 Good morning. Welcome to CMC markets on Friday the 9th of June and this quick look at the week ahead beginning at the 12th of June with me Michael Houston and It's been one of those weeks that I think we've really struggled for direction Markets have remained fairly resilient. I think I think we can say that the S&P 500 trading up in and around that 300 area the NASDAQ continues to look reasonably resilient and we've also seen a fairly decent rebound in the Russell 2000 as well, which has up until recently significantly underperformed the wider market. So where does that leave us going forward? Well, I Think the thing the two key moments this week were surprise rate hikes from the RBA and the Bank of Canada Now those of you who will have listened to my video last week I suggested that We may get a rate hike from one or two other of these two central banks. The fact that we got a rate hike from both Suggest to me that there is still this belief That services inflation and I think this is where where the problem is services inflation and continues to remain sticky And that I think is the problem that's facing central banks at the moment despite rising evidence that The world's biggest economy China second biggest economy rather. No, it's not the world's biggest economy yet the world's second biggest economy China is Entering deflation producer prices earlier today came in at minus four point six percent lowest levels since 2016 and that suggests to me that This deflation we wave could be coming our way now how that plays out in the wider global economy We're already seeing in the manufacturing sector that that continues to look very very weak indeed Services on the other hand still it seems fairly resilient last week's payrolls numbers were very good Fairly decent numbers even as the unemployment rate Edge Tire which brings us neatly to this week Or this coming week because we've got a trifecta of Central bank decisions later this week starting with the Federal Reserve on Wednesday Followed by the ECB on Thursday in the Bank of Japan on Friday of all of these we may find that the Federal Reserve is an outlier when it comes to Interest rates there the the market consensus is that we will get a hold in rates or a skip Whatever you want to call it But nonetheless what we're seeing at the moment is markets are increasingly pricing out rate cuts that's exerting upward pressure on Yields not only here in the UK where the two-year yield in the UK is back up four point five percent I'm back close to the highs that we saw last October But also US two-year yields have also Edged higher over the course of the past few days and are now back close to the levels that we saw earlier this year not quite at the five percent levels that we saw pre US banking sector meltdown, but certainly edging back that way and And We asked it we do appear we do appear to have put the concerns about the US banking sector Very much in the rear view mirror even though that sector still remains Quite significantly below the levels that it was at the beginning of March, but nonetheless markets are coalescing around a Potential hold But that sort of rather begs the question. Why would the Fed hold? If the market is pricing a rate hike in July, which it is and not June. Why not go in June? Nothing much is going to change between now and the July meeting. There'll be one more CPR report And one more payrolls report. We've got a CPR report later In the week the day before the Federal Reserve rate decision and obviously that could be a key factor in whether or not the Fed goes for a Hold or a hike, but we've already been guided by the likes of Jay Powell Philip Jefferson who's in line for the deputy Chair of the Federal Reserve That a hold is probably what we're going to get But for me the optics of that a tricky a tricky to navigate Because if you get a hawkish hold it rather begs the question. Well, why wait? You're gonna hike in July and you worried about inflation. Why not hike now? You know that for me. I think is the real The real tightrope the Fed is is going to have to walk because we look at the jobs market still looks strong Wages now trending above headline CPI, which the Fed may well be concerned about So we've seen the RBA hike. We've seen the Bank of Canada hike will probably see the ECB hike so Why would the Fed remain on hold if they're gonna hike in July just makes no sense to me whatsoever? Which suggests to me they got the messaging wrong so You know the bigger question is the US economy likely to be in a significantly different place between now and then it is slowing down There is no question, but that's the that's the cause and effect That's what rate hikes are designed to do They're designed to slow the economy to down slow the economy down to kill demand So, you know, if the US economy is slowing, that's exactly what the Fed wants You know the the jobs numbers are jolts back above 10 10 10 million So there's still this the US labor market is still pretty tight So, you know, it's really a matter of timing. So we may get a whole hawkish hold We may get a hike at the moment. I would argue it could go either way. So what are we looking for? US CPI next week because obviously that comes on Tuesday the the day before and It'll be interesting to see whether or not we get a further softening of headline inflation That's certainly what the economists are predicting 4.9% in April down to 4.1% in the main numbers, but the important numbers are going to be core core CPI We've also got core PPI as well on the Wednesday the day after PPI has actually been where we have started to see really sharp falls in headline inflation in the US and pretty much across the board You're looking at core PPI That is around about 2.9% to 3% let's fall on quite sharply now core CPI Currently at 5.5% is expected to fall to 5.3% so there is certainly Significant divergence when it comes to what PPI is doing, which tends to be a much more forward-looking indicator for CPI Then what's what's happening in core prices the core prices? 5.3% course core CPI is expected on the Tuesday Core PPI is expected to fall below 3% On Wednesday, and then obviously we've got the Fed rate decision and again the consensus is for a hold but You know We could we could well see a hike but at the moment. I think that that that is probably That would go against I think that would go against guidance So that will be a surprise if they were to hike and then they'd have to manage the message as to why they changed their mind So they're in a bit of a hole of their own making So that's that's the US next week on Thursday, we've got the ECB rate decision Let's have a quick look at what the DAX is doing before I get to that You can see the type of price action we've had this week Monday Tuesday Wednesday Thursday Friday We've done absolutely nothing all week traded in a range support 15,900 top of that range around about 16,000 so it's been pretty pretty uneventful so the ECB There appears little doubt we'll see another 25 basis points on Thursday I think the big question is How many more can they do if we look at what euro dollars been doing the market is unconvinced For all the hawkish rhetoric that the ECB will be able to deliver the number of cuts. Sorry cuts hikes that it is currently Guiding that it may need to do so Germany is in a technical recession the eurozone economy was revived. It's It's GDP numbers were also revised lower this week to quarterly contractions of minus naught point one percent so again the question is Even though Headline inflation is coming down and the economy is in recession Or the ECB want to push its luck and continue to hike aggressively Going forward. You don't hike into a recession a recession by itself should bring prices down ECB has already gone quite heavily. Yes, it is lagging behind the Fed But the reason it's lagging behind the Fed is because obviously the European economy is a lot less stronger than the US economy so Core prices hit a record higher five point seven percent in March They fall into five point three percent in the most recent numbers Released earlier this month, but PPI again has been the leading indicator here So I think it stands to reason that we may see 25 basis points from the ECB The big question is what comes after that and I'm not convinced. We're going to see too many rate hikes After the hike that we see this coming week same applies to the Bank of England, which comes the week after next Market surprising in another hundred basis points. I struggle with that. I really do we may see 25 basis points At the June meeting, but will we see many more than that after that? I Think inflation will come down. It may prove to be sticky But I think there's an awful lot to say that if we get an economic slowdown in the second half of this year Prices should come down by themselves. Again, we need to keep an eye on PPI on the topic of UK economy we've also got UK wages and unemployment data released later This later this week or this coming week and again here. We've seen unemployment start to wedge higher protected is predicted to move up to four percent for the three months to April when the numbers are released on Tuesday, but Wages are also expected to go up from six point seven percent six point nine percent So wages are going up Unemployment is going up. So that gives the Bank of England a double dilemma when it comes to what to do with rates But ultimately it has an inflation target It's been absolutely abysmal in meeting it and the likelihood is we're probably going to see 25 basis points and probably another 25 Later on in August as well So I think there's certainly potential for another 50 basis points from the Bank of England I'm less convinced about more aggressive rate hikes from the rest As for cable, I'm still a little I'm still bullish I gotta say I think we're going to retest this trend line We're going to test this trend line from the peaks back in 2021 And I certainly think there's an even chance we could probably move up to 127 128 You could you know, you could sort of argue. What if the UK economy is going into recession? You know, why would you belong cable? But you know, it's never a zero-sum game when it comes to currencies and ultimately if the Fed is near the end of its rate hiking cycle Markets will start to price in when the Fed is going to cut rates when the Fed is going to ease monetary policy And that's likely to be negative for the dollar So that could benefit the pound. We'll have to see but at the moment Decent resistance on this trend line here We may struggle to get much beyond that in the short term The key support level is this area here around about 122 95 123 So I'll probably look for any dips back to that When it comes to cable euro dollars pretty much same old same old It's in a range top it out ranges around about 108 20 got a fairly decent range building up again here We did edge slightly higher today But again, there is a big barrier around about 108 and until such times as we conclusively break above that We're likely to continue to range trade. I think the big one this week is dollar yen Now earlier today Number of Japanese officials pushed back on the idea that the yield curve control policy Would be tweaked at this week's meeting. It is on Friday. It's a very important meeting for Kazuka, oh, oh, Ada. Oh Ada or however you pronounce his name, but what I would say is Bank of Japan core inflation is at 4.1 percent. It's over the double. It's over double Now in the Bank of Japan's target and while no one is suggesting that they're gonna get rid of your curve control I don't think they will The big question is how long Can you keep rates negative when core inflation is at 4.1 percent? They've got to start seeding the ground at some point For a slight modification of monetary policy towards a slightly tighter stance I Really don't see how they cannot do that. So That's probably going to be the big meeting this week 140 is the bit of a level on dollar yen We struggled to move back above that. We're consolidating at the moment between 138 30 and one 14 95 which was the highs earlier Earlier this month or the end of last month rather So we're in a bit of a choppy range at the moment be interested to see which way we break in the aftermath of This week's decision Also this week we have got Chinese retail sales That'll be interesting in the context of how The Chinese consumer is bouncing back or is not bouncing back depending on your point of view We did see a big rebound in April retail sales of 18.4 percent Which was also the biggest year on the again since March 2021 But they still came in below forecast and they also needed to be set in the context of the fact that In April last year the Chinese economy was subject to various restrictions and what have you covered restrictions? So you would expect to see a big big rebound in April Why would you not because you're coming off a very low comparison a baseline? So For this for this week's May April retail This week's May retail sales to get my words out We're expecting to see a fairly decent rebound again Gotta bear in mind the comparative 13.9 percent on retail sales An industrial production is expected to come in around about 3.8 percent Which is going to be slightly below the levels that we saw in April of around about 5.3 so keep an eye on Chinese retail sales for any evidence of a return of Chinese consumer confidence on the corporate front We haven't really got that much this week. I think the most notable Item on the menu is Tesco's first quarter results Which are due Which are due on the 16th of June come off the highs that we saw earlier this year Back in April when Tesco reported its full year numbers pet a 12 month high total revenue Rows 7.2 percent coming in at 65 Billion past 65.7 billion pounds Obviously, that was as a large result of the fact that consumers having to pay more for Everyday products it is notable though that the rise in revenue 7.2 is a much lower than the current rate of inflation at a time Which is 10.4 and the even higher five higher high food price levels of 17 percent So we can see there that for all the accusations of price gouging by retailers supermarkets and what have you They're clearly they're clearly taking a hit to their margins and certainly if you look at their operating profits They fell by 50 percent You know, there is they've got higher costs They're cutting their margins the higher costs are in the form of higher energy costs But also they're paying the staff more money to try and retain them From the likes of Aldean little Sainsbury's, you know, the competition is fairly intense And they've also announced a raft of fresh price cuts for various staple products so In 2024 Tesco said it's optimistic to be able to deliver the same level of adjusted operating profit as the year just gone Obviously keep an eye on margins keep an eye on market share But not expecting a particularly disappointing set of numbers given the fact that Tesco's is the UK's number one retailer And if we look at this trend line here, we've probably got a nice trend Unfolding with respect to this particular one here. Maybe we've broken it But we've also got bear in mind that this level here around about 260p Also acted as a little bit of a resistance area here in a resistance area here So we may find that there is a little bit of support there But ultimately if we drift back below towards if we drift if we go below that we could well find a decent area of support Around about 245 and the 200 day moving average So that's it. I think for this week as I say three key rate decisions This week from the Federal Reserve the ECB and the Bank of Japan. We've got US CPI we've got UK wages and unemployment which could Give us a decent Heads up when it comes to what the Bank of England is likely to do Thursday week when they meet on the 20, I think it's a 23rd. What's easy the ECB It's the 15th. So yeah, it'll be the 22nd 22nd of June the Bank of England is due to meet so I'll be interested to see how that plays out So that's it for this week. Thanks very much for listening. It's Michael Houston talking to you from CMC markets