 Good morning. Welcome to CMC Markets on Friday, the 29th of July. And this quick look at the week ahead, beginning the 1st of August with me, Michael Hueson. And I think we've seen a bit of an interesting shift in the narrative this week. Certainly the decision by the Federal Reserve to hike interest rates by 75 basis points wasn't a surprise. I think most people had been expecting that. The real question was really around whether the Federal Reserve would pre-commit to further rate rises into September. And ultimately, the decision by Jay Powell, the FOMC to basically call a time on forward guidance wasn't really too much of a surprise, given the fact that the European Central Bank had done pretty much the same thing the week before. But what we have seen, and I think this is significant, is a sharp turnaround in yields. You know, the big question is, I think the bigger question at the moment or the debate at the moment is, will the weaker economic data that we're currently starting to see and have been seeing for the past four or five weeks prompt central banks to start slowing down the pace of their rate rises? And certainly indications are if you look at bond pricing, bond market pricing, that is certainly the case. That being said, the press conference from Jay Powell would appear to suggest that the Federal Reserve aren't in a mood to dial back the pace of their rate rises. The markets, on the other hand, have completely different ideas. And let me show you this particular chart that I shared on social media earlier this week. It's this US 10 year yield chart. Now, this is one that I've been looking at for a while, and that looks to me very much like a head and shoulders breakout, which means essentially that we have seen the top in yields and that ultimately we're going to go quite a bit lower. And the measuring objective for something like a head and shoulders breakout is for to take the head, the top of the head, which is around about 3.5% measured down to the neckline, which is around about 275. So we're talking 75 basis points measuring down from the breakout point, which is around about we take around about here is about 280. So we're essentially targeting and moved to 2% on the US 10 year yield sometime over the course of the rest of this year. Now, if that's the case, then how many more Fed rate hikes can actually play out, certainly to listen to an awful lot of the economists on Bloomberg and financial TV. Certainly there's an expectation that we could get another 50 basis points in September, but there's two CPI reports to come between now and then, as well as two payrolls reports, one of which is next week. So I think there's quite a significant repricing set to take place in the bond markets and we're already starting to see it. Obviously, if we go back above this neckline here, then all bets are off, but certainly the direction of travel for yields is quite clear. We've got lower lows and we've got lower highs. So to reverse the downward trend in yields, we still need a significant correction back higher. And at the moment, we don't look as if we're going to get it. We've also seen a big correction in the dollar, and we can see that here in the dollar index. This is the weekly chart that potentially could be a bearish reversal, not totally convinced about it myself. But certainly if we look at the daily chart, say, for example, on a chart like that, there is a decent area of support on the dollar index at around about 105.80, which is pretty much where we are now in terms of the lows. So that sort of equates to 102.75 on euro dollar. That has capped pretty much every single rebound that we've seen thus far from the lows that we saw earlier this month at 0.9950. So has the dollar topped? Well, I think certainly there is an argument for that against the yen in the short term. I'm not entirely convinced against the euro. And the reason for that really goes back to obviously this chart here, this weekly chart and my longer term target for the euro to go to 0.9620. But we've still got potential for a short squeeze. Certainly on the weekly candle, we've got a little bit of a bullish reversal here, which would appear to suggest as fairly decent supported around about just below 101 at around about 1.0070, because it coincides with the lows on that weekly candle there and the lows on that weekly candle there. So we've got a fairly decent area of support just below 101 if you ignore the spike down to 0.9950. So we could squeeze all the way back to 103.40. We could also squeeze all the way back to the 50 day moving average without undermining the downward momentum in euro dollar. So there is certainly potential for the dollar weakness against the euro. And it's a similar sort of story against the pound. And this is particularly important given the fact we've got Bank of England coming up next week. And we've also got non-farm payrolls from the US. Now it's interesting with the pound is that we've got a fairly decent area of resistance around about the 50 day moving average, but also this downtrend line from the February peaks here. So in terms of overall momentum, the pound is looking a little bit susceptible to a short squeeze. But ultimately what we need to see is a move above the 50 day moving average, which is around about 1.22 and a half, which could then bring us all the way back to 1.24, 1.25. I'm probably less bearish on sterling than I am on euro. But with respect to euro sterling, that's still in the same old range that it's been in for about the past year or so. And I don't see that really changing anytime soon. But I think an awful lot will depend on how the Bank of England comes across when they meet next week. Because essentially the Bank of England has exactly the same problems as the US and pretty much everyone else. The only difference is that at the moment the UK economy isn't in a recession even if it's heading for one. And this then brings about the rather thorny issue of how you define a recession. The US is in a technical recession. Because a technical recession is basically classified as two consecutive quarters of negative growth. Of course, you've got a whole host of people in the US now trying to redefine that definition. But I was paying attention in my economics classes when I was learning all about this stuff. And we're talking about semantics here. Who cares? Two negative quarters, minus 1.6, minus 0.9. If it sounds like a recession and it looks like a recession, it's a recession. It really doesn't matter whether or not you would stick a label on it. But nonetheless, central banks now are faced with the prospect of deciding whether to prioritize inflation. Or basically prioritize whether or not they slow down rate rises. Now on their own, I think the slowing economy should take care of inflation. But unfortunately, we have this thorny problem of Russian gas and energy prices. And certainly there is an awful lot of scope in the weeks and months ahead for prices to keep going up. And that's a problem. That's a problem not only for central banks. It's also a problem for governments. At the moment, markets don't seem to care. And I think that's largely on the basis of the fact that you're seeing bond yields slide lower. And that's really borne out by what we've seen in equity markets over the course of the past month, because we're on course for a very solid positive month for equity markets. S&P has broken through my little downtrend line here. It's now looking to retest 4,200. That's the next key resistance level. So we've seen some fairly, we've seen some decent results. We've seen some horrible results. But by and large, the numbers have been broadly positive, albeit with some headwinds. And we all know what those headwinds are. Amazon and Apple reported last night as I record this video. And those numbers have been generally greeted with a degree of positivity. And certainly I think when you look at some of the companies that have been reporting their numbers, they're able to pass on price increases without unduly hurting the volumes of product that they shift. Companies like Unilever, Nestle, Mereket, Bankiza and what have you. So overall, equity markets are enjoying a fairly decent rebound. The bigger question is how sustainable is it? And I think that's the big question at the moment. It's sustainable and I think in the short term, but at some point we're going to start have to think about whether or not we're going to start to roll over. So the next target on the S&P is 4,200. This is peaks here back in May. If we look at the NASDAQ, which has helped lead an awful lot of this move higher. It's the level that we're currently at at the moment, 12,913,000. There are there abouts be interested to see whether or not those particular moves are sustained. We look at the weekly chart again here momentum does appear to be starting to turn a little bit positive. But again, we're still very much in the downtrend that we've been in since the beginning of the year. So I think as we head into August, you know, the big question will be is whether or not the momentum that we've garnered from July after the declines in June can be maintained as we head towards September, because we are now very much in holiday mode. FTSE 100 popped back about 7,400. Again, looking fairly positive on the daily charts. Again, if we look at the weekly chart, it's a similar sort of story, very much range bound. But certainly I think in the overall scheme of things, the likelihood is that we are potentially now back in the realms of bad news. It's probably better news for equity markets than was the case beforehand because markets are now starting to price out the prospect that we're going to get as much tightening as perhaps we thought we were five or six weeks ago. And that's really borne out. I think in the way dollar yen has behaved over the course of the past couple of days. In fact, the past couple of weeks, if we look at this weekly chart here, that is directly correlated with US yields. And what's happening here is you're getting you're getting the divergence that you've started to see between US yields and Japanese yields reverse quite sharply. And as a consequence of that, you're seeing dollar yen bear the brunt of that. And the likelihood is we're probably going to see more declines in dollar yen towards 131.50 130 over the course of the next few trading sessions, particularly if we break back into the cloud. Here, if we break back down here, we're probably going to come back down to around here and back towards initially what the 130 area, which was this series of peaks through here 131.50 in the short term, but 130 in the medium term. Based on that head and shoulders reversal I showed you on the US tenure. So Bank of England is coming up. We've talked about that has been an awful lot of to and fro with respect to the mixed messaging from the Bank of England. The fact that they are a little bit tentative when it comes to raising rates. We've never raised rates by more than 25 basis points ever since the NPC came into existence and yet they're very, very quick to cut by more than that when they need to. I think we will see a rate rise of 25 basis points at least. There is a good chance that we could see a 50 basis point rate move. Why because the recent PMIs from the UK have probably proved to be slightly more resilient than say, for example, those in Europe. Nonetheless, if we do see 50 basis points in August, I think that could be it for the rest of the year, particularly given the fact that the economic data is unlikely to improve anytime soon. And I think the same could well be true when it comes to the Federal Reserve and the ECB markets are already starting to price out the possibility of rate rises much beyond this year. So the bigger question is how many more are we likely to get and that's what you're seeing playing out on bond markets at the moment. There is a perception on the part of markets that central banks won't be able to hike, even though they will articulate their desire to do so. So Bank of England on Thursday. We got non farm payrolls on Friday. One of the things Friday the fifth of August one of the one of the notable things that I've been seeing in weekly jobless claims is they are now at an eight month high. And yet we're told that the US labor market is as tight as a drum 11 million vacancies and what have you. We have or we are expecting to see more payrolls growth in July 250,000 against the backdrop of a low participation rate. Also wages are showing very little sign of a group of accelerating much above 5.2% for the US 5.1% was a number in June. That's expected to remain fairly steady in July. So around about 5% for wages 250,000 for non farm payrolls. We've also got global services PMI's I'm less interested about them as I would be otherwise. We've also got one more central bank meeting and that's from the RBA. And the RBA has been very much behind the curve when it comes to raising interest rates and now they're having to play catch up. So we can certainly expect to see another 50 basis point rate hike this week when they meet on Tuesday they've already hiked by 50 basis points for two meetings in a row. They've hiked for three meetings in a row as it is. So this is expected to be the fourth meeting in a row and the third that we will see 50 basis points unemployment is at 50 year lows in Australia 3.9% vacancies are a record highs q2 CPI rose to 6.1% in the most recent numbers released by stats Australia. So I think the RBA will find it very very difficult to justify not doing at least 50 basis points this week at the time when the strength of the US dollar is pushing an inflation wave its way. So the big the big level I think on the Aussie is around about 70 70 it's this series of peaks here 70 70. If we break above that then you could argue that we could we'll see a move back to 72 over the course of the next few weeks. In terms of the earnings numbers. This week we've got BP Rolls Royce and HSBC now BP's will be interesting in light of the shell numbers that we saw earlier. There were a bumper set of numbers record q2 profits and revenues on the back of higher oil and gas prices. Obviously there's an awful lot of an awful lot of criticism that they're making so much money but that's hardly their fault, given the fact that prices are so high, you can certainly justifiably criticize them for not spending enough on capex and renewables, but certainly I think one thing the profits this year have done is they've helped offset the huge losses these oil companies posted in 2020, when the oil price oil and gas prices collapsed and the energy price level is already been implemented so that's not a horse that can that horse is already gone. So the bigger question is how much more money is BP going to be making in q2, bearing in mind that obviously it's having to take a hefty loss on its Rosnevsteak uptrend line that we've seen coming in here comes in around about 371. We've got a fair bit of resistance around about 408, but a decent set of numbers here should well keep the upward momentum of the share price, pretty much intact if we look at the reaction of the shell share price however, after this week's decent numbers, you can see that it was fairly muted pretty much because the record profits were priced in. And I think the same will probably be true when BP reports its numbers later in the week roles Royce. Again, this has been one of those companies that's really struggled. And a part of the reason it struggled is because of the lack of a rebound if you like, in the civil aviation sector and if anything while we've seen a little bit of a lag in the airlines we've seen a lag in roles Royce but this week we've seen IG British Airways post a quarterly profit we've seen Brian air post a quarterly profit on increased passenger traffic. So you would expect to start to see a pickup in the roles Royce share price at the moment we're trading very much in a range between 78p and 92p and that's probably going to continue to be the way of it over the course of the next few weeks but with a bias potentially towards the upside you'd like to think banking HSBC direction to travel there is fairly clear sideways consolidation and the big question around HSBC, even though it's been one of the better performance so far this year share price wise is whether or not it will be compelled to split up into its business between Asia, and the rest of the bank. One of the more controversial events that's taken place over the course of the past. Since since the last trading update was the bank taking the step to allow the formation of a Chinese Communist Party committee. This investment banking subsidiary inside China is also a big Chinese shareholder Hong Kong by shareholder ping an once HSBC to split the business between its Asia business and the rest of the bank. That'll be, I think that will be a particularly interesting dynamic when HSBC releases its numbers is first off numbers on Monday, the first of August, certainly that's that's that's a discussion that's not going to go away anytime soon. Other companies due to report all us Ubers second quarter numbers, second of August Airbnb Madonna on the third of August and Robin Hood markets, also on the third of August and amc entertainment. So that's pretty much it for the week ahead for this week as we head into August and another new month if you're not on holiday. Have a good weekend and see you all same time same place. This week where we'll also be covering non farm payrolls live from just after one o'clock in the afternoon. Thanks for listening and have a great weekend. Thank you.