 Hello and welcome to CMC Markets on Tuesday the 17th of June and the weekly market update. And we've got quite a bit to get through today because we have a couple of key events this week, namely the latest Federal Reserve rate decision. We've also got the Bank of England minutes with an awful lot of speculation after Mark Carney's comments last Thursday that we could see a rate hike as early as November this year. And also we've had obviously events in the Middle East, namely Iraq, and the consequent push higher in the oil price. And I'm going to look at the oil price first and foremost. I'm also going to have a look at it in the context of potential effects on growth over the course of the next 12 months on the back of the IMF downgrade of the US economy and recent global growth downgrades by the OECD. And I'm going to finish off with looking at the pound against the dollar. So let's start with crude oil. Now on Thursday crude oil broke out of a three month triangular consolidation that it's been in since pretty much the beginning of this year. And for me this breakout is quite significant and we can see that on the chart in front of you right now. It's a daily candle chart and what I've done is I've taken the highs in February and taken the lows in March as my minimum price objective and projected it from the breakout point on Thursday last week. Now at the moment we were starting to run in a little bit of resistance around about the 108 dollars a barrel mark but generally triangles once they've broken out tend to meet their minimum price objective. Now the length of this pattern is around about three to four months so this move could well unfold over the next two to three months but for this move or this breakout to remain intact we obviously need to remain above the breakout point which is around about 104 dollars a barrel. So we need to be cognizant of the fact that we may get a medium-term pullback that's that's significantly important. The level to keep an eye out for is the February highs of around about 105 so you draw a horizontal line on the chart to arrive at that particular level there. For the time being the next target for crude oil is the highs that we saw in mid-September and that's around about 109.110 so based on the breakout of the triangle there is certainly potential for further upside in crude oil and we could even go as high as 112 dollars a barrel and that's really wouldn't be too much of a surprise given the fact that it's I think it's highly unlikely that what's going on in Iraq will end anytime soon so I certainly think the winds of investor sentiment will be very much affected by what goes on there over the course of the next few weeks. How does this play out in the context of equity markets? Well if you look at oil prices since the beginning of this year specifically on the US economy US oil prices have gone from 92 dollars a barrel to where they are now 108 dollars a barrel. Now that's a significant rise it's around about 14 or 15 percent rise. Concerns about a slowdown in the US economy have been articulated by the IMF. It's hard not to imagine that that significant jump in the oil price is going to have an effect on US growth as well as global growth over the next 6 to 12 months. Let's look at the US small cap index because despite the fact that we've made new all-time highs on the Dow, the S&P and the DAX the US small cap index hasn't taken out its previous highs and we can see that on the chart here. From the March highs we still remain in that downtrend that we've been in since we put in those peaks in March. We bottomed out in May we have rallied back but we haven't rallied back in any way in the near the same sort of extent that we have on the S&P and the DAX and the Dow. So for me I think really the small cap index could hold the key to where equities go to next. Now the S&P has come off it still remains above significant support at the 1900 level and you can see that on this chart here. That's from the April highs the horizontal line around about the 1900 level so that's really the key support on the S&P that I'm looking for for any indication that there is a potential top in place and certainly think if oil prices remain substantially higher as they are now then I certainly think earnings expectations for the S&P and other blue chip equities probably will need to be revised lower because of the higher unit costs that would entail from a higher oil price. So let's finish off with the cable chart pound against the dollar. Now there's been an awful lot of column inches devoted to the timing or otherwise of when the Bank of England is expected to hike rates. Now the market consensus has generally been that it was going to happen in Q2 of next year. Mark Carney Bank of England Governor threw a spanner in the works last Thursday and underwent a rather chameleon like conversion from a dove to a hawk but let's not get overexcited about this. If we look at this monthly cable chart over the last 15 years we can see how important this 170 170 50 area is. It's crucial so it's going to take an awful lot of momentum to push the pound up against the dollar through 170 through 170 50 and really it's all about the next move for the Bank of England and the next move of the Fed and the timing of both. Now we've got the FOMC tomorrow US inflation is currently CPI inflation is currently trending higher than UK inflation so turn that round the Fed as a dual mandate if it downgrows its growth forecast but also adjusts its unemployment forecast lower and with inflation rising the Fed actually may look at tightening before the UK and that's something that really investors need to bear in mind when looking at this chart. So when you're looking at the pound against the dollar it's not just about the Bank of England. UK inflation is at one and a half percent average earnings are at 0.7 the likelihood of a rate hike between now and the end of the year at the moment remains unlikely given that gap. It's less clear cut even with respect to the Federal Reserve despite recent dovish sentiment. Okay so that's it for this week thanks very much for listening this is Michael Houston talking to you from CMC Markets.