 Good morning. Welcome to CMC markets on Friday the 18th of November and this quick look at the weak head with me Houston and we certainly had a lot to digest this week Obviously, we've had the autumn statement from Chancellor of the Ucheca Jeremy Hunt. We've also had a host of Fed speakers Talking up the prospect that the Fed is nowhere near done when it comes to rate hikes pretty much know that anyway But as there's also the fact that we've seen a slightly more and I'm not gonna say dovish narrative But I think certainly a much more realistic narrative when it comes to How many rate hikes are likely to be coming down the pipe? Over the course of the next few months. There is an acceptance I think on the part of a number of Fed policymakers that The rate hikes are going to be slightly Lower in terms of they're not going to be 75 basis points. They're probably going to be 50 or 25 I think The expectation is for December that we are going to get 50 and certainly I think in the context of events That we've got this week We've got the latest Fed minutes We've got various flash PMI's from The UK Germany and France German Germany IFO business climate as well as a couple of earnings numbers from King fisherman zoom the earnings season is slowly winding down now so The the narrative around earnings is slowly giving way to a Wind down into the holiday season because we've got Thanksgiving coming up in the US on the 24th of November Before I move on to next week's events however I think it's important to look back at the events of the last few days and the overarching narrative This week has been I think of a slight consolidation in the US dollar after the declines That we've seen over the course of the past A few days couple of weeks But we've also seen I think a consolidation lower in bond yields And I think that is obviously important. It's feeding into a Hope I think rather than an expectation that energy prices will continue to come down certainly we're seeing that in the context of oil prices they are starting to Consolidate at the bottom end of their recent range, which I think is a good thing when you consider the Reaction to this week's autumn budget from the Chancellor of the Exchequer. So let's talk about that because I think The market reaction to it was fairly benign Which I think is surprising when you consider that it painted a very bleak outlook for the UK Economy, I mean the Bank of England was already predicting that the UK is facing a two-year recession and Earlier this week. We saw the CPI rose to 11.1 percent A 40-year high I mean core CPI Was steady at 6.5 percent. So Certainly price pressures are likely to remain a constant irritant to consumer sentiment Over the course of the next few years and certainly when you look at the measures that were announced in the budget That I think is unlikely to change anytime soon the OBR The Office of Budget Responsibility predicted the UK is already in recession Although they upgraded this year's GDP forecast to 4.2 percent, but they downgraded 2023 From 1.8 percent to minus 1.4. I mean, that's a significant shift before getting a rebound in 2024 Their inflation forecast 9.1 percent for this year coming down to 7.3 percent in 2023 While unemployment is expected to rise to 4.9 percent in 2024 from the 3.6 percent Level that it is now, but that wasn't the real kicker. What was the real kicker? Was that the OBR predicted that living standards could fall by as much as 7 percent disposable consumer disposable incomes are going to shrink quite significantly Over the next two years and house prices could fall by 9 percent Well, when I look at some of the tax measures, I think there's a temptation to think that that's a little bit optimistic Freezing tax thresholds five years to 2028 is obviously one case in point Obviously lowering the 45 percent tax rate from 145,000 to 150,000 to 125 Again, that's a significant that would have a significant impact on the higher percentile of UK taxpayers But it's the freezing of tax thresholds that I think is going to do the most damage Because if you've got inflation Running well above 5% for the next three or four years and you're freezing tax thresholds Which normally rise in line with inflation for the next five years Then the real terms hit to consumer incomes is going to be quite substantial At the same time you're raising the energy price cap from two and a half thousand three thousand Yes, you are giving help to some of the a lot of the more vulnerable households, but you're also Intending to raise fuel duty in March next year by 12 p a liter It's funny that he didn't mention that in yesterday's statement, but it's in there Then I think it's going to be very very difficult to Or for any one for that matter to have a significant amount of disposable income So it's a fairly bleak outlook and I think the only silver lining is The hope That energy prices continue to fall certainly natural gas prices have been on the decline and Are trading in and around? Their lowest levels quite some time the December contract here. We can see that it's down below 300 Which is encouraging the hope is that it will continue to languish around those levels It's still well above the levels. It was 12 to 18 months ago But at least it's coming in the right direction and it certainly will below the levels in August And I think that's one of the big I think that's one of the things that's really got me scratching my head about the severity of the tax rises that been imposed within this budget because Ultimately energy prices are lower guilt yields are lower sterling's higher so Markets have implicated was there really any need to Go as hard Into a slowdown on tax rises and spending cuts The good thing is that it didn't cut Capital expenditure or capital investment Northern Rail is going ahead They're going ahead with size we'll see I Think what was more concerning I think more than anything else was that I think the case for HS2 between Birmingham and London is Flimsy at best and he could have saved an awful lot of money by scrapping that while keeping the northern the northern The northern powerhouse rail the east-west rail as well as size we'll see but there was no mention of of SMR singular modular reactors, which are mini nuclear reactors Which is a new technology being developed by Rolls-Royce. No mention of that. That would have probably been a quicker solution He's hammered the oil and gas sector with a further Windfall tax moving out from 25 to 35 percent making an effective tax rate of 75 percent on all UK Profits now while BP and Shell can probably absorb that quite well slightly different metaphor the UK oil and gas providers like Harbour Energy An inquest to share prices took a little bit of a dive And it's not really surprising given the fact that most of their profits come from The North Sea oil and gas basin and if you want to these companies to develop new natural gas resources as an interim measure to Transition to renewables then you've got a funny way of going about it. So there was nothing about Encouraging investment in new wind farms in you know offshore wind onshore wind rather than taxing the Electricity generators are 45 percent Windfall tax on their excess profits We do know that the excess profits will only kick in over and above 75 pounds per megawatt hour So at least we get some clarity on that but nonetheless it's still Pretty much hangs out a sign to say that yeah, you can make money But if you make too much we're gonna whack you with a windfall tax and you know It's not written given the fact that these sorts of investment decisions generally take years to pay off It sort of sends out a message that The UK is not particularly open to business having said that talking about relaxing solvency to rules to encourage Life insurers to invest in infrastructure projects is welcome. The big question is whether or not it unlocks an awful lot of Capital from the likes of legal in general and Aviva to allow them to invest in UK infrastructure projects So, you know pretty bleak outlook retail sales for October came in at 0.6% So, you know, that's that's encouraging But ultimately I think the next couple of years are going to probably be very very challenging for the likes of the Retail and services sector of which the UK economy makes up around about 65 70% so Yeah, it's It's not a pretty picture. Hopefully once things have settled down a bit March April next year perhaps the the chancellor will see fit to Implement a bit of a relaxation in some of the measures that he announced today. We're assuming of course that The measures announced today are set in stone for the next five years if the outlook improves that may well not be the case But certainly for the here and now It's a pretty it's a pretty bleak out. It's not particularly current and encouraging outlook So what's coming up? Well, we've got Fed minutes UK flash PMIs German and France flash PMIs Germany IFO business climate. It's a fairly light week As we head into Thanksgiving and the end of November Got a couple of notable earnings announcements from being Q owner King Fisher and zoom but over Other than that, there's really not that much To really get your teeth into one notable item out earlier this week was James Ballard of the St. Louis Fed We put the cat amongst the pigeons a little bit yesterday by articulating His opinion that perhaps the Fed terminal rate could actually go as high But as between five and seven percent if inflation Continue to persist at the current high levels that it currently is at at the moment Now, obviously, that's quite a significant increase from the terminal rate that the markets are currently pricing at four and a half And it did prompt a little bit of a bid to the dollar As well as a little bit of a bid to us 10-year yields and we can certainly see that in In this daily chart here with that shop rebound there Nonetheless, we still look as if we're going to close lower on a weekly basis on US 10-year yields and certainly I think while It was a bit of a surprise to hear Bullard talk in such hawkish terms From the underlying narrative that we've heard from other Fed speakers They're not thinking along those lines. Yes quite conceivably the terminal rate could go To five percent over the course of the next 12 months, but for the here and now Certainly in looking at CPI and PPI It is coming down and while it's coming down the Fed will continue to like 50 basis points in December Pretty much priced in we're probably not going to get 75 It's going to be 50 and then if the Fed is data-dependent and inflation continues to fall back As it did in the PPI numbers earlier this week and the CPI numbers the week before Then it could well be that five percent terminal rate Will be very much an outlier It's certainly an outlier in terms of bullards comments and he's the only one making that argument we've heard the likes of Fed chair Layell-Brainard earlier this week are talking about Slowing of the pace of rate rises may soon be appropriate Certainly 50 basis points does appear to be the consensus call for December It's going to be the consensus call also for the ECB the European Central Bank There's a number of policymakers there pushing the case for not a 75 basis point Hiking in December, but a 50 basis point like in December and that's an entirely sensible And we are still struggling at around about the 200 day moving average on euro dollar We have seen a strong move higher. We did see a spike up above The 200 day moving average on those PPI numbers earlier this week which came in below expectations and obviously has prompted Expectations or hopes of a Fed pivot. We're not going to get a Fed pivot We're just going to get a slower pace of rate hikes of 50s 25s and what have you so at the moment while we're below the 200 day moving average We could we'll see euro dollar drift back down Certainly the more dovish noises that we're hearing from a number of ECB policy makers would appear to suggest that the next move is likely to be 50 and We're probably going to get 50 from the Bank of England as well. We could actually given the fiscal squeeze that the chance of or is Implementing on the UK population get 25, but I think if you want to be taken seriously as a central banker I think what we'll get is 50 50 50 so 50 Fed 50 ECB 50 Bank of England maintain the status quo and this really a question of what do we get in 2023? But here and now Euro dollars does look a little bit toppy anywhere near above near around 104 and as such Until we break above 104 we could well drift back down here And certainly the oscillator is looking a little bit overbought. It's a similar sort of story for cable Looking slightly better bid, but again finding resistance at 120 now between 195 and 120 we need to break above 120 hold above 120 and get through the 200 day moving average in a similar way to euro dollar to signal that potentially a Bottom is in and we're not going to see further declines, but again Looking at 120 on cable 104 on euro dollar that a break above that could well signal Further dollar weakness. I'm keeping a close eye on that dollar yen again a decent proxy for dollar strength or weakness We did break below 140. We went as low as one 37 67 165 We are starting to consolidate in and around here these levels here decent resistance around about 141 if we break above 141 then we could well head back towards the 50-day moving average Certainly is looking a little bit oversold in the short to medium term But I think you know unless something materially changes or the Bank of Japan signals a pivot on its yield curve control then What we've seen over the course of the past few days does suggest that perhaps The top is in in dollar yen, and we could see a drift back towards the 200-day moving average We'll have to wait and see certainly my bias is shifted ever so slightly Towards selling dollar strength on any move higher And certainly that would be supported by the fact that equity markets are looking slightly better bid if we look at the S&P 500 but again here we're hitting some very key resistance levels the 200-day moving average on the S&P 500 Around about here, and also it's notable that you got a very sharp spike towards 4,000 on the S&P, but we haven't as yet been able to consolidate above it So again some really decent numbers to get your teeth into here ladies and gentlemen 4,000 on the S&P 500 104 euro dollar 120 cable Yeah, all of these round numbers are significant I think in the wider scheme of things and we need to pay close attention to them Particularly in it given the fact they're all around the 200-day moving average 12,000 on the Nasdaq 100 again round number so We're at some we're at some very very key points in the wider scheme of things when we're looking at Financial markets, and it's certainly something that we do need to be aware of and certainly when you're talking about technical analysis And you're looking at confirmation of a break higher or lower If you want to see confirmation of a weaker dollar, we need to break above 104 We need to break above 120 we need to break above 12,000 We need to break above 4,000 on the S&P 500 to signal that perhaps a weaker dollar is on the way at the moment We're getting a similar sort signal in gold We haven't been able to break above the 200-day moving average on gold, which is around about $1,800 an ounce We've actually fallen short so we could see a little bit of a tightening in yours a little bit of firmer yields Which could actually push gold Down again and and firm the dollar up in the short to medium term So to say there's quite some way to go when it comes to whether or not we're going to see this weaker dollar narrative confirmed and Those key chart points will tell me an awful lot as to whether or not we can expect to see that play out as we head Towards year-end and December and obviously we then have the December payrolls numbers as well as a whole new set of inflation Data before a very key Fed meeting, which is in the middle of December The certainly Brent crude is looking soft again back towards the bottom end of its recent range. We can see that here Not quite back at the lows that we saw in September, but it is welcome The term Brent prices are coming down the only fly in the ointment I think is going to be China at the moment COVID cases are rising there So we're not going to get a reopening anytime soon Which should keep a lid on oil prices going forward we look at a footsie 100 Again similar sort of story very much a range trade Not really much to see on the footsie 100 here But it is quite notable that it is struggling to really can sustain a move above 7400 in the short to medium term Dax is looking much more resilient But again, we've seen a bit of a consolidation and we're currently struggling to get much above 14,500 I mean, we could conceivably argue this is a bit of a flag formation starting to form here And if the dollar continues to weaken we could well break higher towards 15,000 Certainly think there's scope for that But at the moment the Dax is the only index out of all the other indices that we've looked at That has shown any evidence that it's in any client to break out Euro sterling is like watching paint drive dry drive dry like watching paint dry Fairly well offered above 88 fairly well bid around 86 70 That's the range of it and I don't think that's likely to change any time soon In terms of earnings numbers next week we've got King Fisher B&Q owner hasn't had a particularly great run of it this year It is approaching the 200 day moving average. We've seen a fairly decent rebound off the table lows But I think the only the only sort of positive For that particular business is the Polish business has gone from strength to strength The outlook for Q3 was encouraging initially in the wake of their Q2 numbers Like the like sales were down by 0.7 Now that could well deteriorate further if recent retail sales data has been any guide and could put Four-year guidance under threat. So it'd be very interesting to see whether or not they guide lower on four-year guidance That was unchanged back in September at between 730 million and 770 million pounds For full year profits. So keep an eye on that. We could well see that shifted towards the downside Zoom video again seen a little bit of a rebound off the october lows but It's It's struggling to fill the gap that we saw when it gaps lower in August disappointment over its q3 guidance When it issued its q2 numbers Q3 revenues are expected to remain steady at 1.1 billion Profits are expected to fall to 82 cents to share but a full fiscal year zoom says it sees four-year revenue back down to 4.39 to 4.4 billion dollars and profits of three $3.66 to $3.69 which was down from around about 375 Zoom is blaming a slowdown in its online business as few people took advantage of its online service against the backdrop of increased competition from microsoft teams And sysco systems Webex service Okay, so I think that's pretty much it for This week ladies and gentlemen. I hope you all have a great weekend And speak to you all same time same place Next week. Thanks very much for listening