 Good morning, welcome to CMC markets on Friday the 30th of October and this quick look at the week ahead beginning the second of November with me Michael Houston and it's going to be what it's likely to be set up to be a very very interesting week. We have a host of important events coming out. Not only do we have the US presidential election. We have a Fed meeting we have a Bank of England meeting, and we have a US employment report as well. So, on a macro level it's going to be huge week it's going to be a massive week, particularly in the context of the market movements that we've seen this week. We've seen a significant change in overall sentiment for equity markets in general. And the big I think the big the big concern now is whether or not the weakness that we've seen in the past few days will manifest itself into further weakness as we head into November. And the end of the year certainly sentiment has changed quite markedly on the back of significant increases in infection rates hospitalizations and play teller T rates we've got Germany going into almost a full lockdown in November. I'm starting in November, we've got France starting today, the 30th of October going into a four week partial lockdown. And while both Emmanuel Macron and Angela Merkel have said that they will review the lockdown after two weeks you've got to think that the direction of travel when it comes to the virus will mean that the lockdown will go on for the four week period with the potential that it could go on for even longer certainly here in the UK. At the moment the UK government is holding back from implementing a similarly draconian full lockdown for England but certainly the direction of travel does appear to be leaning in that direction as more and more regions within the UK go up to tier three restrictions but it is quite significant that at the moment while the infection rates in the southeast, the south and the southwest are an awful lot lower than they are say for example in London and the northern parts of England infection rates are pretty much increasing across the board. So, I think the pressure for a full lockdown will grow at the moment the UK government is pushing back against it. That's not to say that they won't eventually bite the bullet and go down the same route. On a purely personal note I think a full lockdown would be a mistake because of the unhidden other problems that it's likely to cause for the rest of the UK population. And ultimately all it does is it just suppresses the virus further out. It doesn't eradicate it completely. And I think when you hear people talking about eradicating the virus completely, I think they're kidding themselves. That will not happen. The genie is out of a bottle and really it's about how we cope with the virus going forward. And certainly I think a full lockdown is taking a sledgehammer to crack an out when you consider that some parts of England have actually fairly low infection rates on a per capita basis. So, this is this is essentially where we are we've seen big declines in equity markets this week. You may recall when I spoke to you last week I talked about some very key support levels or ranges for the likes of the FTSE 100, the DAX and the S&P 500. And what's significant, I think, in respect of what we've seen so far this week is that the Germany 30 or the DAX is broken below its 200 day moving average and shot sharply lower finding support at these previous peaks here and the 11,360 level, which, which, which I identified earlier this week in the chart forums on the 28th of October as a significant support level. So, at the moment, with respect to the DAX, what we've done is we've tested below that key area of support and the July low. And we've gone below the 200 day moving average. And we've now tested back down to the 11,360 level here and on on the on the spread back platform I said DAX breaks to the downside below 200 day moving average and previous summer lows with potential for a retest of the 11,360 area, which was the April peaks, we are now there. So the big question is, what happens next, well, let's zoom in let's look at the, let's look at the daily candle. As I'm talking to you at the moment, there's quite a long, there's quite a long, lower shadow on that candle. So, if we, if we close pretty much where we are at the moment, then the likelihood is that we could well have seen a short term base because that suggests we're getting a little bit of buying interest down towards these lows here. We also have to take into account the fact that we are heading into a weekend. So you are going to get what I would call a little bit of end of week squaring. And obviously we also have a whole host of geopolitical risk coming up with the US presidential election on Tuesday. So you're seeing a little bit of a selloff into that. The big question is, are we going to see any more so the big level on the DAX is this area of support around about the 11,360 area. If we look at the S&P 500, it's a similar sort of story. We're approaching a very, very key support level. I've identified it on this daily candle chart here. And it's important that when we're looking at these indexes, that we revert back to Dow theory. Dow theory says that basically the averages need to confirm each other. Now, obviously when Charles Dow was talking about Dow theory, he was talking about the industrials and the transportation index. When I talk about Dow theory, I'm talking about looking at breakouts to be replicated across the global index equity space. So if you see a breakout in the S&P, if you see a breakout on the DAX, if you see a breakout on the Nikkei, it's more than likely to mean that they're all going to move together lower. If only one breaks out and the others don't, then you could argue that potentially there's a false break taking place. So the key level for me, and I've identified it here with this red line, is the 3,200 area on the S&P 500. It's the September lows, and it's also the lows at the end of July. So that is going to be a very, very key level going forward. Now at the moment on the daily candle, we are heading into the weekend. So we're probably not going to see too much in the way of aggressive selling ahead of the weekend, and it's unlikely that we'll break below this low here. We have seen significant weakness in the S&P 500, and an awful lot of that has been driven by tech, despite the fact that Amazon and Apple, Facebook all posted fairly decent numbers earlier this week. But I think what you're seeing as we head into the vote next week, we're seeing a little bit of unwinding of that risk in a similar way that we saw before the presidential election in 2016. We saw the S&P 500 in the lead up to that vote post an eighth day losing streak before rebounding on the Monday or the Tuesday of the week of the presidential election. So we could see a similar sort of scenario play out here. But at the moment markets are selling off on a combination of rising concern about increasing infection rates, increasing hospitalizations and increasing death rates as we head into November and December and the lack of any fiscal stimulus in the short to medium term. I talked about it last week. We're not going to get fiscal stimulus this year. Ignore what the politicians are saying. They're basically talking, they're basically talking to their base, they're talking to the electorate, they're trying to get votes. They want to give the impression that they're working hard to get a deal. They have no intention of passing a deal before the election. Now they're talking about the prospect of a deal by the end of the year. Again, I think that's pie in the sky and markets are slowly waking up to that effect. So the big question at the moment as we look forward is how the DAX and the S&P react towards some very key support levels as we go into next week. If we look at the UK 100, the FTSE 100 as I call it. Again, here we broke below this key support level that I identified last week. We've carried on going. We're still in this downward channel. We're still heading lower. The line of least resistance is lower. But again, I think as with the DAX and the S&P, I think if we see a rebound in those indexes, then the FTSE 100 will soon or later find a little bit of a base. And that base could come around these April lows, the 16th of April lows that we saw here of around about 5,520. The lows so far this week are around about 5,500 there or thereabouts. And then below that you've also got a series of lows around about 5,380. But it's quite clear here that we are very much now and sell the rally mode when it comes to equity markets. And I think that's really the way that you have to look at it going forward until we're able to recover back towards the sorts of levels that we saw in the middle of the summer. But for us to significantly rally, we need to get back above the 200 day moving average. So if we do get a rebound, we're likely to find a significant amount of selling interest anywhere near the 12,000 level on the DAX. OK, so I've talked a little bit about the backdrop of this week's price action. It's been pretty much negative. And now I'm going to have a look forward to what to expect, hopefully over the course of the next few days. But in the context of what we've seen so far this week. So we've seen a decent rebound in the dollar over the course of the past few days as that is benefited from haven flows. What we haven't been able to do is break up of this 992 area on the CMC dollar index. So that's going to be a very, very, I think key resistance level going forward. We can see it through here and through here that there is a certain amount of resistance in and around these sorts of areas. Whenever we've been around it on previous periods over the course of the past six months here in September. Also here in October and now here again during this week. So we could get a little bit of dip buying in the dollar. But overall, I think the overall, I think the overall direction of the dollar at the moment is very much by the dip. You can see that we're getting higher lows. We're getting higher highs. We can drill down into that in a slightly better way by doing this. And that gives us much more focused look at what the dollar index is doing. And while on the four hour chart, we have seen a little bit of a bearish reversal here on this candle. At the moment we're holding above this moving average. We could see a dip back here to these lows of around about 985. If we draw a line here through these lows, we can see that there's a nice little trend line coming in in and around. Through these lows here. If I can just snap it on there. I've drawn slightly, I've drawn it slightly through those lows. But it's important to remember when you look at trend lines, they're not an exact number, but they're an area of support or resistance. So you're looking at a 10 or 20 point window or there or thereabouts or a five or a 10 point window in and around in a support area. Trend line values are not an exact number. They're, you know, they're a window, if you like, a five or 10 points depending on obviously the price scale that you've got in your right hand margin. So if we look at the CMC dollar index, we look at Euro dollar in that context. We have finally broken low. And last week I talked about the fact that we were toppy around about 119. That certainly proved to be the case we've now rolled over. I think it's quite likely we will head back towards 11595 these lows here and potentially even go lower than that. But you also have to bear in mind that with Euro dollar being around about 60% of the US dollar index, not the CMC dollar index. You could find a little bit of a short term top coming in the dollar when Euro dollar heads back to around about 11580 11590, which I think it pretty much will do over the course of the next few days. Similarly with cable still still very much in an uptrend here. We've rolled over we've come back down towards this one 2850 area. The likelihood is that it's probably going to be a slightly more resilient than say, for example, the Euro on the basis that EU UK Brexit talks, in my opinion, are likely to be more successful now because of the economic hit that's likely to come. Europe's way and the UK's way, unless we get on top of this coronavirus pandemic. I think it's in both sides interests to come to some form of arrangement to cushion the economic hit of this coronavirus pandemic you don't need a Brexit hit on top of it and I don't think. I don't think voters will look too kindly on politicians who put political ideology and dogma ahead of pragmatism. I said this last week, I'm going to repeat it. So for me I still think cable remains very much by the dips, and it's a similar sort of story sell the rally when it comes to euro sterling, though this, I'm going to get rid of this because it's now no longer relevant, and I'm going to redraw this line. People talk about redrawing lines, you should do it on a fairly regular basis. We've now got a nice little trend line there. Once again, I talked about it last week, and I'm going to say it again, this 90 area is big. If we break below it, then we look to what we could well head towards the 200 day moving average at 89. That is what I'm looking for over the course of the next week or so more euro weakness and more sterling strength. That should support cable, easy for me to say. So let's look towards next week now that I've basically looked through all the major markets. We've got the US election. Now obviously that's a big event risk. We'll get to find out who the next president of the United States is likely to be. Donald Trump, will he get another four years? Or will Joe Biden become the next president of the United States? I think that is not the big question, irrespective of who becomes president. The bigger question is who manages to gain control of the Senate. Currently, it's under the control of the Republicans and majority leader Mitch McConnell. Now, Mitch McConnell has been a key obstacle to passing a stimulus deal above an amount of $500 billion. Even though President Trump said that he was prepared to go to $1.8 trillion, Mitch McConnell has always been the roadblock in the Senate when it comes to passing a deal. Obviously, the Democrats want a higher amount. They want $2.1 trillion. When you basically factor all of that in, it makes for a very difficult discussion. If the Democrats manage to win control of the Senate and maintain control of the House of Representatives, their grip on the policy leaves of the US economy would be complete. And as such, they'll find it much easier to push through the fresh fiscal stimulus measures needed to help the US economy if Joe Biden wins the final vote. What we're looking for is a blue wave. It's unlikely we'll get it. The most likely outcome at the moment looks to be a Biden win for the presidency, but for the Republicans to maintain control of the Senate. If that happens, then it's going to be very, very difficult for a Democratic president to push through any sort of significant large-scale fiscal stimulus plan. Notwithstanding the fact, we're going to have to wait until January when he's sworn in. So really depends on not only the outcome of the presidential vote, but also whether or not the Democrats can make inroads into the Republican majority on the Senate. Going forward, what else have we got? Well, we've got the Fed meeting on the 5th of November, and that's followed by non-farm payrolls. The last Fed meeting, the Fed was somewhat of a hostage to fortune when it comes to whether we're going to get a second wave or political gridlock. I fear that they're not going to find that the outlook is any clearer when they meet two days after the presidential election, particularly if we get the type of scenario that I outlined earlier, ultimately a Biden presidency and the Republicans hold on to the Senate, which means that the Fed is likely to be the only game in town when it comes to supporting the U.S. economy in the event that it undergoes a wily coyote moment, which at the moment it doesn't appear to be doing because we're looking at retail sales. We're looking at personal spending. We looked at the GDP bounce back that we saw in Q3. What we're seeing thus far for the U.S. economy suggests that it is just about managing to maintain momentum from the Q3 rebound. Now, the big question is, how long can that continue? Certainly, in terms of the claims data, the weekly jobless claims data, the picture continues to remain positive. How long can that continue to be the case as we head into November? Thanksgiving, the holiday season and Christmas is anybody's guess. Certainly, I think there is a concern going forward that if we get political gridlock and the absence of fiscal stimulus, the U.S. economy will slow down as we head into the end of the year. And also, of course, it will depend on whether or not the U.S. economy goes into another lockdown, and that will depend on whether or not Trump gets re-elected or whether Biden gets in, because I think the Democrats are more likely to lock down the economy than President Trump would ever likely to be. So, again, that's something else to really, I think, consider in the event of a change of president. We also have the, obviously, we've got the U.S. Employment Report on Friday, and I think one of the most encouraging things about the rebound in the U.S. economy has been the slide in the unemployment rate to 7.9%. Now, we're looking for another decline in that to 7.7%. Jobless claims, again, continue to look fairly positive. But I think when we're looking at the unemployment rate, we do need to understand that it's not telling us the whole picture, because while the unemployment rate has come down quite a bit, so has the labor participation rate, which suggests there's an awful lot of unemployed not being reported in the overall numbers. The participation rate has come down 2% to around about 61.7 from 63.7 at the beginning of the year. So part of that decline in the unemployment rate is not being reflected accurately because an awful lot of U.S. workers have just stopped looking for work. So this week's payrolls report is expected to see another 700,000 jobs added to the 661 we saw in September. We still remain well short of the 21.5 million jobs we saw lost in March and April. So even with the September report, only half of those jobs have come back. And I think that is the key metric that you really do have to take account of. There's certainly something that I'm paying close attention to. We've also got a whole host of manufacturing and services PMIs. Manufacturing PMIs have been broadly fairly decent across the board. It's much harder to lock down the manufacturing sector as it is the services sector. This is very much retail, it's restaurants, it's bars. Manufacturing generally employers have a much better mechanism for basically controlling how the disease spreads amongst its workforce. It's that much more difficult to do in a services based economy, which is in essence is why the UK economy has been hit probably harder than any other economy in Europe, simply because services makes up around about 75, 80% of the UK's economic output. So, you know, it's horses for courses, but certainly I think in terms of the services numbers, so far services numbers the UK has outperformed the rest of Europe, which in some ways is a good thing, but it also means that, and I think that probably also explains why the UK government is so reluctant to do another blanket lockdown. When your economy is so services driven, the last thing you want to be doing is basically putting the economy back into the deep freeze when you saw the effect the first lockdown had. The big question is whether or not they're going to have any choice about the matter, because essentially trying to keep the economy open when people don't want to go out is probably not particularly helpful either. So, it's a tricky balance, I think, to manage. But one thing I think we can be sure of with respect to the services PMIs in Europe and particularly in France, Italy, Spain and Germany, they're likely to be horrible for October and they're likely to be even worse in November. And that really does increase the pressure on the European Central Bank at its December meeting because they didn't do anything this week. They have signaled they will do something in December, but one thing Christine Lagarde did say, they needed a fiscal leg. There is no fiscal leg. The EU have agreed a deal, but they haven't been able to get agreement on ratification. And ultimately when half of it is loans and half of it is grants, most of the money that's available in loans, the Spanish and the Italians and the people who need the money won't take it simply because it means that they will have to adhere to certain conditions and conditionality when it comes to the distribution of that money. So at the moment it's unlikely that that will get delivered much before the first quarter of next year. So Europe is in a very dangerous place right now. They're locking down their economy and the only support they have is from the ECB and obviously their own local government spending. That may not be enough. So those are out on the 4th of November and they are likely to be ugly. Manufacturing PMIs are out on the Monday. We've also got a Bank of England rate meeting next week as well, strangely enough. So again, big week for central banks, Bank of England, the inflation report that we're going to be updating their forecasts for inflation and GDP. The IMF earlier this week praised the UK for its coordinated fiscal and monetary policy response, one of the joys of having your own central bank and your own currency. But nonetheless, there are dangers. There are significant dangers for the UK economy as we look ahead. And one of those obviously is the Bank of England's refusal to take the prospect of negative rates out of their monetary policy toolbox despite the fact that the risks that that could impose on the UK's financial system. Fortunately, I think there's enough division on the Bank of England Monetary Policy Committee for that to be a very contentious thing to do. And I think it's unlikely they'll do it this year if they do it at all. But, you know, never underestimate the Bank of England's capacity to do something stupid. I certainly don't. And they've done plenty of that over the course of the last 10 years. So certainly in terms of the data, the data doesn't support any further action at this point in time. But we know that irrespective of what the October data tells us next week, manufacturing and services and construction, that a further economic slowdown is coming our way. It doesn't take a genius to work that out. So it's really just a question of what, you know, what, what sort of picture do Bank of England policymakers paint in terms of looking to support the economy. And also what further fiscal measures does Rishi Sunak take when he when he looks to support the economy over the course of the next two to three months. So that's the Bank of England meeting. And obviously that is due on the 5th of November, bonfire night fireworks. So certainly going to be fireworks next week of not only the not only the literal kind, but also of the financial markets kind, because we've got a very, very busy week, which brings me neatly on to the key numbers that I'm keeping out keeping an eye out for in this week's earnings announcements. And we're going to start with associated British foods and Primark Primark business has done by and large fairly well. It's bounced back quite nicely. They've got the full year numbers out on the third. The problems of the retail sector haven't bypassed Primark. You've got to remember Primark do not have an online operation. They've seen a big bounce back. Obviously associated British foods also has a food division has a sugar division as well, but we are at a very, very key support level now on ABF. And I think any significant positive numbers that come out as a result of this week's numbers could see a rebound off this support we can see it here. I've drawn a line horizontal line right through these lows. The direction of travel does look a little bit suspect. So there is a risk we could move lower. I think it's significant that obviously we've seen lower shadows through here. But if I change that to a line chart, we can see that we've never actually closed below that line. And the daily close is always a very, very key metric that I keep an eye out for when I'm looking at such a long term chart, change it back to a candle. So 1600, 1600 there or thereabouts is going to be a very key support level next week for associated British foods. As I say, the grocery part of business has managed to outperform driven by increased demand for baking, flour, yeast, as well as tea. The company could announce a dividend with estimates of around 25 per share, though given looking at its share price, any disappointment there could actually tip it over the edge. And that's still well down from last week's 46p. So keep an eye on for that. Another retailer reporting next week who's had its fair share of problems is Marks and Spencer M&S. Again, similar sort of story here. Key support level. I think there is possibility that M&S could surprise the upside. Let's face it, since September, the Q1 numbers for September for that particular course were slightly better than expected. They've just signed that deal with Ocado. It's up and running. It's going. So if I think if we see a significant uplift from that Ocado deal, then we could see an upside surprise for Marks and Spencer. You've got to ask yourself how much bad news is already priced in. They do have an online operation. It's run by Ocado. It can't be any worse than their old online operation. And if anything, it should be better. So hopefully the numbers here should be an awful lot better. So I think the bar is low for an upside surprise. So we'll have to wait and see how that pans out. And those numbers are out on the 4th of November. Last but not least, Sainsbury's supermarket's done really well. If anything, Sainsbury's is underperformed. If we go back, this is what it's done this year. So I think it's one of the few stocks that's actually managed to hold on to most of... It hasn't done particularly badly so far this year. It's still down on the year, but certainly I think if you look at where it started the year and where it is now, it's down around about 10 or 11%. So it has outperformed the rest of the market and is now recovering quite nicely of its August lows. There is another thing about Sainsbury's, which I did find actually quite interesting, was the fact that in September, it was reported that Daniel Kretensky, a Czech billionaire, upped his stake in Sainsbury's, making him the fourth largest shareholder. So this will immediately clear what plans Mr. Kretensky has for Sainsbury's, who is certainly thinking making that investment. He probably thinks there's more upside than there is downside risk. So I think that's certainly important in the overall scheme of things. Other stocks that I'm keeping an eye out for over the course of this week is Uber, Peloton, and AMC Entertainment, who are the owners of Odeon Cinemas. Those AMC Entertainment numbers are out on the 2nd of November, Q3 numbers. If there are anything like Cineworlds, they're not going to be pretty. So I think you've really got to sort of look at AMC and wonder how long they've actually got if they're not able to keep their cinemas open over the course of the next three to six months. We've got Peloton, who've basically been blowing the numbers out of the water. If we look at, for example, my IPO watch list, have a quick look at that. So have a quick look at Peloton, which is right there. We can see that the growth here has been absolutely exponential. But you've got to wonder how many people have the money to pay $2,000 for a bike and then a monthly fee are basically just peddling fast to stand still. So there is a little bit of evidence of curtailing of momentum when it comes to Peloton shares. And as such, we could be in line for a little bit of disappointment with respect to Peloton. Looking at Uber, seen a decent rebound over the course of the past few months. Though to be fair, we've traded sideways pretty much since the May peaks and the July lows. I think that's likely to continue going forward. I still think Uber is overrated, overvalued and probably more at risk of a move lower than a move higher. So that's it for, I think that's pretty much it for this week's look at the week ahead. As I say, it's going to be a very interesting week. Probably another very volatile week. So you'll need to be nimble. You need to keep your losses at a fairly reasonable level and make sure that you take your profits. But in the meantime, I'd like to wish you all a very good weekend, very restful weekend, and look forward to speaking to you all again next week when we should get a clearer idea of what the macro and the geopolitical outlook for the US economy will look over the course of the next four years. Thank you very much for listening. It's Michael Houston talking to you from CMC Markets. Thank you for listening.