 Good morning. Welcome to CMC markets on Friday the 27th of August and this quick look at the week ahead beginning at the 30th of August with me Michael Houston before I get started quicker look back at the events of the last few days and It's been a fairly lackluster Week for equity markets. There's been little in the way of direction. We've seen new record highs for the S&P 500 the NASDAQ and The FTSE 250, but other than that. It's been a pretty uninspiring Week of price action the US dollar is given back some of its recent gains with all the main focus on today's or The next couple of days and the Jackson Hole Central Bank Symposium When I recorded this video a week ago the Jackson Hole symposium was still expected to be an in-person event, but as events tend to happen Sometimes events overtake the reality when it comes to recording this video and the decision to hold the meeting virtually appears to be Or is a test admission I think by the Federal Reserve Another surge in the Delta variant is still a clear and present danger to the US recovery and While cases may be may well be starting to show signs of topping out as we head into the beginning of September That might that may well reverse when the schools go back Next month Of course what that doesn't mean and I think an awful lot of people have been Suggesting that Jay Powell's speech later today will give an outline a potential outline of a tapering timeline certainly I think the Sell-off in the dollar that we've seen over the course of the past few days Was predicated on comments last week from Dallas Fed president Robert Kaplan That he might be persuaded to change his position on tapering if the data warranted however More recent comments would appear to suggest that he isn't at that point yet. So what does that mean for? US monetary policy going forward well You know we can we can write lots and lots of stuff about what the Fed may or may not do What Fed policy makers are thinking? I think what's interesting is the most vocal Fed policy makers are currently non-voting members. So That probably tells you more than anything else, but I think what has been interesting over the course of the past few weeks is that some More senior Fed policy makers that is Fed board governors like Christopher Waller and Richard Clarida Have suggested that perhaps Inflation is becoming much more persistent Then maybe even they thought it would be three or four months ago at the beginning of August Fed chairman Deputy Fed chairman vice chair Richard Clarida expressed concern that a much more persistent overshoot in the core PCE Would fall under the category of a more than a moderate overshoot which might require some action Well, we're already at 3.5 percent on that measure with the risk that we could well go quite a bit higher When the July numbers are released in a few hours time Again Richard Waller Christopher Waller rather another Fed board governor Earlier this month suggested that substantial further progress Could be reached if the September pay the August payrolls report next week And I'll be coming on to that Could mark a tipping point where We could see the Fed starts to outline a roadmap towards a possible taper and I think that's why so much So much of this week's price action has been I think really Geared towards what Powell might have to say later today Certainly, I think Fed officials have become much more split When it comes to or uneasy if you like when it comes to the 120 billion dollars a month bond purchase program but I think, you know Sometimes when we look at this sort of stuff, it's very easy to to get too close to it and Overplay or underplay the effects of what pal might have to say all he has to do is Lay some sort of groundwork for a roadmap, so he needs to set the scene in terms of where the economy is now Relative to December last year When an unemployment was at 6.7% Substantial further progress was one of the key arbiters or measuring benchmarks or A tapering of asset purchase as well, you know, even if he cuts back asset purchases by 10 20 30 billion dollars a month the Fed is still expanding its bungee. It's still ultra accommodated so tapering it's not tightening. It's just Tapering at a slightly lesser rate than was the case a month or two ago So if the unemployment rate, which is now at 5.4% and could fall further in the coming week I Think it would be surprising if the Fed didn't start to tap the brakes on bond buying now Why would it not given the improvements over the last nine months? Why does a taper? Have to be a negative for markets. It doesn't mean the central bank is about to come to a full haul The balance sheet will simply be growing Just at a slow pace, you know, ultimately it's about the messaging the Fed will taper. It's simply a matter of timing messaging and I think that's what we need to bear in mind and there's also the fact that It's unrealistic For the Fed to continue its current pace of bond purchases when the economy is growing fairly steadily The Bank of Korea this week raised rates because of concerns that low rates were encouraging too much leverage and that this was a bigger risk Than rising Delta variant cases now This is something the Fed needs to be aware of and it needs to address No one's suggesting they raise rates. No one is suggesting that for one moment But they do need to balance up the risks of rising Delta infection rates relative To how the economy is performing and while the economy is slowing. It's not crashing And I think that more than anything is Lightly to what is going to drive the narrative as we look ahead to this week's or the coming weeks Non-farm payrolls report or US employment report. So let's look at what the dollar's done This is a CMC dollar index over the course of the past few days And this is Monday's price action a big fall back From the gains that we've seen over the course of the past few days But we're still in this little bit of an uptrend here and we saw a second We saw a similar sell-off all the way back here in July But a fall back lower before going higher again and it's interesting that this price action here is fairly similar And I would expect that to continue There wasn't much to dislike about the July jobs report. We saw strong gains of 943,000 we saw a decent upward revision to June of 938,000 so that sent the unemployment rate tumbling from 5.9 percent 5.4 the underemployment rate also fell back and A rise in the participation rate. So it was very much a Goldilocks report not too hot not too cold Oh, yes, okay fine. It was sixty one point seven percent still well short of the sixty three point four percent pre-pandemic But ultimately for me Irrespective of the fall in the Michigan confidence data in you know Irrespective of all the other potential weakness that we're seeing in some of the economic data We're going to continue to see these peaks and troughs when it comes to US economic data That's not an excuse Not to reduce the amount of Bomb-buying that's going to take place By the end of the year. It's really again as I said previously It's about the timing and it's the labor market that remains the key touchstone for US policymakers, so You know, I think inflation is starting to become much more of a worry PPI is seven point eight percent currently And you know that that is you know, that is that is a significant concern and those PPI numbers the next month's PPI numbers come out the week after next week's payrolls report and Certainly with all the supply chain constraints and what have you in the disruption to supply chains prices are going up Consumers are having to pay higher prices at the shops. They're having to pay higher prices at the pumps and Companies are starting to pass price increases on so an awful lot of that will not be transitory and The Fed needs to be getting in front of that Not by raising rates just by preparing the ground for a reducing of the bond buying program now We should get a better idea. I think in In the September FOMC meeting And that is that is due that is June mid September. So we have clear visibility on that Obviously, there will be some bumps in the road when the schools go back and the unemployment benefits start to roll off Which could incentivize more people to return to the workforce in September? But you know Fed can continue to talk about the merits of tapering as well as the possible timing of rate rise But they can't do anything about And anything with respect to the Delta variant vaccination rates and we'll have you But what we do know is the US economy is still recovering or be at a slightly slower rate Perhaps them was in first envisaged back in March. So expectations for the August payrolls are for anything between 750,000 to 800,000 new jobs to be added in August But I think we can say with some degree of certainty But the line of lease resistance for the dollar is the dollar to continue to edge higher We can certainly see that being played out in euro dollar We've broken below these lows here. We haven't really followed through on that yet quite yet But we're still struggling anywhere near 118 So I think when we're looking at euro dollar and we look at EU flash CPI Which is due out on the 31st of August It's quite likely that The upside for euro dollar is likely to be fairly limited to the 118 area and this these these two peaks around about here As well as the 50-day moving average the inflation outlook in Europe continues to look weak Contrast the inflation outlook in Europe to the inflation outlook in the UK and the US and even though headline CPI for the EU is 2.2 percent Core prices are still 0.7. There's a big gap between the two Now there are pockets where inflation levels are higher Germany for example But unfortunately for Germany the ECB doesn't set policy for Germany it sets it for the whole euro area and That is one of the key problems that The ECB has always had and will continue to have And that suggests to me that interest rates in Europe aren't going anywhere anytime soon And neither is the PEP program and I'll talk a little bit about that in next week's video because it's the ECB meeting The week after non-farm payrolls so at the moment euros struggling a little bit we've rebounded off the lows here, but we are still very much in a downtrend when it comes to euro dollar and We can only see a real short squeeze if we break above this 118 level here The pounder suffered a bit this week Rather inexplicably Seen a little bit of a pullback on the sterling index the CMC sterling index But we are starting to come off the lows and more importantly We're still above this long-term uptrend the 200-day moving average on the sterling index and our finding Could well find a little bit of support through here. So while the pound is looking a little bit weak against the dollar And against the euro I'm still minded to think that the pound is a buy on dips Even if we are getting squeezed on the euro sterling rate at this moment in time We've seen a fairly decent rebound off the lows of August of around about 136 we could go as far as 13570 but at the moment if we zoom all the way in here. Yes, we're in a little bit of a downtrend But what's interesting was that on this push lower we didn't take out that low there So maybe downward momentum is now starting to subside and we could start to get a little bit of a turnaround Going forward. We do have UK data coming out this week. Not only do we have Services and manufacturing PMIs. We've already got a fairly decent indication of what they're going to be from the flash numbers We've also got consumer credit mortgage lending on the 31st of August and They'll give us a fairly decent indication of how confident You are UK consumers are with respect to their credit impulse certainly in terms of mortgage lending They those numbers have been going gangbusters. I don't expect that to continue With the mortgage lending in July in June. We saw a record 17.9 billion pounds net lending To individuals in June now the reason for that was obviously the expiration or the tapering down of the stamp duty deadline That is likely to see a little bit of a drop-off in July in the same way that we saw a big bump in March Which went to 11.9 billion and then we saw a very big drop-off in April I would expect that pattern to play out again in the July numbers as various tax changes Pulled forward an awful lot of lending In to the June numbers Looking at the cable at the moment. There's not really too much to say really It very much in a range. We have seen a bit of a squeeze in Euro sterling, but it's interesting to see that Euro sterling is currently trending slightly higher, but we still Managing to stay below This series of highs through here around about 86 86 40 my resistance levels there or there about 86 86 40 Starting to get a pullback off that and if we break this line here and trend line here the recent squeeze higher The sterling longs in euro sterling could well come to an end with a break towards the downside over the course of the next few days So I'll be paying put particularly close attention to That uptrend line in euro sterling We've also got ISM surveys out of the US manufacturing and services they're likely to be fairly decent leading indicators for the payrolls report on Friday The manufacturing survey is due out on the 1st of September They tend to be fairly decent bellwethers of underlying strength of the US economy not only in terms of employment But also in terms of inflationary pressures as well as domestic and overseas demand now For the last couple of months We've seen increasing evidence of an improvement in employment trends and that's borne out in the last two payrolls reports. So Particularly in terms of manufacturing We've seen elevated prices. We saw a peak of 92.1 in June in the prices paid index That's softened to 85.7 in July So that is welcome in terms of whether or not we might have seen Some of the price pressures start to come off certainly the PPI numbers though give the light of that to a certain extent Hopefully that would that trend will continue in the August numbers, but I'm not holding my breath Employment trends Have improved to 52.9 to manufacturing Hopefully that will continue in August services is the more important component. However Those numbers are applaud those those services isms are reported after the payrolls numbers So they're not going to be particularly a decent indicator for us on this particular occasion so Yeah The payrolls report is likely to be a fairly decent bellwether or What the Fed is likely to announce at its September meeting Moving on to the major indices, I mean that that's it pretty much in terms of Economic indicators out in the coming week payrolls report is obviously the big number on Friday. We do have the ADP payrolls report as well That's likely to be a fairly That's likely to be a fairly decent forerunner of The payrolls report and that we're expecting a bit of an improvement there. We saw over a fairly weak ADP number In July coming in at 330 K. We're expecting that to come in much better in August of 650 K Unfortunately, even though it's a forerunner of the payrolls report. There's virtually no correlation between the two so You know, it's hard to sort of say one way or the other whether or not You know ADP is going to be in a positive indicator or a negative indicator for the payrolls number What isn't in doubt is that jobless claims have been trending down there now averaging around about 350,000 and more importantly continuing claims and now well below three million so That suggests that the labor market continues to recover as for indexes Not much to see in the footsie 100 Holding up fairly well haven't really gone anywhere this week whole more importantly. We've held above 7,000 That is encouraging It's encouraging in the context of further gains and a further move higher Through seven thousand two hundred towards seven thousand four hundred we will get there. That's my target for year-end seven thousand four hundred It's been seven thousand four hundred pretty much most of this year and it's been like pulling teeth Going to the dentist or what have you? S&P 500 here we go Nice little line that I've drawn in here a 50-day moving average. I talked about this last week 50-day moving average has been helping to support not only the S&P 500 But also a number of other markets be paying particular attention to that but also This series of lows through here four thousand three hundred and seventy for any indications of Signs of a breakdown in the upward trend in the market here We go with the DAX again 50-day moving average held above it holding above it for the time being despite the brief Breakup here, but again lack of momentum You know markets are really sort of drifting higher on inertia more than anything else, but nonetheless 50-day moving average again, so these three major indices 50-day moving average is helping to support the price action Nothing more Really needs to be said on that score seen a decent rebound in oil prices this week After the big declines last week we can see that there, but again finding a little bit of resistance around about 72 50 And more importantly, we've now got a series of lower highs So all of these people calling for a move back to $80 a barrel that could happen But not calling for it yet because we haven't taken out the series of highs through here. You need to be able to Run you need to be able to walk before you can run and at the moment Below the 50-day moving average on crude oil prices were below this downtrend line here, which I'll just draw in for you So for anyone starts talking $80 a barrel. Yeah, well, let's get through the 50-day moving average first Because at the moment the price action doesn't support that hypothesis. So as such Oil prices still look a little bit toppy on the basis of the current price action Gold prices holding below 200 day moving average Keeping a lid on it for the time being if we do break above it Then we've got a series of peaks all the way through 18 30 18 40 So that's the gold prices are starting to look a little bit top on that basis in terms of Earnings and announcements this week. There's not that much if I'm honest with you. We've got UK housing So we've got Barrett developments. We talked a little bit about person and the other day and we just Get that font sorted out so that we can actually Get a decent look at this chart There we go. All right Very much very much in an uptrend on this particular market So not really that much to see on this particular chart You know in a fairly decent Move higher But ultimately looks a little bit toppy in and around 740p Person and did post better than expected numbers a couple of weeks ago. So the rest of the sector still looks fairly robust House price growth has been strong this year various stem duty tax breaks helped underpinned upon the big question is With the rolling off of the current set of tax breaks with the taper Due to runoff in September all that continue And I think that's what markets have a significant concern about Going forward in terms of UK house builders and if you look at the way The surprise action is playing out. You've got these series of loads through here on Barrett around about 735 736 and it's finding itself a little bit toppy in and around that area there as well. So this is a classic example in In technical analysis of terms of where previous support level Becomes a resistance level And this is one of you know, this is one of what's one of my favorite types of technical indicator whereby a support level breaks It goes below it It then returns to it and acts as resistance So I think if I look at this and we do get sustained break through these peaks here Then we could see further gains also important to note that We've got a little bit of trend line resistance there as well on the Barrett development share price, so depending on how good these Four year numbers are and we probably pretty much know what they are because they did a pre-close a few weeks ago It's really about the guidance the Barrett developments whether or not they raise their guidance or leave it as is Melrose This is an interesting one given all the media narrative about private equity Ultra electronics Melrose you may recall acquired GKM back in 2018 and there was some concern the company would hollow out the company's manufacturing base And certainly in terms of aerospace the share price of Melrose has taken a bit of battery bit of a battering Over the course of the past few Days but it has been slowly recovering and it's been trading sideways for the past few months That is not expected to change not really expecting too much from those numbers What will be particularly interesting is zoom zoom The bubble appears to have burst to a certain extent on zoom share price if we look at the peaks at the end of last year and The stay-at-home trade it really did benefit from that now The it's starting to become the lust is starting to come off it a little bit and It's not hard to see why I mean basically zoom is a little bit of a one-track pony When it comes to its business model and it's up against Webex log me in Skype and teams You know now, you know, obviously all of these are fairly decent products But they aren't the core offerings for the likes of Cisco or Microsoft So for me the easy wins have been achieved and the road from here on in will be much more challenging for zoom Doesn't necessarily mean that we can't go higher But certainly there is some resistance up around that $400 area So zoom success has prompted Microsoft to up its game Integrating teams into its operating system and it's done a fairly decent job of it. So That means the valuation the revenues and the profits are likely to come under much more scrutiny then they originally did It's got a very high valuation Current market cap of around about 90 to 100 billion dollars. That's quite punchy For a company like zoom, but they are still expected to make profits for Q2 No expected to come in at $1.16 a share Okay, so I think that's pretty much Me done for this week Don't forget to tune in for Non-farm payrolls on Friday next Friday 1 p.m. To 2 p.m. Or 1 15 We're officially starts, but I usually started early just sort of set the scene Get a few questions lined up and what have you but otherwise until next week. Thank you very much for listening This is Michael Houston talking to you from CMC markets and have a great long bank holiday weekend