 Good morning and welcome to CMC markets on Friday the 3rd of December and this quick look at the weekhead beginning the 6th of September with me Michael Houston and it's been a Whiplash inducing week. I think for equity markets. It's been a struggle. I think to really determine an overall direction for risk certainly concerns About the new Omicron variant I've been front and center of Investor concerns and the markets going forward, but I think more than anything I think the concerns around the Omicron variants or miss the wider point About the fact that the Delta variant is still reaping havoc wreaking havoc across Markets more broadly. I think at the moment anecdotally The Omicron variant symptoms are milder Hospitalizations appear to be lower and I think there is increasing evidence that It's becoming slowly apparent that the strain the Omicron strain has been around probably for a while spreading unseen While the focus has been much more on the spread of Delta I think the only difference now is authorities are looking for Omicron Whereas they weren't looking for it before That being said Seen an awful lot of volatility this week in equity markets more broadly Now, where is that better born out? I think with respect to the daily candles that we've been seeing on the footsie 100 Obviously, that's Friday's big sell-off This week Monday up Tuesday down Wednesday down Thursday up and now today was slightly More negative but overall we are broadly higher on the week And I think that really gives you an indication of why Markets have been pretty much caught off guard. I think there was a massive overreaction to Omicron last Friday We're seeing a slow Rebound on the back of that on the back of that and of course then we've got to then we've got to try and tie in The hawkish pivot from Jay Powell of the Federal Reserve Earlier this week, I think the bigger concern going forward or I think that the bigger factor that's driving markets at the moment Is what did the Federal Reserve do? In just under two weeks time when they meet for the last time this year with respect to tapering program, I Think if the Omicron scare hadn't happened I think the bigger question is what would the Fed have done or what would the Fed be doing in the context of what we're seeing with respect to the wider economic recovery in The US we've got US payrolls today. Obviously, we don't have sight of those numbers as I Talk to you this morning But the expectation is in the wake of the ADP Payrolls report earlier this week of a fairly decent number. So I think the focus more than anything as we head into December is Whether or not the payrolls report for November is going to be a decent one And certainly anecdotally We're seeing hiring trends pick up in the US the various numbers that we've seen Coming From US retailers Suggest that we are seeing a pickup in hiring. We're seeing a pickup in wages and We're certainly seeing that I think born out in The retail sales numbers, but also I think more importantly the wages numbers have been fairly resilient So and US consumers have been able to shrug off an awful lot of the pricing pressure That we've been seeing coming through with respect to the underlying prices of Retail goods and services. Obviously the elephant in the room His oil prices energy prices and as we look ahead to next week, obviously we've got US CPI So today's payrolls numbers and next week's CPI numbers are likely to feed into a wider discussion amongst US policymakers about the likelihood of an acceleration of The feds tapering program and we've seen a number of fed policymakers this past few days Talk about the need for a discussion about an acceleration to the tape program and essentially what that means for rate rises in 2022 we already know That the ECB is unlikely to be hiking rates in 2022. Lagarde has said that The bigger question I think there is whether or not there is significantly more vocal pushback from some of the northern countries in Europe to that narrative and Certainly if you look at factory gate prices factory factory gate price inflation In countries like Spain, Italy and Germany, that's trending in excess of 20% a year And you're not telling me that's not going to have a significant That's not going to act as a significant drag on the eurozone economy in 2022 because there will be some trickle-down effect or trickle-up effect when it comes to Headline CPI and you're certainly starting to see the effects of that in the latest eurozone CPI numbers Particularly or pretty much across the board So, you know the the ECB is stuck in a little bit of a bind. It's got permanently negative rates It can't afford Essentially to raise rates too significantly because of the borrowing costs of so say for example countries like Spain and Italy But at the same time You know, it doesn't want to choke off the prospect of any significant Rebound the neck economic activity so it's stuck between a rock and a hard place, but I'm sort of digressing a little bit Today's payrolls numbers are going to be very important I think in the in the context of the wider discussion about top Fed Fed rate rise timelines and whether or not we get two or three rate rises next year an accelerated taper is up for discussion later this month and In the words of a number of Fed policy makers including Loretta Mester Most recently it gives the Fed optionality when it comes to reacting to much hotter Inflation repressions and certainly when we look at the headline CPI numbers There are 31 year high So decent payrolls number this afternoon any number in the region of 500,000 will be fairly positive certainly temporary higher seasonally November and December payrolls numbers tend to be fairly positive because of seasonal hiring and we'll get a visibility Obviously on the December payrolls numbers in January The November payrolls numbers will only be up till around about the 14th or 15th of November so you won't get the the lead-up the 10 days in the lead-up to Thanksgiving in terms of The payrolls numbers there so you may not get a significantly strong Number in the November numbers, but nonetheless, I think it will still match the October number of around about 535,000 and then of course you've got wages wages could could come in in the region of 5% And the unemployment rate obviously is also expected to fall back and As well So, you know And even semi-decent payrolls report is going to feed into a discussion around an accelerated taper Which could mean that the Fed would could well announce a taper in December from 15 billion dollars Which which currently is the amount to a doubling of around about 30 and That in turn could lead into Expectations of a stronger dollar going forward in the short to medium term We've seen a bit of a sell-off in the S&P 500, but we've held above this key support level of around about 4,480 that's the line in the sand that I currently have For the potential for further declines in the S&P It has remained remarkably resilient given all those concerns that we've heard this week About the Omicron variant as I say I think if this is mild as I suspect that it could be the focus will then shift back to Delta and The the Delta variant has almost been forgotten, but it shouldn't be because if we look at the way the DAX has been trading We can see that this decent demand for the DAX around about 15,000 but it is really struggle to rebound this week and Obviously we've heard out of Germany The unvaccinated are facing curbs on their movement as to where they can and can't go with a view potentially to have main dated vaccine It's from the 1st of February and a similar move to the one that was announced by Austria only last week and that is really I think that's I think it's I think it's important not to understate How significant that could be going forward mandated, you know vaccines. It's a it's a very it's something that It's it's very uncomfortable. I think I mean and even for me, you know, who's you know, there's no problem with taking the vaccine It's certainly a slippery slope when you start to go down that sort of route, but nonetheless digressing slightly lightly DAX Struggling to rebound decent support in and around that 15,000 level I think while we're above this level on a daily close then we should continue to To faint remain fairly resilient and I think one of the things we need to think about With respect to the volatility that we've seen over the course of the past few days Particularly we've had it. We've seen a decent decent year for equity markets And some of the thrusts that we've seen to the downside could be simply a case of profit-taking before year-end by people who want to lock in some sort of Profits for 2021 in full in full recognition of the fact that As we get towards Christmas Liquidity will continue to dry up further. So taking profits now as opposed to later in the month is probably a sensible precaution Looking at the footsie 100 we've underperformed this year once again But again, we've put we've seen some fairly decent gains so far this year You know if we look if we look at where we started the year and where we are now We're in fairly decent shape What we do need to do is get back above this 7,200 level 50 day moving average is acting Sorry 200 day moving average is acting as a fairly decent area of support And the 7,000 level so again there if we look at the key areas of support on the footsie Obviously decent support down at 6,800 Now we've got at 7,000. We can get back above 7,200. We should retest the highs of 7,400 I see no reason why the footsie can't continue to slowly make its way higher towards 7 and a half 7,800 over the course of the next 12 months You know as I've always said the trend is your friend and at the moment There's no Significant evidence that the move the bullish move higher that we've seen so far this year Is starting to come to an end and really that's all you've got to go on When you're looking at whether or not we've seen a peak You know we're seeing an end to the uptrend that's been in place for quite some time. We need to find evidence That is coming to an end and at the moment. We're not there now if we look at the Dow here We have dropped below the 200 day moving average What's significant about that is that the following day we rebounded back above it We held above 34,000 more importantly. We also held above these two lows here So even though we closed below the 200 day moving average What was significant about that was that we didn't do the same thing and the in the S&P 500 You know, and this really comes back to what I've always said when it comes to looking at markets Dow theory The averages need to confirm each other and when you're looking at US markets You need to look at them not just in isolation You need to look at them in the realm and when you've got the S&P well above 200 day moving average the Dow falling below its 200 day moving average is not that significant In the wider scheme of things because generally they go up as a collective and they go down as a collective And that's what you always have to think about when you're talking about markets in general And it's the same with the NASDAQ as well. The Dow has underperformed as well and it's not really a true indicator of what You know, it is driving the wider US market up move And certainly I think if you look at the way this market's been trading We can actually draw a nice little trend line all the way through these loads through here and through there And then just push that right through there So there's your there's your primary trend line on the NASDAQ 100 So we can afford to fall all the way back here and still keep the current up move that's been in place in Tax and essentially that that is essentially where we are when it comes to equity markets. So Non-farms decent payrolls report should then lead us into US CPI, which is due out on the 10th of December and it's becoming I think much more universally acknowledged that the Federal Reserve is very much behind the curve When it comes to inflation Although the recent slide in oil prices has bought the central bank some time and we can certainly see the effect that the recent drop in oil prices has had With we're down quite significantly from the peaks of earlier in October Dropped all the way back down to 68 Significantly we've held above This a little bit of a trend line resistance here And I think this is essentially where OPEC I think that's a sweet spot for crude oil prices too high You trigger demand destruction too low and OPEC starts to get a little bit antsy So they've announced that they're going to go ahead with the 400,000 increase in Output on the 4th of January with flexibility to perhaps change their mind But this candle here is particularly significant. We've made a new low and we've closed higher So that is potentially bullish So any dips in the oil price likely to find a steady stream of buyers in and around this sort of area through here With a view to drifting drifting up around to around about 76 dollars a barrel Which is to say it's pretty much the sweet spot if we'd also look on a weekly basis. We're down six weeks in a row That's the worst sequence of declines in over 18 months and would suggest that perhaps we are near A little bit of a consolidation phase now for crude oil prices, but in the wider scheme of things US CPI is at a 31 year high of 6.2% in October. It's likely to go higher in November 6.1% 6.7% According to some estimates with core CPI expected to rise towards 4.9 or even 5% So that will I think reinforce Any narrative about an accelerated taper a strong CPI number with the Fed in blackout period From next week ahead of its meeting. I think we'll reinforce the narrative when it comes to potentially An acceleration of the taper later this month. We've also got Chinese trade numbers to out on the 7th of December and These should give a good indication as to whether or not there's there's there's strong demand in the global economy particularly around the export numbers which have been very very strong In recent months I think with all the warnings that Port disruption might impact the lead up to Christmas We've seen lots of businesses Try and get ahead of that by ordering early allowing themselves more time to build up their Christmas pre Christmas inventory And that's been reflected in the export numbers Which we saw in October rise to twenty seven point one percent, which was only a modest slowdown from September's twenty eight point one percent. So The November numbers this week I predicted to show a show a slowdown in exports a Significant slowdown in exports with the rise of nineteen point eight percent that seems a little on the low side I'll be surprised if they rise as low as that I would expect to see a number in the region are about twenty two or twenty three percent Imports expected to stay on the weak side will be it slightly stronger to twenty point six Obviously the Chinese government is still employing a zero COVID strategy that has consequences Certainly for internal demand Imports have been a little bit weak. They collapsed to seventeen point six percent in September from thirty three point one in August That was the high watermark. So, you know, is the Chinese economy going to pick up as a consequence of singles day on the 11th of November and will there be will it will there have been a bit of a pickup in imports as a consequence of that? Central bankfront we've got the RBA coming up over the course of the next few days and Certainly the inflation narrative has all the the dovish narrative of the RBA has knocked the Aussie to six We've dropped below those previous lows through here and we're now falling back to These lows all the way back here in September 2020. So that's the next key support for the Aussie dollar We draw a line through that through there. We've got 69 90 69 80 so it'll be interesting to see How the governor of the RBA Philip low positions his Positions his policy when you've got the RBNZ hiking rates for the second time this year Last month's pushback by the RBA with respect to a rate hike wasn't unexpected although they did get rid of Your curve control Which took the heat out of some of the pressure on Two-year yields, but nonetheless two-year yields are still well above Where current rates are not point one percent? So if we look at the latest GDP numbers out of Australia They were much better than expected and that would give me cause to think that perhaps Philip low who pushed back against a rate rise In 2022 and by saying that any move was unlikely to come before 2023 might be slightly more positive About the Australian economy and maybe bring back the prospect that a rate hike might come in 2022 that's giving us a little bit of a rebound in the Aussie dollar Which looks pretty sick at the moment, but is approaching a very very key support level from all the way back in 2020 So I'll be keeping an eye on the overall narrative around the Aussie dollar when the RBA meets on Tuesday In terms of the earnings picture, it's a pretty slow week But there is one particular stock that I've got my eye out for and that is Rolls Royce Been a bit of a mixed bag for Rolls Royce. Obviously it's been affected by Weakness in the travel sector, but again, it's not done too badly so far this year in August Rolls Royce surprised the markets with an unexpected profit of 393 million pounds for the first half Markets were expecting a small loss. So that's a positive The share price has managed to make some fairly decent gains though obviously concerns about Omicron Delta travel restrictions And obviously airline travel air travel and what have you has weighed on the share price a little bit on the plus side Transatlantic travel has reopened. So that should mean that their maintenance contracts when it comes to servicing civil aviation aircraft engines should start to bring in a little bit more income Yes, you know EFH aviation engine flying ours, these have been improving Hopefully they'll continue to go in the right direction and they have actually announced a number of very important contract wins in recent weeks as well a Contract for its F 130 engines which are used to power the B 52s for the next 30 years That deal is worth 1.9 billion pounds and it's also announced that it's agreed to deal with Bane parts It's a light AP arrow for 1.7 billion euros While also winning a government a UK government contract for its mini nuclear reactor technology, so Yeah, you know all by all by all accounts. It's been in a fairly positive We obviously we saw a big drop there slowly starting to claw those gains back So hopefully this week's Q3 update should paint a more positive picture For the company's overall prospects going forward We've also got a car though, which has been one of the under performers so far this year is as evidenced by the share price Movements here, you know, we saw decent gains in 2022 obviously since lockdowns have been Relaxed The share prices struggled it's below its 200 day moving average more importantly it's managed to find a little bit of a base down here and Did experience a bit of an uplift at the end of November on speculation that Marks and Spencer's Might look at making a bid for the business now. This was broker chatter. This was nothing Specific from Marks and Spencer's but certainly and that would make sense Marks and Spencer's has been turning itself around It's just only just over a year ago signed a really, you know positive deal with Ocado And as part of that turnaround strategy, it would certainly make for a fairly decent fit So this week's fourth quarter numbers from Ocado Should give us a decent insight into not only the delivery capacity because they're opening a whole host of new centres and new New facilities They've reopened the Andover facility. They're on course to beat last year's total revenue number of 2.3 billion pounds They're adding per fleet and Andover Obviously the return to normal of the Eris Centre in November is also likely to help and Ocado said it remains optimistic of sustaining revenue growth with the addition of extra capacity at Bista and Another new facility in Luton expected to boost delivery capacity to 700,000 orders per week So be interested to see what they have to say for themselves when they announced their fourth quarter numbers on the 9th of December so Let's just have a quick look at the currencies before I sign off for this week cables looking a little bit sick We've hit the bottom of the channel in the same way that we hit the bottom of the channel all the way back in July The line of lease resistance. I think for me at the moment is the big big support level for me It's 131 60 is this area through here, but also coincides with that low there and about 131 30 Yeah, it's a very significant support level that we're approaching now You would expect you'd like to think that we could we'll see a bit of a rebound back to around about 134 135 It's only my bullish cable scenario has taken a little bit of a beating in recent months Hopefully my euro sterling will fare better We are starting to continue with continuing to see weakness in that if we draw a line through This these these highs through here. I've been a little bit Flexible with respect to that one there, but certainly if we look at euro sterling We've certainly got decent resistance all the way through this line here as well as the 200 day moving average and This peak at around about 85 40 So 85 40 85 70 should be Toppy obviously if we break below above the 200 day moving average that blows my Weakie euro stronger sterling three out of the water. What doesn't blow it out of the water, but it certainly delays it, but if you're thinking in terms of ECB's likely to remain a hole for some time and the Bank of England will eventually raise rates at some point over the course of the next Few weeks if it's not December then potentially in February they're trying to Pin down a Bank of England when it comes to the timing of a potential rate hike it's like trying to Trying to pin a tail on a donkey. So it's very difficult to sort of draw any conclusions from that but Price action is key here and we're still very much in the downtrend for euro sterling So I think pretty much. I think that's pretty much it for This week as I say we've got non farm payrolls later today. Hopefully that will Reinforce the bullish narrative when it comes to a potential Fed taper or an acceleration of the Fed taper later this month So that's it for this week. Thank you very much for listening. This is Michael Houston talking to you from CMC markets