 Good morning. Welcome to CMC Markets on Friday, the 9th of December and this quick look at the week ahead beginning the 12th of December with me, Michael Houston. And it's been a slightly more cautious week for equity markets these past few days. I don't think that's altogether surprising when you actually consider the fact that we've just come off the back of eight successive weeks of gains for the DAX and three to four weeks of gains for the FTSE 100. We're certainly getting the feeling that we are approaching the end of the year. Certainly there appears to be a much more cautious and hands-off approach when it comes to equity markets. We're not really going anywhere. If anything, the price action is a little bit scratchy in nature. There seems to be not that significant amounts of interest and that's not too surprising when you consider the year that we've just had investors have either made their money for the year and don't want to risk anymore or they've done their boots and don't want to lose anymore. Either way, everything points to next week's Berm Trifecta of central bank meetings from the Federal Reserve, the European Central Bank and the Bank of England. So what we've seen this week is a little bit of weakness on the back of a little bit more realism about the China reopening story. I think the fact that they're looking to tweak their zero COVID strategy when it comes to dealing with the virus is eminently sensible. If not very much overdue when we look at those China trade numbers that we saw earlier this week, they were pretty diabolical. If I'm honest with you, they were much worse than expected and it's highly likely that the industrial production and retail sales numbers from China when they come out are likely to be equally disappointing. Certainly the expectation is that when they are released next week on the 15th of December we'll see retail sales decline 3.9% while industrial production will fall back from 5% in October to 3.7% in November. So essentially I think people are readjusting their expectations for an easing or a reopening of the Chinese economy. I think what people are also doing is they're reassessing the narrative when it comes to what 2023 is going to bring us. And certainly I think in that context the upcoming US CPI numbers are going to be important in the context of whether or not we are starting to control not starting but we will continue to see the downward path when it comes to headline CPI but more importantly core CPI because I think one of the things that's been really obvious over the course of the past couple of days is the peak inflation narrative has taken a bit of a knock on the back of the payrolls numbers for November and the unexpectedly sharp rise in wages growth to 5.1% but also the services ISM which completely diverges from all the other PMIs that we've seen from the US economy. So I think it's very difficult to get a sense of where the US economy is right now. What the market's surprising is very much the US economy is likely to fall into recession at some point. The bond market is pointing to a similar sort of environment when it comes to future rate expectations and if we look at the US 10-year yield it's fallen below 3.5% for the first time since September and if I'm honest I think it could well go a lot lower the 10-year yield. Now why do I think that? Well for me you know I've always been very technically driven when it comes to technical analysis and looking at markets and if I look at this particular chart formation here this looks very much like a head and shoulders reversal on the 10-year. So that suggests to me we're probably going to see the US 10-year drop below 3% sometime in the early part of next year and the way to measure that is to take the high here which is 343 measure it down to the neckline here which is around about 362, 433, 362, 70 basis points down from 369. So 70 basis points down from there is just below 3%. So certainly I think that there is potential for US rates to come lower, bond yields to come lower. What does that tell us about US rate expectations? Probably not too much because it could be that the bond market is starting to price in the US recession and therefore equity markets could start to drift off on the back of that and consequently I think that's likely to mean that the terminal rate is likely to be much lower than perhaps markets that are initially pricing and certainly I think that's one measure that we will be looking at next week. US CPI for November is due out on the 13th. The fall to 7.7% on the headline number back in October along with a decline in core prices to 6.3% so yields and the dollar slipped back quite sharply and you can certainly see that in these moves back here. Since then yields have pretty much gone one way alongside the US dollar. Now we've got US PPI for November later today. Now obviously I'm recording this video before I have sight nor sound of those numbers but if we look at what is being expected for US PPI we can see that here we're expecting final demand to drop from 8% to 7.2% we're expecting core prices to drop from 6.7 to 5.9%. More importantly also University of Michigan inflation expectations they fell back in November below 5% on the one year to 4.9% and 3.1% to 3% so we're going to be looking for further weakness here in those expectations numbers later today. What's been also notable over the course of the past few days past few weeks has been UK Guild yields. They initially dropped below 3% earlier this month but they haven't been able to sustain or the end of last month but they haven't actually been able to sustain a move below that and again an awful lot of that will depend or the future direction of that will depend on the guidance that we get from the Bank of England next week not that their guidance has been you know anything other you know not that guidance has been much use and has been about as much use as a chocolate fire guard because their guidance appears to change from week to week but certainly I think what we are expecting this week is 50 basis points probably from the Bank of England 50 basis points from the Federal Reserve 50 basis points from the ECB though there are some who are suggesting that we might get 75 from the ECB I think that's unlikely even though there are there is an awful lot of a hawkish narrative coming from some members of the ECB governing council but I think getting a consensus for 75 basis points is likely to be a lot harder than getting a consensus for 50 basis points I think you can get a consensus for that and really I think the way they can sell that it's all about the destination rather than the size of the rate hike than anything else and I think that is going to be the key narrative for next week we're certainly going to get 50 basis points from Jay Powell his speech at the Brookings Institute earlier this month would appear to suggest that with rising evidence that growth is slowing inflation is peaking and growing concerns over the effects of policy lags there appears to be a growing acknowledgement that a slowing of the pace of rate hikes is required in the full knowledge and I think this is the important bit that the Fed can go on hiking for longer until it becomes apparent what the terminal rate actually is and I think that's the key to take away from next week I think 50 basis points is pretty much priced in across the market it's what comes after that the markets are going to be looking for a steer on now I think it's unlikely that we'll get much of a steer the Fed will always say it's data dependent as will the Bank of England as will the ECB but I think it is notable that the ECB has been particularly vocal about the fact that they don't think that inflation has peaked well you know you can you can you can have a discussion about that until the cows come home I personally think inflation has peaked that's not to say that it's going to come down aggressively we've only got to look at what Brent Crew Prices are doing have done and year to date are actually flat on the year now who could have predicted that six months ago Brent Crew Prices are pretty much back where they were at the start of the year as are WTI now in some respects that's a good thing because what it does is it takes the inflationary edge off petrol prices but also it's potentially pricing gross slowdown recession and what have you certainly the China reopening story which initially gave it a bit of a lift in and around the end of last month it's completely unwound and now we're back down in the low to mid 70s low 70s on the WTI mid 70s on Brent Crew and you've also got the fact that the US is likely to start replenishing its strategic petroleum reserve so that is likely to keep a fairly decent floor under prices and then of course OPEC Plus will probably cut production if they think that it's going to fall significantly further than below 70 dollars a barrel so I think you've got to think there is a floor in and around 70 75 dollars a barrel unless the real unless the wheels really do come off the global economy in terms of what else is due out next week it's a fairly it's a fairly light Canada calendar calendar calendar earnings wise it's all about the macro so we've got the Fed rate decision we've got the ECB rate decision and we've got the Bank of England rate decision so let's start with euro dollar still finding a bit of a cap at 10610 that also happens to be the 38.2 Fibonacci retracement level from the peaks back in the start of 2021 end of 2020 to the lows the 20 year lows 95 36 the if we zoom in we can see that the the the the peaks are starting to run out but what we're not seeing is the lows getting lower so momentum is still very much in the favor of the euro if we look at the lows every dip is becoming more shallow and that would suggest that we could well get a break to the upside and move through 10620 and obviously these peaks here as well so that's doubly important this 38.2 Fib level you've got this resistance level here you've got a bit of a resistance there and you've got that 38.2 there so that suggests that if we do break through there we'll go you'll get a very short run up to 10810 10820 on the upside 10790 so it is appearing to suggest that the dollar weakness is likely to continue I'm of the opinion that the dollar has here a short term peak and that is also likely to give a lift to cable which is finding resistance at 50 retracement from the June peaks of 2021 to the lows that we saw back in September October back at 123 we did have a brief attempt to try and push through 123 ultimately what we got was a little bit of a sell-off a potentially key reversal but given the fact that we've also got a little bit of a doji there it's probably not as a powerful as signal as it should be the fact that we haven't moved back below the 200 day moving average should be taken as a positive and it's also notable that also here the dips are getting shallower so that suggests that there is there are an awful lot of short positions when it comes to cable as we head into year end so I'm fairly bullish on cable probably if we get get a sustained move through 123 12320 then we could well see a move back to this level here 12760 there are there about so then of course you've got this trend line from the highs all the way back in May June 2021 but ultimately I think the line of least resistance in the longer term is very much by the dips on euro dollar by the dips on cable euro sterling very much snoresville arizona zed'sville arizona finding some fairly decent support and an above the 200 day moving average we can see that here every time we dip back towards that we've found some fairly decent buying interest but ultimately euro sterling is not doing anything and is unlikely to do much it's likely to range trade I think the big question is what happens to dolly n and certainly I think in dolly n we did we thought we were going to break the 200 day moving average that in fact did not happen but ultimately with the federal reserve next week in the bank of japan the week after there could be a catalyst there for further dollar weakness because I think there is some chatter amongst bank of japan officials that they might be looking at tweaking the yield curve control on their monetary policy which could actually put upward pressure on and put upward pressure on the end the end has also been seeing a little bit about the pressure on the back of the weakness and equity markets as well so that trade is now starting to come back into fashion also be interested to see whether or not that trend line there that I just dropped in actually works on any piece of yen weakness and dollar strength over the course of the next week or so so it's worth keeping an eye on that if we get a push back up towards 138 139 whether or not that trend line that I've drawn in actually acts as a fairly decent resistance level don't need that line anymore and it's surplus two requirements so once it's surplus two requirements we get rid of it one of the things about charts is I don't like to clutter them with lines that are no longer serve a purpose you know the good thing about technical analysis is entirely up to you how many lines you put on there I like my charts to be fairly uncluttered and you could say well how can that be uncluttered well you know these lines aren't likely to come into play for quite some time I certainly do think that we'll probably see a move back towards 130 over the course of the next few weeks in dollar yen so in terms of the ECB rate decision Christine Lagarde has gone to great lengths to suggest that inflation hasn't peaked ultimately given the track record or the greatest hits of central bankers I'm pretty skeptical about their ability to predict anything let alone when inflation has peaked and when it hasn't I mean let's face it up until around about February March this year it was still transitory now the telling is it's likely peaked so I think draw your own conclusions that's what I'm doing I'm looking at the data and aside from the likes of natural gas which is obviously edging higher on the back of this slightly colder weather that we've seen over the course of the past few days that is still very much towards the lower end of its recent ranges so keep an eye on the CPI number for this week that's likely to be significant but it's not likely to tell us too much in the wider scheme of things as to what Fed policy is likely to be going forward but certainly a weaker number will shift the focus back to a slightly slower pace of rate hikes potentially in in January February next year broken that trend line on the S&P again this trend line here from the highs is the key level I'm watching for on the S&P but if I look at this price action here that does appear to suggest to me that momentum is waning as we head into year end and I would be very surprised if we move back about 4,000 much before or if at all before the end of the year as I say it's this it's level here 4,100 4,000 is a little bit closer than perhaps I'm giving it credit for given the factors of 3970 but I would be very surprised if we take out the peaks that we saw at the beginning of the month unless we get a very weak CPI number when we see the numbers next week looking at the DAX seen some fairly decent gains over the course of the past few weeks and since the end of November we've traded sideways again that ties into the narrative that we're pretty much done for a year certainly decent resistance around 14,576 that's the key level for me again it's a key FIB level 61.8 Fibonacci retracement but what is I think quite interesting is we've got the potential for a golden cross on the DAX chart which potentially could augur in further gains going forward so that's something that I'm keeping a close eye on at the moment while we're above 14,000 on the DAX then I see no reason why we can't continue to push higher but at the moment what we're seeing is a consolidation between these two bands 14,000 14,600 and I think that's likely to continue into year-end how that starts to look towards as we start 2023 is anybody's guess but certainly I think as we head into year-end markets are likely to be fairly choppy and are likely to chop around quite a bit without any clear directional bias. NASDAQ 100 finding some fairly decent support in and around the 50-day moving average in and around here but also again similar trend line as we've got on the S&P as well as the 200-day moving average so at the moment we're consolidating but we're also not very far off the lows that we saw back in October so the rebound in the NASDAQ given the fact that yields have come off so much there's probably been a lot more subdued than perhaps it should be given the fact that any sort of move lower in yields generally tends to be positive for the NASDAQ so the NASDAQ there has been fairly shallow in terms of its rebound firstly 100 nothing to see here really still range bound big top of this year's highs at around about 77,686 7,700 but on the plus side let's select the year-to-date option here it's been one of the few indices that's actually out performed and is actually still up on the year unlike the NASDAQ unlike the S&P will that continue to be the case in 2023? I don't see why not I think it will always outperform or is always likely to outperform given the fact that when you actually look at what oil prices have done this year and then you look at what they for the like of BP and Shell have done this year they haven't given up their gains this year whereas the oil prices have but obviously BP and Shell aren't merely a oil price play they're also a natural gas play so that is also something to bear in mind so bringing up this week as I said there's not been really that much much in the way of earnings next year wheels next year next week we've also got UK CPI that's coming out on the 14th PPI numbers they have been suspended by the Bank of England or the ONS rather because of a problem within the formula so we will get the CPI numbers next week we will get the RPI numbers next week but we won't get the PPI numbers because of a problem in the calculation so that's a bit disappointing because ultimately that gives us a good indication as to whether or not we're getting a similar decline in headline inflation on the on the CPI measure further down the line given the fact that I think for me PPI generally tends to act as a forward looking indicator when it comes to where the direction of travel is as regards to inflation but in terms of UK CPI we're expecting that to moderate slightly from 11.1% in October to 10.9% in November retail prices expected to come down from 14.2% to 13.6 still painfully high you know and I think that's the key thing I think that's why the Bank of England will have to do 50 basis points even if they're reluctant to do so what it'll be interesting to see though is whether or not the there is there is any accompanying statement in terms of trying to protect the housing market but certainly mortgage rates have down come down quite a bit since that November meeting and that November inflation report we've also got UK retail sales which are due out on Friday they are likely to see or they are expected to see a modest pickup as we head into the for November as people do some early perhaps do some modest early Christmas shopping Black Friday deals and what have you but on an annual basis they're still expected to fall by around about 6% but certainly the expectation is for a modest rise of 0.4% also got UK employment and UK wages as well out on the Tuesday with wage growth expected to rise to 6.2% and 5.9% excluding bonuses so while inflation is high wage growth is still trending higher which depending on your point of view for me is a fairly positive thing because it does take the edge off any cost of living well the cost of living a squeeze yeah okay inflation is far 5% higher but if wage growth was falling it'll be we've been even worse situation okay so that's pretty much it for this week I'm still debating whether or not to do a weekly update next Friday given the fact that I think the only thing coming out the week after is the Bank of Japan might do a little bit of a technical analysis summary or something like that but if if I don't I'll take the opportunity now to wish all of you Merry Christmas Happy New Year and thank you for joining me for these weekly updates this year thank you very much for listening