 Good morning. Welcome to CMC Markets on Friday the 14th of May and this quick look at the weekend beginning the 17th of May with me, Michael Houston. Before we get started on the events of the week ahead, I think it's important to reflect on the volatility and the price moves that we've seen over the past few days. It's been a much more negative bias for equity markets this week, largely on the basis of concerns about rising inflation repressions and a large part of think of the volatility was set off initially by a little bit of disappointment over the Friday payrolls numbers but I think more significantly there was a big rise in concerns about inflation and that's been reflected in a bit of a sell-off in bond markets and a bit of a spike higher in yields across the globe. We've seen that particularly in terms of the rise that we've seen in US 10 year yields, particularly in this chart that I've got in front of you or got in front of me here. Now this is Friday's payrolls number. Now there was an awful lot of disappointment about the 265,000 jobs that was well below expectations and that saw an initial spike lower in yields before we actually rebounded higher and since that spike lower we've pretty much reversed gone on a 20 basis point round trip to a higher 1.7% earlier this week and now we are starting to drift back lower and these concerns about inflation, you've got a little bit of a tug of war taking place between the inflation easters who think that an awful lot of these price rises are not transitory and those who think that they are. Now I'm broadly split between the two on this I think an awful lot of the price rises that we've seen or that we are seeing are transitory in nature and for that and for evidence of that all we have to do is look at a Brent crude oil chart and look at where prices were this time last year. Now if your US crude prices then you've got an even bigger divergence between where prices were and where prices are because prices briefly went negative in the US. Now Brent crude prices were that low as $15 a barrel this time last year or just over this time last year in April and this is the number these are the numbers we're talking about we're talking about April inflation numbers and in the wake of the lockdowns that we saw in March and April of last year you saw a massive sell-off in commodity prices commodity prices hit 25 year lows on a broad range of commodity price indexes. Now since then they've rebounded very very strongly so you are going to get a significant rebound in inflationary pressures and I think it's important to understand that what part of that does an awful lot of people not understand you are going to get a significant rebound in price pressures relative to where they were a year ago that is called base effects and the US CPI number that we saw earlier this week of 4.2% obviously reflected that as have the PPI prices that we've seen from April last year 5.8 6.2% much bigger than expected if you look at Chinese factory gate prices they've also seen a big rebound the highest number since 2017 you've seen US CPI hit its highest level since 2008 and obviously when you bandy those sorts of numbers about there's always going to be a little bit of concern I think that maybe these rebound this rebound that we're seeing in prices may not be as transitory as people think and certainly central banks think you know and I think it's important that while you're right to be skeptical about central banks you've also got to believe the evidence of your own eyes and certainly if we look at crude oil prices energy prices do make up a significant amount of that rebound that we're currently seeing in prices now one off effects are obviously prices of used cars in the US there was a big jump there there's a big jump in airfares as well but again that's entirely normal given the fact that airlines have been cutting prices quite aggressively to try and actually get you to travel over the course of the past 12 months when lockdown measures have been eased now as we head into the summer we are still on a reopening course reopening trajectory and airlines are still running capacity at around about 20% of 2019 levels so they are going to try and push prices up simply because an awful lot of people will want to travel at some point over the course of the next few months and that will exert upward pressure on prices but again they can't continue to do that without threatening to create some sort of demand destruction and as a consequence of that yes there is an awful lot of fiscal stimulus at the net in the system at the moment in the US and the UK but ultimately we won't know for at least four or five months whether or not the price rising pressure the price rise pressures that we're currently seeing will actually be more sustained and I think at the moment it's a little bit too early to jump the gun when it comes to inflationary pressures and certainly we are starting to see a little bit of softening in commodity prices more broadly we're seeing a little bit of softening in crude oil prices over the course of the past few days and what's important I think is that we haven't taken out the highs that we saw in March we're also starting to see a little bit of softening in lumber prices there was an awful lot of headline risk a few days ago that lumber prices were going through the roof but again here we're starting to see a little bit of softening in commodity prices more broadly so maybe just maybe some of the upward pressure that we have been seeing is starting to soften a bit even copper prices and iron oil prices have been showing early signs of maybe finding a little bit of a short-term top so while higher inflation prices are likely to be expected expect to hear an awful lot more noise about whether or not they're transitory or not particularly as we look towards the upcoming week when we get a whole host of UK data and US UK PPI UK CPI and UK RPI as well as UK retail sales and UK unemployment so let's look at a few price charts on the price action that we've seen thus far this week starting with the FTSE 100 now obviously we've seen a bearish key day reversal here on the Monday that was followed up by another big decline on the Tuesday consolidation on the Wednesday another attempt at further losses on Thursday before a very solid rebound back now the long candle on this particular chart encourages me that's what we've seen is no more than a short-term dip what we didn't do was take out the low of 6805 which was the original breakout point higher so that's encouraging from a technical point of view yes we have seen a negative move lower and certainly there is a concern that maybe that's indicative of perhaps a more broader reversal but I am encouraged by the fact that we haven't actually wiped out the gains of the previous week completely depends on where we finish today but at the moment the long shadow on this candle is encouraging so we may not have seen a longer term reversal on the FTSE 100 let's look at the Nikkei 225 now we've seen a break to the downside here and that is a little bit concerning particularly in terms of this sideways consolidation so we could get a little bit of a pullback to this breakout level here before the downtrend resumes what is encouraging is that this long shadow here suggests that there's a little bit of a hammer taking place on this breakout point and we could see a move back towards this level here which is around about 28600 so while the Nikkei 225 is showing signs of a potential reversal I don't think given what we're seeing here at the moment that we're likely to see a significant sell-off and even if we do the 200-day moving average is likely to prove a fairly decent support level in the short to medium term so there are early signs that we are starting to see a bit of a short term top in the Nikkei but I'm not throwing the towel in on it yet simply on the basis of the fact that we're not seeing similar breakouts on other global indices if we look at the Dax again a long shadow there on the 50-day moving average we didn't take out the trend line from these lows through here so again that's encouraging the broader uptrend remains intact and we didn't take out this previous low here around about 14,830 it was 14,815 that is not what I would call a significant break we need to see a break below 14,800 so really I think throwing the towel on this particular up move but certainly I think what we're seeing here is significant volatility within a broader range the bottom of that range is 14,800 so that's the key level on the downside in terms of supporting the current moves that we're seeing higher now on the NASDAQ I'm slightly more concerned and the reason for that is because we have broken below the 50-day moving average and we haven't actually been able to break back above it but what is important I think with respect to the NASDAQ is that we still have these lows intact here but certainly I think we are starting to see some signs of stress and topiness in the NASDAQ more broadly but if we look at the say for example the S&P 500 that stress isn't anywhere near as manifest and we have managed to respect the overall uptrend that has been in place for most of this year since those are lows back in October so while we have seen a bearish reversal I think there is good evidence that at the moment we haven't quite seen a top yet but there is a little bit of a reversal on the weekly candle so there is a concern that US markets may find it much more difficult to push to the upside than the European counterparts so we could start to see an element of divergence between US markets and European markets on a valuation basis alone I think the key level for me on the S&P 500 is around about the 4000 level I think that's I think is more typical of the line in sand why simply on the basis that these series of highs through here act as a little bit of a top and for me are likely to act as a support level on any move lower so looking at the level here we got 4030 there or thereabouts I think the broader support level is probably through these series of peaks here around about 3994000 that is likely to be a much better indicator of a breakdown in the momentum that we've seen towards the upside okay so let's look ahead to the upcoming week and let's talk about it in sterling terms because it's a big week for UK data and this is the CMC sterling index and we've got UK unemployment on the 18th the Tuesday followed by CPI on the Wednesday followed by retail sales and flash PMIs on the 21st of Friday so we've got a whole host of economic data personally I can't see the data really moving markets that much if we look at what UK guilt yields have been doing they have been caught up in the context of concerns about inflation we can see that on this chart here but I think what is important is that we still remain very significantly below the 1% level and what's significant I think about this particular chart in terms of the 10 year is that we got a little bit of a top here all the way back on the 18th of March and then we drifted back down the candle that we saw on the 13th of May is fairly similar so that might suggest that we could see a similar softening of yields going forward what's important also is that you've got a nice little trend line through here through the lows and a nice little line through here so we're in a little bit of a sideways consolidation when it comes to inflation concerns and that's been reflected in guilt and bomb markets more broadly on the 10 year so I don't expect to see upward pressure on guilt prices guilt yields rather as a result or as a consequence of the inflation numbers that are due to come out on Tuesday and I think that's largely on the basis of the fact that headline CPI in March for the UK came at 0.7 percent while core prices rose to 1.1 percent now I think I think it's conceivable that we can see headline CPI potentially double to 1.4 and core prices to head up towards 1.7 or 1.8 but I certainly don't expect them to get close to two and even if we do I can't imagine the Bank of England will be overly concerned about that given the fact that prices aren't essentially showing much signs of moving higher apart from in the more volatile components that we've seen in the US numbers over the course of the past few days. I'm more interested in the PPI numbers and the PPI numbers have been trending higher for any number of reasons related to trade related disruptions obviously concerns about supply chain problems with the Suez Canal incident as well that's probably driven PPI prices an awful lot higher than say for example the headline numbers they were at 5.9 percent in March they could probably head towards 6.8 or even 7 percent they tend to be generally much more price sensitive and probably will act as leading indicators going forward but I would certainly be surprised to see headline CPI here in the UK had much above 2.5 percent over the course of the summer from where they are at the moment so in terms of cable very much or sterling we remain very much in a sideways consolidation in this broader channel that we've been in for the past few weeks I wouldn't expect that to change anytime soon but for the fact that I think there probably will be more of an upward bias at the moment the pound against the dollar has broken higher for the moment 140 is the key support on the downside we've broken higher we broke higher earlier this week that is now likely to act as a key support if we drop back below it then we could see a move back to the 50-day moving average in this trend line area here but overall we can throw a blanket over 142 136 72 or even 138 on the downside I'm still very much a case of buy the dip on cable this does concern me a bit in terms of this reversal on the daily but while we're above 140 20 I wouldn't be in an any hurry to pair back any long positions and if we look at the weekly chart it looks much more positive than say for example the daily chart does but certainly I think in terms of the overall trend buying the dips on cable still remains the preferred strategy going forward euro sterling similar sort of story when it comes to cable we do sorry sterling it does appear to have found a little bit of a short-term base around about this 85 60 area it is now trying to push back above the 86 20 area but more broadly 87 30 and the 100-day moving average remains a very big barrier to any further sterling losses in euro gains so keep an eye on euro sterling around about 87 30 we could squeeze back towards that broader resistance there given that we're currently testing the upper line of that resistance level there euro dollar boring I really can't explain how boring euro dollar is at the moment fairly well toppy in and anywhere near 120 180 122 we can see that from this chart here finding a few bids around the 120 area 120 20 30 120 40 but again that's very much a range trade currencies have been fairly benign this week and I would expect that to continue we've seen some fairly decent advances in the US dollar over the course of the past few days and a large part that has been emblematic of the fact that yields have started to move higher but we're starting to come back off that and could well drift back down again over the course of the next few days what has been particularly interesting has been the move higher in dollar yen as shown by this particular chart here the uptrend in dollar yen has remained intact thus far and while it does so I can foresee the potential for further dollar gains going forward but we could well see a drift back here first but I mean this this remains a very nice little trade here you know long dollar positions with the stop loss below that line here gives you a fairly decent risk reward but obviously if we do break below that blue line then we could see a much steeper fall going forward so retail sales for April likely to see I think fairly another fairly resilient number after the number that we saw in March 5.4 driven primarily as a result of clothing sales as consumers look towards their summer wardrobes obviously garden centres and what have you but also we're getting other retail now starting to open up pubs and what have you so in April so dining outdoors drinking outdoors so you're going to see a little bit of a pick up there and may will probably be even better assuming that we get the unlock as scheduled on the 17th of May we've also got Fed minutes coming up they're pretty much well down the risk the risk ratio you know the risk ladder when it comes to being market moving simply on the basis of the fact that we've seen Vice Chair Richard Clarider come out and insist that while he was surprised at the upward at the upward moving prices he still thinks it's transitory so these Fed minutes will be fairly stale when it comes to recent pronouncements from various Fed policymakers so I don't expect too many surprises from them we've also got Chinese retail sales coming out on the Monday I don't expect to see many too many surprises from that it's expected to show a fairly decent rebound from a year ago again base effects here are likely to skew the numbers much higher than they would normally be Chinese retail sales were trending at around about 8% at the end of 2019 they're likely to be trending an awful lot higher now simply because of the big drop that we saw in like in April last year as a result of the post lockdown slump so we do need to be cognizant of that and we've also got flash PMIs Germany and France flash PMIs from May on the 21st on the Friday as well and we have started to see a little bit of evidence there of a bit of a rebound in services sector but that could slow given the fact that Germany's implemented a fresh round of lockdown measures which are due to end at the end of June in terms of company announcements that are that are coming up we've we've got we've got to we've got Walmart we've got Royal Mail we've got EasyJet and we've got Vodafone a particular interest I think will be EasyJet's numbers particularly in terms of forward bookings as the UK economy starts to reopen I think there'll be much more focus on domestic travel than overseas travel given the fact that there's so few countries on the UK's green list at the moment and certainly in the context of the big loss that IAG British Airways IAG posted last year EasyJet made its first ever annual loss it doesn't look like this year will be any better the airline does still have unrestricted access to 2.9 billion pounds of liquidity but only 20% of pre-pandemic capacity is expected to be flown in the upcoming quarter pretty similar level to British Airways so while you might see a little bit of a pickup domestically London to Edinburgh Edinburgh to Southampton and Bristol and what have you inter-country flights I think in terms of overseas we could see a much slower pickup the outlook for the the outlook for the quarter is still fairly benign when it comes not benign but certainly in terms of we're not expecting a significant pickup going forward and at the moment the big support level on EasyJet is in and around this 900 this 900p area so I'm not expecting any significant improvement here apart from on a cash burn basis where cash burn has been coming down and in Q2 per or to 470 million pounds so and the airline still has the option to sell more of its aircraft and lease them back and it's already leased back 43 aircraft to raise extra cash going forward we also got Royal Mail I've seen some big gains over the course of the past few months and you've got to you've certainly got to ask yourself whether or not some of that froth needs to come off and parcels division is done particularly well restructuring costs have also been revised down I think most of that is probably in the price and the outlook for the business is much more positive given the fact that they've signed a contract with the UK government to deliver millions of COVID-19 testing kits but again an awful lot of that given the fact that we were down here at around about 150p back in March last year you've got to ask yourself whether or not an awful lot of the good news is already in the price anyway that's um I think pretty much it for this week we've also got more US earnings in the form of Walmart target um what have you and we've also got a direct listing square space keys watch out for news for that and that's on the 19th of May it's a it's a web hosting company on the lines of GoDaddy and Shopify it appears to be a solid performer in this last set of accounts revenues rose 28 percent to 20 to 621 million profits 30 million from 58 so unlike an awful lot of these listings new listings IPOs it is profitable the only downside is all the voting power is concentrated in the hands of CEO anti-casalina Anthony Casalina who owns well he has has 68.2 percent control of the voting rights through his class B shares so if you don't mind being not having any say in decisions company made then class A shareholders should do fairly well anyway that's we don't know what the actual listing price will be but that's going to be listed on the 19th of May so certainly keep an eye out for that otherwise like to wish you all very nice weekend and speak to you all same time same place next week thank you very much for listening