 Good morning, welcome to CMC Markets on Friday the 5th of November and this quick look at the week ahead beginning the 8th of November with me Michael Hueson. It's certainly been an interesting week, there's certainly been plenty of fireworks for want of a better word, albeit a day earlier than normal with the unexpected decision by the Bank of England to leave interest rates on hold. While the reasons for leaving rates on hold were probably justified on the merits, decision to do so actually came as a big surprise to Markets in general and I think that's I think that's important because I think as governor of the Bank of England Andrew Bailey had the opportunity this week to change the perception if you like and I suppose the competence of the Bank of England when it comes to forward guidance, I think forward guidance is an important concept when it comes to monetary policy decisions the Federal Reserve performs it fairly well, I mean it's not foolproof but nonetheless I think it gives Markets a decent insight into policy makers thought processes when it comes to setting out the tram lines or the guidelines for monetary policy and this week's decision by the Bank of England I think was a massive letdown in that regard. It was extremely surprising that the Bank of England decided to pretty much perform a screeching uter given the fact that Governor Bailey had briefed on more than one occasion in recent weeks that a hike was coming obviously he didn't say when due to rising inflation expectations but the sudden tilt or the change of tone obviously caused Markets to front run the possibility of an interest rate hike now whether it happens this month or whether it happens next month or potentially in February it's neither here nor there previous to that Markets weren't pricing in a hike at all in the next six months so the change of tone was important in terms of repricing the Markets and in that context I think you know what the Bank of England did yesterday was unforgivable now the view by Andrew Bailey was reinforced to a certain extent by new Chief Economist Hugh Pyl although he did soften the comments a little bit but they certainly didn't soften them enough to rain back market expectations that the Bank of England might well disappoint not only this week but potentially this year you know and what was more dumbfounding I think than anything else was that having set this hair racing a few weeks ago Bailey then voted to keep race unchanged as well with the statement only saying that a rate rise was likely in the coming months well you know when you know three months six months one year you know the events this week are a huge ungoal for the central bank it's already widely distrusted by the markets due to the unreliable boyfriend era of Mark Carney Bailey had the opportunity to reset the narrative when he took over and restore the central bank's credibility and discipline on messaging and on every conceivable measure he's failed he's botched it he's botched it in a fashion of more Bill Bailey than Andrew Bailey with all due respect to Bill Bailey who I think is a very talented musician and comedian but we don't want a musician and a comedian the central bank governor we want someone competent and I think you know in terms of future messaging from the Bank of England it's going to be very very difficult for markets to take them seriously when it comes to projecting their forward guidance the signal to noise ratio in terms of forward guidance is going to have to go up by a factor of five or ten never mind one ping only virtually you're going to need two or three to signal potentially further guidelines for interest rate expectations and forward guidance we've seen the pound fall we've seen yields fall aggressively and to my mind that is a failure of policy on the part of the Bank of England you know he's making you know Andrew Bailey says it's not his job to steer market expectations on interest rates poppycock that's exactly your job now we can see from this chart here that we've seen a sharp correction lower not only in the 10-year yield but the two-year yield on the plus side of that though the yield curve has steepened so that in the short term should be positive for banks we did see a big sell-off in the aftermath of the decision on Thursday but we have seen a little bit of a rebound in the prices of Lloyds and that was today and and amongst all of this when you contrast what happened with the Bank of England what happened with the Federal Reserve on Wednesday it's chalk and cheese you know the Federal Reserve started announced the starting of its tapering program $10 billion a month of US Treasury's $5 billion a month of mortgage backed securities starting this month and the markets didn't bat an eyelid because the ground had been prepared beforehand you can criticize the Federal Reserve for being behind the curve you can criticize them for any number of reasons but what you can't do is criticize them on the basis of their guidance the decision basically went through fairly seamlessly they did push back somewhat on expectations of future rate rises and the market took that pretty much in its stride but they didn't do a screeching handbrake turn on what markets had been expected the ground had been prepared quite nicely beforehand and ultimately it's down for the central banks to keep markets fairly stable now on the plus side and there is a plus side to all of this for the Bank of England FTSE 100 is actually gone higher since that decision was announced and that really does tie in with my bullish scenario on the FTSE 100 going forward we're certainly moving higher and we could have the potential to meet my end-of-year target of 7400 over the course of the next few days we've only got less than two months to the end of the year my end-of-year target 7400 I'm increasingly optimistic that we could well head towards that target and potentially meet it in fairly short order at the moment when I look at stock markets generally the outlook looks fairly positive we've also seen new record highs this week from the German DAX as well back above 16,000 and holding above 16,000 so you know things look fairly positive we've gone above the previous highs and we could well continue to move higher it's also been a positive week for US markets as well the S&P 500 I mean obviously that rise is looking increasingly parabolic but ultimately for me you don't stand in front of a runaway train you basically jump on board and hopefully jump off before it comes to a screeching before it hits the wall but at the moment we look as if we're going to continue to head higher all the indicators at the moment are for very much buying the dips when it comes to stock markets and it's been the NASDAQ more than anything that's been leading this move higher tech stocks are pretty much outperformed this week and and look like they're going to continue to do so going forward if we look at Asia markets particularly the Nikkei 225 in a slight underperformance there that looks like it's going to continue to be the case but what I would say is they've still got potential to go back to the range highs the Nikkei 225 the range highs that we saw back in February and September so what does that mean for currencies going forward well certainly I think in terms of the pound this week's events have been an absolute hammer blow to my bullish case and obviously I've had to throw in the towel on that I no longer think that the pound the pound I think now has the potential for more downside risk than upside risk the Bank of England is going to have to do an awful lot of heavy lifting to claw back any of that credibility that they basically carelessly discarded into the trash can earlier this week more importantly if we look at the sterling index we've broken below these lows here and that but you know that bodes pretty poorly in terms of the potential for future gains there's obviously the big set off yesterday we've broken through the lows of the last last few weeks as well certainly in terms of cable and the downside now look we're looking for a retest of these previous lows at around about 130 410 if that fails to hold then we could well see further declines back to this level here which currently comes in around about 130 160 certainly 130 130 160 is the extent of any push lower or the bottom of this channel here if we break below 134 I would hope that that level would hold certainly I think the bullish case for sterling is looking incredibly shaky at the moment and I think the only saving grace that I would have for that is euro sterling and the ECB but even that now is starting to look increasingly shaky but having said that euro sterling has been in a range pretty much for most of the last six months and I would be surprised even if we do get further sterling weakness if we take out these peaks that we saw back in September of around about 86 50 86 70 I still think that is confined to the range simply because even if the Bank of England has lost a bit of credibility over the course of the past few days the ECB is not going anywhere either they're not going to be raising interest rates anytime soon and I'm probably not going to be raising them next year even if the markets are starting to price in the prospect that that might happen I can't see it myself okay so what are the key events that we've got to look out for over the course of the next few days well obviously there's been concerns about the Chinese economy in particular markets don't appear to be overly concerned about that all the concerns about ever grand appear to have disappeared into the mists of time I have a feeling that at some point over the course of the next few days they may come back with a vengeance but nonetheless we've got a whole host of economic data coming out of China over the course of the next couple of weeks starting with Chinese trade numbers and these have actually proven to be slightly more resilient in recent months despite the disruption that we've seen that Chinese ports and the various lockdown restrictions that have affected an awful lot of the country over the course of the third quarter we have seen recent weakness in retail sales numbers which suggests that demand in the Chinese economy as continuing you know has slowed considerably albeit it might start to pick up as we head into Q4 now as I said we've seen a bit of an improvement in the China trade numbers and I think are not other reasons for that have been as a direct consequence of the disruptions to global supply chains meaning that retailers have brought forward their pre-Christmas order spend in between in order to ensure delivery time delivery in time for the Thanksgiving Black Friday and Christmas periods over the course of the next few weeks in September Chinese exports rose to a three month high of 28.1 percent while imports are imports slowed almost halving from the September levels of 33.1 to 17.6 and I think that the reason imports fell was obviously largely to the various power cuts production shutdowns in China's heavy industries during that month in response to the sharp rises that we've been seeing in energy markets which made carrying on producing those energy intensive materials much more economically unviable essentially so in terms of exports we're expecting to see a rise around about 21.5 percent maybe potentially even more while import demand should rebound to around about 23-24 percent so those Chinese trade numbers should give us a decent bellweather into demand external demand as well as internal demand for the Chinese economy. Obviously we've also got US CPI probably not so much of a concern now that the Fed has started tapering and obviously we have this afternoon's US payrolls report which is which is I record this video I don't have sight of but I would be very surprised if we didn't see a significant improvement on the 194,000 jobs that we saw added in September I would expect to see an upward revision to that number and I would also expect to see a decent improvement in the October numbers as well given the fact that weekly jobless claims and continuing claims have come down week on week over the course of the past four weeks and actually continuing claims now are only 400,000 higher than they were pre-pandemic when they were trending at 1.7 million they're now only they're now trending at around about 2.1 million so you would expect to see a significant improvement in the US labor market as a consequence of that in terms of US CPI for October expected to see a further rise in the headline number from 5.4 percent to 5.8 now if US CPI for October comes in at 5.8 percent as is being forecast that will be the highest level since 1990 while core prices are also expected to come in at 4.3 percent up from 4 percent in September and a large reason for that will be once again energy prices food prices and what have you there is inflation coming through down the pipe as a result of rising energy costs and supply chain disruptions so a really hot number there could also start to see the market or increase the pressure shall we say on the federal reserve to potentially speed up the process of its tapering program and I think that will be where the next debate where the next discussion starts to unfold it won't be about a rate hike it'll be about well it will be about the timing of the next rate hike and whether it happens in 2022 it'll also be around the timing of whether or not the Fed speeds up the termination of its asset purchase program we've also got UK third quarter GDP the first iteration of that now recent recent data would suggest that the UK economy has slowed in the third quarter we did see a decent upward revision to the second quarter numbers to 5.5 percent which means that at the end of Q2 the UK economy was in a much better place than was originally thought now obviously Q3 we are going to see a little bit of a slowdown manufacturing particularly new car production was and is likely to remain a drag due to the various semiconductor chip shortages and maintenance shutdowns in the North Sea but in terms of Q3 including the summer holidays the school holidays that should be reflected in the decent improvement in the index of services numbers even though it hasn't been reflected in the retail sales numbers so you would expect to see a decent level of GDP growth in the third quarter but you're probably still going to see a slowdown from 5.5 percent to around about one and a half percent certainly the monthly GDP numbers over the period do suggest that that very slowdown and there is a risk that these numbers could disappoint to the downside on the 11th of November that could be remembrance Thursday but but overall if we if we look at if we look at the effect that a strong GDP number not strong a strong CPI number should have on the US dollar obviously the narrative this week has shifted from which central bank is expected to hike first probably won't be the Bank of England now it's more than likely it's going to be the Federal Reserve having said that we could be sitting here a month from now or just over a month from now six weeks from now talking about the fact that the Bank of England have decided to push interest rates up from 0.1 percent to 0.15 percent who knows that's the real shambles from this week's events no one really believes a word the Bank of England is now set to say and any message will need to be amplified by a factor of 10 if they want to get their message across because essentially they're going to get the reputation of the little boy who cried wolf and ultimately when there is when they do want to get a policy message across people just want to listen and that's the real damage I think from this week's events anyway let's bring me on to the company results and the numbers that I've got a particular eye on this week while we've seen the FTSE 100 make a fresh 20 month high we've also seen some fairly decent performances across the board from a host of host of companies this week who are currently being able to pass through pricing or pass on price increases to consumers with a very little effect on sales now whether or not that will continue to be the case as we head into the Christmas period and beyond that is open to debate but we've certainly got a couple of retailers this week that I've got my beady little eye on and I'm going to start off with Marks and Spencer's which is a staple has been a staple of the UK high street for for the last 100 years or so so looking at Marks and Spencer's we've we've seen a number of full storms over the past few years you know ever since I've been reporting on Mark it's Marks and Spencer's has been basically talking about turnaround plans with respect to its general merchandising business you know and I don't think today or this week is likely to be any different but one of its key crown jewels has been its food business its food business has done very well indeed I think what the pandemic did do was it forced management to make some very difficult decisions with respect to some of its stores and given the fact that company reported a decent set of numbers back in Q1 this is this this week is M&S's first half numbers given the fact they posted some fairly decent numbers back in August and you can see that here when this move higher expectations I think quite high that they'll continue to deliver as we head into Q2 and do the and basically do the first half so the food division saw a rise of 10.8% on last year and 9.6% on 2019 now obviously a large part of the reason for that has been the tie-up with Ocado that's really paid dividends for them general merchandise can continue to be the laggard but even here there are signs of optimism with sales only down 2.6% on 2019 levels in Q1 with a 92.2% improvement revenue-wise from 2020 so clothing and home clothing and home online sales were up 61.8% on pre-pandemic levels so it's clear that they're going in the right direction the outlook management expect to see profits before tax that come in at the upper end of guidance of 300 million to 350 million pounds so they will nearly they'll really need to deliver on that when they report later this week on the 10th of November and if we go back we can see that we're still below the highs of 2020 and the big level for me is that 200p area 210 if we can get back through there and by the looks of this chart it's a big ask but what I would say is that the lows are getting higher than the potential is for the recovery plan to continue but we need to take out 200p to I think reinforce any confidence this turnaround plan for Marks and Spencer's is starting to bear fruit now looking at associated British foods and Primark you'd be forgiven for thinking that they're in a lot of trouble but when I actually look at the numbers for associated British foods and this is their full year numbers and they're due out on the 9th had a really poor year share price wise I mean we started back in December here yes we're off the lows the pre the pandemic lows of March 2020 where we've got big big support but over the course of the past 11 months the share price after peaking in March and April has gone on a slow downward glide and it's been one of the worst performers this year on the FTSE 100 and these declines have come despite seeing a stronger than expected recovery in its Primark business need to remember that Primark doesn't have an online business so when the shops were shut there was no revenue coming in at all for Primark but it does have other businesses Primark sales for the second half of this year are expected to come in at 3.4 billion with operating margins expected to come in at over 10 percent however in the second half of the half or the second quarter or the last quarter of the half like for like sales were 17 percent lower than they were in 2019 as the pent up demand effect that we saw in the reopening July August and September rolled back obviously you also had the August various self-isolation restrictions during Q4 which also hampered footfall at stores as well so again the lack of an online operation there hampered its recovery and we have seen improvements in food, sugar and its agricultural business as well so you would expect to see a little bit of an improvement and a much more positive outlook and certainly the share price does appear to have found a bit of a base and perhaps this week's full year numbers along with more positive guidance for four year 22 next year should give the shares an additional uplift as we head towards Christmas okay moving on to AstraZeneca 12th of November seen steady gains in AstraZeneca shares it's been sort of the it's been a little bit I think it's been the ginger step child of the vaccine companies a little bit it's it's it's struggled relative to its peers Pfizer and what have you but it's going in the right direction the Alexion tie-up has has the potential to improve its finance its vaccine revenues are likely to increase we saw an increase in vaccine sales of $894 million in Q2 in Q3 that would be that will hopefully improve now that AstraZeneca is starting to charge slightly more money for its Oxford vaccine it was always provided at cost for the initial stages of the pandemic but as new contracts are drawn up they're sure to extract a slightly higher price for it even if they don't charge $21 a dose which is what Pfizer are charging for their own vaccine sales I mean if you look at Pfizer's vaccine revenue it's $36 billion or a projected to be $36 billion which is a huge amount of money and when you consider that their total revenues for 2019 were $41 billion pre-vaccine it gives you an indication of a money spinner that the vaccine is given companies like Pfizer, Moderna and beyond tech when it comes to selling their vaccine worldwide so seen some fairly decent gains looking to potentially we're we're sort of the top end of the recent range over the course of the past over the past few weeks and certainly the AstraZeneca shares are looking to potentially retest the record highs that we saw all the way back in 2020 so certainly the direction of least resistance at the moment for AstraZeneca is very much towards the upside as Pascal Sorio continues to basically work his magic on the vaccine or on the on the AstraZeneca share price also got Coinbase quickly spin this out Coinbase has continued to do fairly well recover from its lows of early this year there is a concern an overriding concern about the company's revenues going forward because if if the recent numbers from Robinhood markets are any guide there is an expectation that these numbers could mistr the downside now why did I say that well despite the record highs that we've seen in Ethereum and Bitcoin a collapse in crypto trading revenue on in Robinhood suggests that while markets in crypto have been going up people probably aren't taking part as much in the move higher now Robinhood markets certainly may not well be a bellwether for the crypto market but the fact that crypto revenues fail so much suggests that that may have been a trickle through effect into Coinbase and Coinbase don't have the option of trading any other markets is very much a crypto company so when Coinbase reported back in Q2 management were circumspect quite rightly by the sounds of it about their Q3 guidance an awful lot of the improvement that we saw in Q2 was driven by Ethereum trading well obviously that has hit record highs so we could well see we could well see a significant boost there I think in terms of Q3 profits were expected to see then come in at $1.75 the share which would be slightly down on the expectations of Q2 Q2 profits were boosted quite significantly by one-offs and if we look at say for example revenues in Q2 or trading volumes they were around about $462 billion so trading volumes in Q3 could struggle in that context revenues in Q2 came in at just above $2 billion so I think if they do equally as well in Q3 they'll be doing very well indeed so Coinbase numbers are due out on Tuesday the 9th and we're going to wrap this up with Disney it shares our trading a very key support level down from their March record highs and testing support around about $165 billion now I think market expectations over Disney's third quarter numbers were high and that was for several reasons not only was the company adding new subscribers to its Disney Plus streaming platform on a fairly healthy clip but the start of summer also marked the reopening of its theme parks holiday resorts albeit operating with lower capacity constraints and higher costs nonetheless they were able to beat expectations in Q3 coming in at $17 billion parks division generated income of $356 million however and I think this is why the share price has weakened a little bit the company said it was still seeing disruption in its film and TV production and the extra costs involved in this were expected to reach a billion dollars you know and that's quite a healthy chunk of change the range of new content helped Disney Plus beat expectations on new subscribers $116 million above expectations of $113 Q3 profits were expected to come in at $0.48 a share so I think the big question here for me is whether or not they continue to add new subscribers obviously the Fox the additional the addition of star to the content library is probably going to help drive acquisitions there so I think the big question here is with the with the onset of winter and do we see a little bit of a slowdown in theme parks or holidays or with the reopening of US travel routes do we see a pickup of travelers to European travelers to the various Disney results in Los Angeles and Florida so it'd be interesting to see whether or not we get a bit of an upgrade on guidance due to an increase in vaccinated visitors from Europe and the UK for the winter months for the theme park operations okay so I think I pretty much covered everything that I wanted to in this week's weekly market update once again like thank you very much all for listening wish you all a happy bonfire night or bonfire weekend stay safe with fireworks stay safe with the trading and have a great weekend thanks very much for listening