 Good morning and welcome to CMC Markets on Friday the 11th of December and this quick look at the weekend beginning the 14th of December and it's been another record breaking week for US equity markets. We've seen new record highs in the Nasdaq and the S&P 500 albeit they've been marginal record highs. There does appear to be an element of failing momentum when it comes to further upside for US markets. We've seen the debut of two IPOs this week in the form of Door Dash and Air BNB who saw an opening price bounce of 113% on the first day of trading, giving it a remarkable and absolutely staggering market capitalization of 86 billion dollars for a company that actually hasn't made a profit yet and it actually puts it as double the size of the big US hotel chain Marriott which is even more amazing. So we have the we have the spectacle of a couple of IPOs or one IPO in particular being bigger than the high in the pretty much the entire global hotel industry. So putting that incredulity to one side looking at the week ahead it's a big week for central banks. Once again we've just come off the back of the European central bank and we've also come off the back of a significant deterioration in EU-UK trade talks to the point now that it's becoming increasingly likely that we could get a no-deal outcome. Nonetheless European stocks and US stock markets in general are pretty much taking it in their stride as is the pound really when you consider that now that we have a new deadline on Sunday the likelihood of a no-deal outcome is probably now I would suggest a more probable outcome certainly on the basis of a 50-50 certainly certainly a much higher percentage than was the case say for example a week ago. I think most people are operating on the basis that pragmatism will win out and that neither side will look at the risks of going down the no-deal route yet here we are with around about three weeks to go and we've got the spectacle of Ursula von der Leyen president of the European Commission outlining plans for no-deal on the 1st of January 2021 on the flip side of that we've also got Prime Minister Boris Johnson also preparing the UK for the prospect of a no-deal outcome on whichever side of the fence you are far with respect to this whether you voted leave or whether you voted to remain the fact that we're in this situation now and the prime minister has said that it would be a failure of statecraft if there was no deal it takes two people two sides to make a deal and it would be a failure of statecraft on both sides if no deal were to happen and certainly when you look at it through that prism it does appear that the EU is expecting to exact a much more significant price for its relationship with the United Kingdom than it would with any other counterparty and that's even with the risks of the damage a no-deal outcome could do not only to the UK economy and on whichever side of the fence you sit on with respect to damage to respective economies you know you're basically you're not comparing like with like you know there will be there will be damage not only to the UK economy but there will be significant damage to the French economy to the German economy to the Spanish economy we're looking at coronavirus cases that are continuing to rise yes we've got a vaccine rollout so starting this month in the UK hasn't even started in the European Union and we've got the prospect of further restrictions in France until the beginning of next year and actually until the middle of January in some cases so the economic damage that is being done as a result of the pandemic is likely to be colossal and yet here we have two sides that appear completely indifferent to that prospect and going down a no-deal outcome route now of course it could just all be noise but looking at the differences of opinion or the differences between the respective sides positions there's going to have to be a significant shifting from the gaps as they are now to some form of deal as we head into the end of the year and certainly I think a six month contingency is eminently sensible as outlined by the EU in a statement earlier this week as far as markets are concerned there doesn't really to be there doesn't really appear to be that much of a worry if we look at if we look at the if we look at the value of the pound for example if you talked about a no-deal outcome even as recently as the beginning of this year you certainly wouldn't get the reaction that you're getting now year-to-date the pound is pretty much back where it started it's around about 132 and that's before obviously the passing of the withdrawal agreement at the end of January in the UK parliament this is the COVID dump here all the way from 130 all the way down to 115, 114 and a half since then we've gone pretty much one way now a large part of that has been as a result of dollar weakness but we're still going to have to fall an awful lot more to undermine the down the uptrend rather the uptrend that's been in place since these maylows all the way back on the 20th of May here so and there's also a counterfactual in place here if there's damage to the UK economy there will also be significant damage to the European economy and one part of the reason why the pound is so weak this morning is also that Andrew Bailey governor of the Bank of England has once again trotted out the line that the bank is considering the Bank of England is still considering the prospect of negative rates and the pound generally doesn't like that sort of narrative and we've got a Bank of England rate meeting coming up next week the last one of 2020 and we could well get further colour on that particular discussion I'm still of the opinion given the fact that we've just seen another increase in stimulus in November of £150 billion I'm still of the opinion that there are significant divisions on the MPC about the efficacy or otherwise of negative rates certainly the UK banking system is probably or the financial system rather is not particularly well suited to negative rates and ultimately if the bank was thinking of going down the negative rate route why would they have green lighted UK banks to start the resumption of their dividends ultimately if capital preservation and concern about falling margins is at the forefront of any thinking and obviously you've got a no deal Brexit coming up as well why would the Bank of England potentially give the green light to the banks start paying dividends again there's something not there's something that doesn't really sit right in those two pronouncements those two announcements you've got on the one hand the Bank of England saying yes okay to restart dividends just as we're heading towards the end of December and the prospect of a no deal so I would suspect the only deadline that matters is the one at the end of this month and that we could even at this late stage find that even without a no even with a no deal there will be an awful lot of mitigating circumstances brought to bear which should cushion the outcome if that is indeed what turns out to be the case as we head towards the end so that's essentially where we are with respect to Brexit and the pound and we've also got UK retail sales out next week as well and certainly I think there we've seen a significant rebound in the UK consumer it's actually been fairly resilient since the lockdown in April April retail sales we've seen six consecutive months of decent gains we saw a 1.2% gain in October that was well above expectations now obviously November we've had the English lockdown we've had a whole host of tighter restrictions north of the border and obviously in Wales as well and the lockdown did come into effect on the 5th of November so I think one of the reasons why October did so well was due to a pull forward effect with respect to the November numbers and as such we'll probably see a significant slowdown and a possible contraction in retail sales in November now there are a couple of mitigating circumstances here the lockdown that we saw in November was by no means as onerous as the one that we saw in April so it's unlikely that the numbers will be worse furthermore the most recent British retail consortium retail sales monitor was actually better than expected now this might suggest that despite the lockdowns closing bars restaurants which saw a 50% decline in spending in those particular sectors could have well have been offset by a 47 boom in online sales which helped to compensate in those BRC numbers so sales of electronic items like the the new Xbox X the PlayStation 5 games and what have you could actually mitigate the number that we see for November in terms of retail sales now that we've seen an opening in December you could actually see some of that bounce back in the December numbers now that the UK is either under tier two or tier three restrictions so you know that's those are the key UK items that I have my eye on over the course of the next few days but certainly in the context of where we are at the moment despite the declines of the past couple of days in cable here and here we're still above the 50 day moving average we're still above 130 180 and we're still well above this trend line from the lows here which comes in around about 129 and a half so we've still got potential to fall quite a bit more without undermining the potential for a move back towards 135 and all the way up to 140 next year which continues to be my main base case if you take all the headline risk out of the equation because ultimately when I look at a chart my primary focus is what is the price doing what is the price action telling me the price action is telling me here that we're in an uptrend and until such times as we break out of that uptrend my trading bias will always be to trade what you see not what you hear because some of the biggest mistakes in trading are based on what you hear and not what you see so for me it's important to trade what you see and not what you hear so looking at cable at the moment we're undergoing a little bit of sterling weakness and that could we'll see the prospect of further losses over the course of the next few days certainly we're going to see an awful lot of volatility that isn't going to change but overall I still remain constructive on the pound against the dollar probably less so against euro sterling we've broken above that trend line resistance there found solid support now at 89 80 and we've broken above the 90 80 here and could well head back towards these peaks here all the way back at 93 now one of the reasons why we saw this breakout was obviously there was a little bit of disappointment around the ECB rate meeting yesterday and the outcome of that just as a quick recap the European Central Bank expanded its PEP program by another 500 billion euros they extended it to March 2022 that's welcome but it's still the equivalent of pushing on a string and while the obstacles to the passing of the latest EU budget 1.8 trillion euros are welcome the EU still needs to do a lot more on the fiscal side to even get close to an effective response to the current problems that are afflicting the various economies you know and that's a very very key factor we've also got the latest flash PMIs for December out next week as well and they are due out in the middle of the week and they're unlikely to show any significant improvement to the poor numbers that we saw in November and that illustrates starkly the problem facing the ECB at the moment the shutdowns the restrictions the rising infection rates not only in Germany and France but pretty much across the whole of the euro area the whole services sector in Germany is is in contraction and significantly so particularly in France where the services sector is actually saw a slide to 38.8 in November down sharply from 46.5 and it's likely to remain mild in contraction not only in December but in January as well because pubs and bars and restaurants will still be closed in France until the 20th of January so you're not really get Alexa I'm not expecting to see a significant improvement there either that being said the rise in the euro is not helping it's it's input introducing a deflationary bias into the eurozone economy and it's also making eurozone exports much more expensive so the recovery that we're seeing in China is going to hinder German exporters and that is likely to affect the the German companies earnings and that's probably why you're seeing the DAX starting to struggle anywhere near the levels that we've seen over the course of the past few days so euro sterling could well go back towards 92 93 and the highs that we saw in September and that's probably why we're seeing the DAX now start to roll over simply there's a perception perhaps that the lack of a deal is now starting to focus minds on the potential for significant damage to the european economy let alone the european economy and we've as a result we've seen the DAX start to roll over quite sharply it's been trading in a fairly boring range for quite some time we broken below 13200 we could well fall quite a bit further from here all the way back to maybe 12800 because we haven't been able to make any headway whatsoever near the top end of the range plus you 100 on the other hand is actually trading quite nicely made new highs earlier this week nine month highs highest level since march we started to roll back if we fall back below 6500 we could slip back a little bit further but i think the weakness of the pound if it continues should help in that regard but certainly the rally that we've seen from the lows in october has been mightily impressive and we're now back at levels that we last saw prior to the lockdown so i'm fairly constructive on the footsie 100 but i think that doesn't mean that we can't slip back all the way back to 6400 in the short term but we need to see how we behave above 6500 and these lows that we saw at the beginning of this week around about 6500 on monday and tuesday looking at the s&p again new record highs but again we're starting to roll over here talk of a us stimulus deal never gets old that one um at some point though i think the us is going to have to or us politicians are going to have to start becoming less partisan and more collegiate because weekly jobless claims this week jumped from 716 000 to 853 that's a big big jump and that suggests that the lack of new stimulus is now starting to have a chilling effect on the us economy and let's not forget that the existing stimulus package of cares act benefits rolls off for the end of this month so if this if the weekly jobless claims number that we saw this week doesn't concentrate the mind maybe the one coming up next week will because if we see a continued rise um of the kind that we saw this week then i think the impetus is there i think this is one stimulus deal that could eventually get passed albeit it could be at the very last minute but certainly i think um us markets are starting to get a little bit twitchy after making those new record highs at 3700 earlier this week similar sort of story on the nasdaq a big big plunge there i'm seeing a little bit of a rebound but we're starting to get an awful lot more chatter now about the prospect that you know are we in a tech bubble are we this are we that look we're still we're still in an uptrend when it comes to equity markets let's stop trying to call the top because we've been trying to call the top for the past 12 months and thus far we failed abysmally um so at the moment i think it's very much a case of buy the dips it will continue to be a case of buy the dips we're back up below this 12 450 level here um we need to hold below that if we're to continue the move lower back down towards 12 000 on the nasdaq so certainly certainly keeping an eye on that so as we head into it's going to be a big meeting federal reserve talked about it a little bit earlier haven't really gone into too much detail about it but i certainly think a good outcome and we've seen a weak dollar a good outcome would be a stimulus deal and a federal reserve meeting that really i think guides to the fact that they will remain very accommodated going forward and certainly i think that has been the case over the course of the past two weeks the federal reserve has said it's going to keep rate loads or keep rates low all the way through 2023 2024 i can potentially extend that guidance out even further federal officials have been very vocal about the prospect of fiscal stimulus and certainly i think the new relationship between the new us treasury secretary janet yellen who knows a fair bit about the federal reserve given the fact that jaron pal replaced her um there could be a very significantly different relationship between the federal reserve and the us treasury going forward so i think now that we're pretty much over the over the line when it comes to a biden administration um the the the the dovetailing the the consensus between the us federal reserve and the us treasury is likely to mean that the us dollar has the potential to weaken quite a bit more than it already has done let's look at the cmc dollar index for a start when we look at this here um we traded broadly sideways this week but it's certainly significant that we've struggled to really rally with any significant um with any significant momentum and if we look at euro dollar and the way that's behaved this week there is fairly decent support in and around 120 50 120 20 also this this peak here there's a peak here this one here on the second of second of september was was around about 120 10 there so you pull that across there so 120 between 120 20 120 70 is going to be a significant area of support also if we if we do a fibonacci projection of this breakout move here which i've identified as a triangular consolidation then a minimum price objective continues to be 122 30 so i think while we're above 120 and a half there are thereabouts i'm still the opinion the euro dollar goes to 125 over the course of the next few weeks that hasn't changed and that won't change while we remain in this sideways consolidation here so decent resistance around about 120 170 broader resistances at 120 230 which is my minimum price objective while above 120 um and the only way that i would basically change that opinion is if we drop back below 120 you react to the price action not to the noise coming out of the various news wires so going forward while above 120 the the the move to 125 still remains on the table by way of 120 230 so that's euro dollar so the bias remains the upside for euro dollar i'm still of the opinion the bias remains the upside for cable though we might see a little bit of a dip first um keeping a quick look on brent crude um just a quick look at that i wanted to show you this because i think it was significant that for all the declines and the volatility that was seen in brent crude this year this is the peak that we saw beginning in january this is the low that we saw in april we've retraced 61.8 of that move higher at 50 65 so how brent crude behaves over the course of the next few days will dictate is where we go to next but certainly there is there is a significant barrier anywhere near 50 50 dollars and 60 cents and 51 dollars a barrel so i'll be keeping a particular close eye on brent crude over the course of the next few days other days other dates to keep an eye out for next week is obviously the latest uk employment numbers talked about them in the past quickly look at the cmc sterling index we're just about maintained the uptrend in that obviously the pound has sunk against the euro quite a bit this week quickly look at that there that line looks as if it's just about hanging on but we've also got a series of lows all the way through here so those lows there through here could also be significant in the short to medium term so it's worth keeping an eye on those lows there for any break towards the downside so on in terms of the unemployment levels we've already seen a move to 4.8 percent in september this will be the three months to october so it's going to be slightly backward looking but if we see a move towards five percent it wouldn't surprise me in the slightest and it certainly wouldn't surprise me to see it move above that over the course of the next few months but if you cast your mind back to 2014 2015 when Mark Carney was governor of the bank of england he said he would look at raising interest rates when the unemployment fell below seven percent how long ago that seems now so that's the key things that i'm keeping an eye out for this week we've also got a couple of earnings announcements we've got Dixon's carphone the first half numbers for 2021 which are due on the 16th of december again another retailer's that's been hit hard by the store shut downs in the spring they posted a 50 50 1% fall and four-year profits in the summer but they've enjoyed a fairly decent rebound over the course of the last few months and despite the falls that we've seen in the last few days not really unexpected we can draw a nice little trend line through that here we go let's just do that now and that goes there we go so we're still in uptrend on Dixon's carphone you slip back down all the way back to 100p in the short to medium term without undermining the uptrend that we've been in since the rebound of the march lows so a good pre a good pre christmas period here news about a vaccine i think that's likely to give an uplift to general retailing to retail in general so i'm not overly concerned about a little bit of a sell-off there and we've also got the latest numbers out of the US from federal express plenty of room for disappointment there given the fact the shares are at all-time highs parcels and logistic companies are generally a good barometer of the overall economy this chart doesn't really look that much different from any other us retailer like walmart or target they've done very very well over the course of the past few months revenues have been fairly solid for for fedex profits came in at four dollars eighty seven a share in q1 i think they'll struggle to beat that particular number in q2 with an expectation of around about three dollars seventy nine cents a share on revenues are around about eighteen or nineteen billion dollars but again here starting to look a little bit frothy on the top side okay so summing up the key things to keep an eye out for over the course of the next few days are in summary federal reserve us stimulus plan will they won't they i think there's a good chance they will bank of england and in the words of null edmunds deal or no deal when it comes to a uk brexit announcement so that's it for this week from me michael houston thank you very much for listening have a great weekend and if i don't speak to you before have a merry christmas and a happy new year