 Good morning. Welcome to CMC markets on Friday the 25th of August and this quicker look at quick look at the week ahead beginning the 28th of August It's been a bit of a strange week this week I think most of the price action this week has been pretty much geared up towards the Jackson Hole annual symposium in Wyoming where Global central bankers meet to discuss the state of the global economy. This year's symposium is titled structural shifts in the global economy and It won't be just Jay Powell Whose words will be closely scrutinized. I think In the next 24 to 48 hours when it comes to central bank policy Will also I think be hanging on every word of Christine Lagarde president of the ECB and it's not often you can say that Given some of the data that we've seen Come out of the eurozone economy this week I mean not to put too far in a point on it the the economic data has been diabolical And yes, you can argue that it's just flash PMIs But the flash PMIs that we've seen this week suggests that perhaps central banks Have gone as far as they can do when it comes to rate hikes and now what we're seeing is The fine we're now starting to see the effects the cumulative effects of The rate hikes that have been unleashed over the course of the past 18 months, I mean at the start of this year the ECB Headline rate was at 2% it's now 4% There are still splits not only on the ECB governing council, but we're also seeing splits between per officials We've got Michelle Bowman who's a Fed governor Who's leaning towards the more hawkish side of things making the case for at least one more Ray hike from the Federal Reserve Susan Collins of the Boston Fed has also come out and suggested similar sort of thinking But on the flip side of that we've seen Patrick Harker of the Philadelphia Fed Suggests a monetary policy is already restrictive enough and then Moving over to the Bank of England We've already heard Hugh Pyl this chief economist the Bank of England say the UK monetary policy is already restrictive Which really begs the question as to why they feel the need to perhaps do at least another 25 or another 50 basis points of rate hikes Over the course of the next two to three meetings Yeah, UK inflation is much higher But there are reasons for that and they're pretty much tied in with the energy price cap and I think if you slow the economy Enough inflation should come down Or by itself and certainly there does appear to be evidence that that is happening. The bigger question is You know how quickly You know, is it quick is it quick enough for some of the more hawkish members of the governing council because I think once inflation returns to target and That will take a long time I think, you know, if there's a determination on the bar on my part of central bankers to return inflation to target quickly They will achieve it but at the expense of a smoking crater where the economy used to be We're certainly seeing that I think in some of the data that we've seen this week It's been a bit of a mixed bag when it comes to equity markets If we look at the footsie 100 for example We've seen a fairly decent rebound of that 7200 level that I was talking about in my video last week And have consistently talked about in my videos over the course of the past few weeks There's being a key line in the sand when it comes to the footsie 100 and support If we look at the way that it's behaved over the course of the past few months What's particularly worrying for me is the fact that every single rebound of this level has seen a lower peak Which suggests to me that there is some underlying weakness at play and we really do need to get back above 7300 and at least 7375 to potentially look to retest the 7500 area The slow stochastic is starting to turn slightly more positive But this long shadow on this candle does worry me in the context that we were unable to hang on To the peaks of yesterday and actually close the day Lower but having said that we are pushing back up again So that could just be an abundance of caution after the gains that we've seen so far this week Fussy 100 is a bit of an outlier when it comes to the weekly performance We did see big declines last week We saw so saw a fairly big decline yesterday on the DAX But we have since then managed to rebound a little bit But you know given what we've seen over the course of the past few weeks there is certainly some evidence that Momentum is starting to fail when it comes to the DAX But at least we are still above the 200 day moving average So I am not ready to throw in the towel on equity markets quite yet But what I would say is that we need to get back above that 50 day moving average on the DAX To suggest that we could see a revisiting of the highs. It's a similar sort of story When we come to the S&P 500 we saw a really decent rebound Earlier this week back to the 50 day moving average We haven't as yet been able to get back above that Even accounting for the blowout numbers that we saw from Nvidia earlier this week I mean they were an absolutely stunning set of results You know, there was there was nothing there was absolutely nothing bad about those numbers You know when when you actually break them down Q2 revenues, you know came in at You know well up well above the 11 billion dollars that was projected at the end of Q1 Now we're talking 13 billion dollars For Q3 they projected Q3 revenues of 16 billion dollars plus or minus 2 What was slightly puzzling as to why they decided to go for 25 billion dollars and share buybacks But you know you pay your money you take your choice Let's have a quick look at Nvidia because obviously it is topical And it's certainly worth a look Given what we saw yesterday. We've seen record highs on the shares Have a quick have a quick check of this And we can see that it opened at record highs And basically closed pretty much where it finished the previous day now that for me Suggests that there's a hell of a lot of caution when it comes to pushing this stock I'm much higher You know if we if we look at The revenue growth It's you know, it's absolutely astonishing The business is set to grow its annual revenue from last year's 26.97 billion dollars To 48.69 billion dollars in the current fiscal year And up to 70 billion dollars in 2025. That's right 70 billion dollars in 2025. So in the space of two years Nvidia is projected to grow its annual revenues from 27 billion to 70 billion dollars now with that in mind It is an impressive outlook, but there are risks Nvidia's exposure to china for example is being one such potential geographical risk Given that china accounts for 20 to 25 percent of its data center revenue and its data center revenue That is driving This set this this share price Search You know another risk is that obviously Nvidia's competition is likely to get more intense Which could put longer term pressure on margins. It may be number one now But its market share is such that it may struggle to go much higher So and we're also up 2220 percent Year to date on Nvidia Nvidia You know share price, you know on the Nvidia share price So yeah, there's an awful lot of enthusiasm the last the last remaining broker has thrown in the towel on his sale recommendation You know which suggests to me that you know, we we've got what I would call You know, we're at peak optimism now when it comes to Nvidia So, you know, the big question is not really about whether or not It's going to continue to blow it out of the park when it comes to its numbers The bigger question is how much of it is already priced in at current valuations And I think that for me is the key test. You know, going back to the s&p 50 day moving average We basically really need to get back above This trend line here, but also the the 50 day moving average here to bring back meant momentum to be slightly more positive nasdaq 100 It was almost a similar sort of story there Wasn't able to sustain that move through the 50 day moving average about it again It's still in the uptrend. So while we've seen some negative signals being flown up thrown up even on us markets We are still hanging on To the uptrend that's been in place pretty much for most of this year and I think while that continues to be The main the main bias for me while there are Amber warning lights flashing ultimately the primary trend still remains in place But you know just putting it out there that you know, there are there are signs of failing momentum Now that could be seasonality. It could be just a lack of interest They all it's also uncertainty. I think about the future direction of central bank monetary policy And this is where I think we could get some clues at Jackson Hole Ultimately, it's about what central banks are going to start signaling in September You know, I'm I'm of the opinion that we're pretty much done When it comes to rate hikes and really the question now is how long we stay at current levels And that's essentially I think what the big unknown is at the moment It's not it's it's less about how many more rate hikes are coming and more about how long a rate It's going to stay at their current levels and that's I think that I think that's the the Question that's been exercising a bond markets if we've seen bond markets this week. We've seen German two-year yields Slip back. We've seen UK Two-year yields also slipped back on the back of those really horrible PMI numbers that we saw earlier in the week So if we go to UK two-year We can see That they're big big slide on the back of those PMI numbers and other other Disappointing economic numbers now as we look towards next week, obviously we have non-farm payrolls Again, that's likely to be A key driver or a you know, it's going to be certainly I think a key benchmark when it comes to Whether or not the Fed will be inclined to Keep rates on hold Not on hold, but basically keep rates as they are rather than raise them I think what we've seen I think over the course of the past few days is that the US economy continues to remain resilient fairly resilient Yet it is slowing down The payrolls growth is still fairly solid, which means that even if the Fed doesn't raise rates It's not going to be it's not going to be cutting them anytime soon. And if anything Will probably leave them higher for longer Just seeing the latest German IFO numbers come out. Let me just see what they've done We were expecting 86.8 on The business climate They're currently breaking at the moment for some reason. They're not updating and I have absolutely no idea Why I'll come back to that in a minute Um, but what we've seen here is a little bit of a selloff on UK guilds and we've seen a little bit of weakness on German yields as well, which suggests that the market is starting to look at the possibility That we could well be near peak rate when it comes to the ECB and certainly peak rate when it comes to the Bank of England slightly less You know, slightly less optimistic about peak rate on um, US two-year treasuries though You know, even with the data I'm still struggling to think that the Fed is anything other than done um German IFO. Yeah, they've missed expecting a decline from 87.3 to 86.8 Come to 85.7. That's not a surprise Given those awful PMI numbers flash PMI numbers that we saw earlier this week So the German economy is very much struggling and will probably continue to do so and While you've got people like Jochen Nagel of the German Bundesbank talking about the prospect of further rate hikes you have to wonder What it exactly is he's looking at When the German economy on the PPI level is in massive deflation growth is flatlining And PMIs are in contraction territory. Why would you raise rates? against that backdrop just because inflation Is trending at around about five or six percent. Yeah, it's trending at five or six percent But looking at those numbers it's going to be coming down quite quickly over the course of the next few months So sometimes I think patience is a virtue And I think central bankers could start to think about exercising some of that when they come to make their latest policy decisions As we look ahead to next week I talked about non-farm payrolls The july jobs report saw another modest slowdown in jobs growth What we've seen as a consequence of this week's data is obviously because you at european data has been so poor Obviously the dollar's got a bit of a lift off the back of that Euro dollar as at a very key support level as we Look at this chart here I've drawn this trend line off the march lows We've broken below the 200 day moving average. We are now Right on that line Around about 107 60 70. So that's a fairly key support level on euro dollar. Could we break lower? I think it's quite likely that we will particularly if the ECB does pause and I think also if the ECB is done I think it's going to be very difficult for the ECB to hike much further Given the current economic backdrop in europe which suggests that the ECB is done That's what's being priced here Markets are pricing the prospect of at least potentially one more fed rate hike not in september perhaps in november But as far as the ECB is concerned and the economic backdrop that we're seeing there The market is pricing the ECB is done and potentially they could be cutting rates in the first half of next year Hence the weaker euro So keep an eye on what's 107 50 area could be quite interesting We could get a retest of the main lows over the course of the next few sessions similarly Cable has broken down as well. We finally broken that 126 area Could this be the potential head and shoulders reversal is a bit a bit of a messy right shoulder But certainly back we've broken below 126 does appear to suggest we could be heading back to Let me just get rid of that line. We don't need it anymore Um, and now let's look at a broader line perhaps Through some of these lows through here, but certainly I think the next key support level Is probably the 200 day moving average, which is currently at 124 But also this series of lows through may which is around about 123 so Um, the break the break of 126 or this 125 90 area here would appear to suggest that we are now starting to Roll over into a little bit of sterling weakness. I think we'd need to see a break back above We need to see a break back above the 50 day moving average at 128 to break the cycle The the downward cycle that was we now we're now starting to see euro sterling similarly We hit an 11 month low earlier this week, but then of course those flash PMIs came out and markets are now repricing the prospect of The terminal rate for the Bank of England. They're still talking a terminal rate 5.75 5.8 somewhere along those lines Personally, I still think that's too high But it is now starting to come back down. I mean, let's not forget six seven weeks ago Markets are pricing a terminal rate of over six percent, which to my mind was always um slightly uh Slightly optimistic and so it's slowly being priced out Again, you're a sterling finding a little bit of resistance here at the 50 day moving average If we can get back above that then we could head back to 86 20 and then of course you've got the 100 day moving average, which has capped it pretty much since may Dolly n Dolly n is really the fly in the ointment and is the pain trade when it comes to The direction of the dollar the dollar has proved to be much more resilient than I thought it would be But also I think the yen has proved to be a little bit a lot a lot weaker Then I thought it would be given the fact that the bank of japan Is going to start to feel slightly uncomfortable about the yen at these sorts of levels given the fact that Headline inflation now is still at 40 year highs and still looking very very sticky indeed So at some point the bank of japan Will have to start thinking about slightly more aggressive policy response if dolly yen goes back to 147 50 Which at the moment it looks as if it could well do because every time it dips We're finding fairly fairly steady buyers having set buyers having said that it does look a little bit overextended at these sorts of levels But yeah, I mean that's one trade that I've really got Badly wrong this year But as I say, you know, you can't get them. All right crude oil We've seen a little bit of a sell-off this week. We are starting to turn much more positive We've seen a little bit of a bit of a pullback slightly to find fairly decent support Where we have the 200 day and the 50 day moving average Is this a golden cross or starting to become a golden cross? No, it's not because a golden cross only occurs when both moving averages are moving in the same direction As we can see from this chart here the 200 day moving average is still trending lower And the 50 day moving average is still trending higher That is not a strong signal because you've still got a very strong downward momentum in the 200 day moving average You need that 200 day moving average to be an awful lot flatter um, and certainly starting to Point upwards to be really valid as a as a golden cross when the 50 crosses the 200 day So don't believe everything you read on the technical analysis narrative about golden crosses You know, it's very easy to have a golden cross If you've got basically one moving average falling very sharply and the other one starting to turn up very sharply It's not as strong a signal as people would like to have you think In terms of the earnings numbers this week, we haven't really got anything to speak of You know, we've got sales force hp best buy broad com But nothing that sort of really stands out The main numbers to watch for this week are obviously non-farm payrolls. I talked about that earlier um, july jobs report saw 187,000 jobs added Unemployment rate fell to three and a half percent from 3.6 percent And while the non-farm numbers have been showing signs of slowing the adp reports have looked much more resilience We saw 324,000 in july on top of the 455,000 in june This resilience is also coming against a backdrop of sticky wages which in the private sector are over double headline cpi While on the bls Measure average hourly earnings remain steady at 4.4 percent Which again is still above cpi even though that has started to tick higher again this week's Or the upcoming august payrolls report are set to paint another picture of a resilient but slowing jobs market With expectations of 160,000 jobs unemployment remaining steady at three and a half Also worth keeping an eye on vacancy rates and the job opening numbers Which fell to just below 9.6 million in june. These are the jolts for july These have consistently remained well above the pre-covid levels Of 7.5 million and have remained so since the start of 2021 This perhaps I think helps explain why the Fed is keen not to rule out further rate rate hikes It doesn't necessarily mean they'll do them But the fact is with so many vacancies in which wage growth is looking resilient I think they'll want to be absolutely certain That inflation starts to doesn't start to wage back up again. And obviously it did that In the july numbers. We've also got core pce deflator, which is the fed's preferred measure of inflation targeting um and again We saw that slow in We saw that slow in june We saw a sharp fall from 4.6 in may to 4.1 in june While the deflator fell to 3 from 3.8 now this week's july numbers could prompt further concern about sticky inflation If we get sizeable ticks higher In the monthly as well as the annual headline numbers because we've also got second quarter gdp Out of the us and again that was a that was a fairly decent number And we're expecting to see Modest improvement to 2.5 percent from 2.4 percent despite a slowdown in personal consumption from 4.2 percent in q1 To 1.6 percent In q2 an awful lot of the reason for the better than expected Um uptick in q2 was obviously inventory rebuilding Um an inventory restoration Core pce price index on a quarterly basis We saw a slowing from 4.9 percent in q1 to 3.8 percent in q2 On as far as the uk's concerned. We've got consumer credit We've got mortgage approvals for july Mortgage approvals in june rose to 54.7 thousand which was a little bit of a surprise We're expecting a fallback given a get given obviously the backdrop Of rising interest rates and I think the only reason I can put the uptick in mortgage approvals down to Um in the june numbers was the fact that there may have been a rush To lock in fixed rates before they went even higher I mean, I suppose that's one way of looking at it net consumer credit was also resilient in june It jumped to 1.7 billion pounds and a five-year high Well, if we look at the june gdp numbers, we saw a rise of 0.5 percent there So maybe that boom in consumer spending and gdp was funded by Um consumer credit it's a possibility but That would then suggest that you know if people are borrowing On credit then any rebound in the second half of this year is likely to face challenges From higher mortgage rates and higher and higher fuel prices as well because obviously in the past few months We've seen oil prices from june rise quite significantly. I've noticed at the pumps The the the price of unleaded has risen from 142 a litre to 1 over 150 So that's quite quite a sizable jump per litre nearly 10p per litre, which is likely to take a bite out of Like let's take a bite out of incomes Also, we have flash cpi for august for the european union eu eurozone cpi Now, obviously the narrative is deflation There's there's massive deflation in producer prices Not only in germany, but also across the european union now since the start of the year the ecb is doubled rates to 4 But the anxiety over the german economy as well as the french economy Is going to i think make these flash cpi numbers for august very interesting given how weak services activity was in the flash pmis, but also manufacturing Headline cpi is still a 5.3 percent core prices are at 5.5 percent Just remember core cpi is 5.7 percent was The record high was 5.7 percent. Okay, I'll get those facts out Core flash cpi in the eu record high 5.7 percent. We've only softened to 5.5 So the august cpi may well not be the best guide for the weakness in price trends given that europe tends to vacation during august however Given how poor those pmis were given how poor that german ifo survey was They we could find that perhaps We get more downward price pressure and we could see a much more significant slowdown expectations for cpi and we've got german cpi flash cpi next week as well are for That the the the actual numbers to soften a little bit Not massively We're looking at 5 on the headline number from 5.3 But core cpi to come down to 5.2 So it'll be interesting to see whether or not we are able to match those estimates Okay, so i'm pretty much think we're done For this week as i say, thanks very much for listening. Hope you enjoy the long bank holiday weekend Don't forget to tune in for non-farm payrolls on the 1st of september Webinar starts just after 1 p.m. And goes until about 145 Otherwise, thanks very much for listening. So michael hueson talking to you from cmc markets