temper the longer term effects of higher inflation expectations by raising rates Now there are some people that say that you should basically just allow inflation to let rip I tend not to be one of those. I think that rates have to go back to some sense of normalcy In order for central banks to be able to have the room to cut them later either way Whatever you do it's a difficult situation and it's not like there are no good outcomes So to my mind central banks need to start to raise rates back to a normal set a normal level And even if the Bank of England raises rates by 25 basis points next week They're only putting them back to where they were before the pandemic so they're not at an unsustainably high level You know if your economy can't withstand 0.75% base rate or 1% base rate Then where are we and the data that we've seen today out of the UK economy suggests that the UK economy can withstand that Not withstanding obviously the price pressures of everything else And I think the one big risk for the UK economy at the moment is not so much the surges that we're seeing in energy prices and everything else It's the fiscal response from the UK government where we're getting tax rises coming in in April I mean that more than anything else is the bigger risk than what we're seeing from central banks more broadly So my expectation in a nutshell for next week is 25 basis points from the Fed and then really a question is how they Basically formulate the forward guidance for further rate rises going forward And again 25 basis points from the Bank of England with a risk that you might see some policymakers calling for 50 But ultimately I think we're going to see further rate rises over the course of the next week or so And then it's really a question of how the forward guidance kicks in there in after that We've also got UK wages data coming up next week and unemployment We're expecting to see UK unemployment fall back from 4.1% to 4% Wage growth I think is the biggest concern here That's likely to see a fall to around about 3.1 or 4. We're slightly to stabilize it around about 3.7% excluding bonuses With with bonuses 4.3% But again I wouldn't read too much into the wages data because that data is only up to January And over the course of the last few weeks and months we've seen a whole host of retailers Announce above inflation pay rises which won't be factored into those numbers Sainsbury's announced a 10% increase in its salaries Tesco 5.5% All of these kick in in February, March and April So average earnings and wages numbers are likely to come in and start to come in around about 3.74% And start to move up and at the moment all of the pay rises that have been brought in by various employers Aren't currently reflected in the numbers that we're currently seeing from the Office of National Statistics So we need to factor we need to take account of that We've got US retail sales coming out on the 16th of March We saw a big rebound in January after a big decline of 1.9% in December We saw the fastest rate in 10 months rising by 3.8% well above expectations of 2% in January We'd like to see another fairly decent number of 0.5% in February On the earnings numbers what we're seeing in terms of next week We're seeing Cineworld, Accardo and Deliveroo If we look at Cineworld's share price we can see that it's finding support in and around 26.5p Seeing a little bit of a rebound today on the slightly more positive risk sentiment But we're still very much below the February highs Had a shocker it's still got the overhang of its Cineplex court case Where it's been told that it has to pay damages to the tune of 1.23 billion Canadian dollars for lost synergies And 5.5 million dollars for lost transaction costs Cineworld is appealing It's unlikely that we're going to get any transparency on how that's going to play out over the course of the next few days This week's guidance is likely to be key in terms of the overall picture But even if it does pose a decent set of numbers it's still got that court case hanging over it Accardo, again similar sort of story when it comes to the outlook there Having a bit of a decent rebound today on the back of the ruling from the International Trade Commission It's auto store litigation We look at the downtrend here we can see that we're seeing a little bit of resistance in and around this area here as well as the highs back at the beginning of the month Are the lows in? Difficult to say at the moment The downtrend is still very much intact And we've also got numbers from Deliveroo And certainly Deliveroo isn't delivering hasn't delivered and is still within touching distance of record lows So at some point you've got to think that all the bad news there is priced in in terms of the overall numbers they're heading in the right direction It's just that the share price isn't so I think it's really a question of how much lower can Deliveroo go before we start to see a little bit of a base start to kick in When you consider that at IPO that's three pound ninety and it's now within touching distance of being a penny stock You've got to think well how much further as it got to go and we'll find out whether or not it's four year numbers which are going to be released on the 17th Will give us any indication as to whether the low is is anywhere close to being put in So I think that's pretty much it for this week It's going to be a very very interesting next few days certainly when it comes to the Bank of England and the Federal Reserve But I think they're going to be obviously the key macro announcements away from obviously continued concerns, headline risks, geopolitical concerns and events in Ukraine and any further horrors there So as I say that's it for this week that we all have a great weekend I hope you've all had a decent trading week and I'll speak to you all same time same place next week have a great weekend