 Good morning. Welcome to CMC Markets on Friday, the 1st of September and this quick look at the week ahead beginning the 4th of September with me, Michael Houston, come off the back of a negative month for equity markets. I think the bigger question as we head into September and obviously the last months of Q3 is will the range bound nature of market price action start to change over the course of the next few weeks. And I think the next few weeks will be important or the next two to three weeks will be important in the context of potentially how the risk trade plays out. We've got central bank rate meetings two to three weeks of really important central bank rate meetings coming up starting next week with the RBA and the Bank of Canada, not expecting any changes to rate policy from either of them. Then the week after that we've got the European central bank on the 14th of September and that's followed by the week after that, the Federal Reserve and the Bank of England. And I think, you know, the month of August, we saw a negative month. We managed to close off the lows of the month, which I think was important in terms of the overall trend and the overall nature of recent market price action. I think what was particularly important in the case of the FTSE 100 was once again, we managed to hold above that 7200 level. I have argued or have made the point over the course of the past few weeks that the declining highs have been a little bit of a concern for me in that the downside momentum or the downside does appear to be prevailing, given the lackluster nature of each bounce that we've seen off that 7200 level, but we have managed to hold above it. And I think that is important. And I think as we head into September, the main focus will once again be on central bank rate decisions. Are we near to peak rate, terminal rate? I think that we are. Is the Fed done when it comes to further rate hikes? This week's economic data would appear to support the case for a September pause. Of course that could change with today's non-farm payrolls report, which is due out at 1.30 this afternoon. Based on the data that we've seen thus far this week, it does appear that US jobs growth is slowing and could well continue to do so. I think what was particularly notable this week was that the ADP report, which has been strong in the summer months, did see a sharp slow down to 177,000 from 371,000 in July. So weekly jobless claims still remain in the low 220s, 230s. No real change there. What was I think a little bit concerning was continuing claims edged up quite a bit. Continuing claims are basically calculated on a four week basis. And we did see a big drop even in job openings. But to the lowest level since March 2021. But once again, I have to remind people that they're still well above pre-pandemic levels. So that suggests to me the US labor market still remains tight even though jobs growth is slowing. So that suggests that the US economy is still doing reasonably well in spite of the revision lower earlier this week to second quarter GDP from 2.42.1%. And we are seeing a slow down. Markets are pricing. I hate this phrase a soft landing because it's just meaningless jargon. But I think what that means is that markets are still pricing the likelihood that the US will avoid a recession. I'm not convinced about that. Having said that, I don't think a recession will come if it does until the early part of next year for the US. Slightly different story. If you're talking about say, for example, Europe, where the PMIs that we've seen from France and Germany, the flash PMIs have been particularly disappointing and we'll get the latest services PMIs in the coming week for August. These numbers, the flash numbers, saw a sharp slide in service sector activity in both France and Germany during August to 46.7 and 47.3. And up until recently, these had been doing relatively well. But as we come to the end of the summer months, I think you'll find that Italy and Spain services PMIs will also see similar slowdowns in economic activity. And I think it's good to bring them into line with the weak manufacturing numbers where manufacturing has pretty much been in recession or in contraction. Shall I say, I don't want to use recession in contraction for pretty much all of this year. So certainly the services PMIs could well be the final piece of the puzzle when it comes to whether the ECB decides to pause its rate hiking cycle, even as August inflation saw an unwelcome tick higher. And I think this is the key thing at the moment. The August inflation numbers would appear to suggest that inflation is starting to tick back up. And what is particularly concerning, I think, with respect to the stickiness argument is what's been happening with oil prices over the course of the past few weeks. Since those June lows and these series of bottom through here, we've headed back to the levels that we saw at the start of the year. And that's, you know, the highs of this year are going to be a very, very key level, I think. In the context of what happens to rates next, are we going to see a further rate hike from the ECB? Are we going to see a further rate hike from the Bank of England? Are we going to see a further rate hike from the Federal Reserve? I'm still in the mindset that further rate hikes are unnecessary at this point in time. That's not to say they may not come later in the year, but I think while rates are at their current levels and the Bank of England chief economist Hugh Pill has already said that UK rate policy is restrictive and that he favours a higher for longer approach. In a speech earlier this week, he talked about a table-mounting approach to rate policy, which to me is just a high plateau. That's what we're talking here, a high plateau for UK rates. So keep them at five and a quarter percent for a much longer period of time. If we look at what yields have done this past week, US 10 year yields do appear to have peaked out just above the previous peaks that we saw earlier late last year, even in 21st of October last year. We've come back down again. And I think that for me is really about where we are when it comes to not only long-term rates, this is the US 10 year. If we look at the US 2 year, we can also see a similar pattern play out in terms of the weekly candle. There does appear to be a weekly reversal on that. If we look at, say, for example, similar pattern on UK 2 year, we can also see that rates are likely to remain higher for longer. But crucially, we have remained below the peaks that we saw back in early July. And if we look at the UK 10 year, which is there, again, the weekly chart. I don't know why I did that. Let's just change that and go weekly. We've seen a much sharper decline in the 10 year guilt than we have the 2 year, which would appear to suggest that perhaps we're also near a peak when it comes to UK rates. And the big question, I think, is rather than seeing a 25 basis point rate hike from the Bank of England, could we actually see a pause? I think the bar is higher when it comes to a pause. I think an awful lot will depend on the data that we see over the course of the next two to three weeks, predominantly UK CPI, which is also due out just before the next Bank of England rate decision. As is US CPI just out before the next US rate decision. But I think we're close to peak rates. And really it's now a question of how long rates stay at their current levels before we start to see rate cuts rate cuts have been priced out. Pretty much for this year. And it's really now just a question of when they start to occur over the course of the next 12 to 24 months. The Federal Reserve has the headline terminal rate for the end of this year around about 5.6%, which means they've got another rate hike priced in to their dot plots. But then that comes down to 4.6% at the end of next year. So over the course of the next 12 months, the Fed thinks that they probably will have to cut rates by 100 basis points from from the peak at the end of this year. We'll actually have to see how that plays out going forward. But certainly sticky inflation is not being helped by the rate, the increase that we've been seeing in oil prices. So next week we've also got China trade and China inflation. And that's the other side of the coin. When it comes to the inflation numbers here, only here in the UK in Europe and in the US, the deflation or disinflation that we've seen coming out of the Chinese economy since November last year. That I think has helped bring headline inflation down here over this side of the world. But the bigger question is whether or not it will continue to act as a drag on headline inflation going into the winter months. And I think that's the one thing that I think is significantly uncertain given the fact that we've seen inflation in August edge higher from the lows that we've seen in July. In essence, is the August spike higher or push higher in headline inflation a one off and are we going to drift back down again, or are we going to stay stuck in and around the levels that we're currently at at the moment. Certainly in terms of UK inflation we've got room to come down further quite a significant amount further I would suggest to around about four and a half 5% by the end of the year because as the energy price cap effects continue to get filtered out. You know, is there more downside in US inflation I think that's the bigger question and I don't think we're going to really know the answer to that until the data continues to evolve. As for the RBA next week we have got we're not expecting any change to the current 4.1%. I think the RBA will nervous about further tightening at a time when last employment reports saw 24,000 jobs lost. That's a little bit of a turnaround when it comes to the jobs market that's not to say that, you know, Australian unemployment isn't at a fairly low level it is. But August PMI has slipped into contraction territory the unemployment rate is at 3.7%. And obviously the last jobs report saw a minus number in front of it. And, you know, if you extrapolate that over into say for example the UK or the US. At the moment we haven't seen negative numbers in terms of jobs in either the UK or the US though we have started to see German unemployment start to etch higher. So, you know, maybe we're into the last quarter we're probably going to start seeing jobs get more jobs being lost than actually being created. Bank of Canada coming up as well let's have a quick look at the Aussie found some support around about 64. Again, that's a proxy for a little bit of the China story. China trade numbers are due out on the 7th. They're not expected to be particularly positive. We've seen negative numbers for imports and exports in July. We saw a decline of 12.4% in imports which shows that internal demand in China is collapsing. We have seen Chinese policymakers implement piecemeal measures to try and boost the economic prospects from using overseas travel restrictions, modest cuts in lending rates and a little bit of a boost to some of the property sector and what have you. But in July the economy slipped into deflation and we've got PPI and CPI on the Saturday the 9th of September. So it'll be interesting to see whether or not that continues that trend continues or whether we start to see a little bit of a trough there when it comes to the declines that we've seen in PPI and latterly CPI. Expectations are for exports to decline by 7.8% and imports to decline by 8.8%. So that will be a little bit of improvement on the July numbers, but a negative is a negative. So that would still suggest that the economy is weak. In terms of what to expect from the Bank of Canada, I know I'm chopping about quite a lot here, but there's quite a bit to get through. If we have a quick look at USD CAD, Canada still looks fairly weak. But again, we can see that there's really fairly decent resistance up in those highs around about April and May. We retested them earlier this month and we've drifted back down again. Again, it's really a question of what does the Bank of Canada do when it comes to rates hold is most likely. What sort of outlook do they paint when it comes to inflation? At the last meeting, the Bank of Canada said that inflation is unlikely to return to target until 2025. Well, that would appear to suggest that they're probably not going to be moving rates anytime soon. And I think that's going to be a common narrative, not only for the Bank of Canada, but also for pretty much every other central bank around. Obviously, apart from obviously the Bank of Japan, we're also due to make a great decision this month as well. And perhaps they could start to be a little bit more serious about the your curve control policy. Because once again, all those dolly end shorts are continuing to get squeezed. And I still can't catch a break on my view that dolly end is going down because it continues to squeeze me until I squeak. Certainly in terms of the price action, the trend continues to remain higher. We've run into resistance around about 14750. If we can get through 14750, we can hit a 150. But I'm still of the opinion that this rally is on borrowed time and that at some point over the course of the next month or two. This rally will start to unwind and we'll head back to the will head back towards 140. But I think at the moment, the way my calls have been this year on dolly end, that's probably more wishful thinking than anything else. In terms of Euro dollar, we've got a continuation of pretty much the trend that we've been in. But one thing I have managed to do is this nice little trend line here. We did break below the 200 day moving average. But what we didn't do is below this trend line from the lows back in March. So this could be quite important. What happens to Euro dollar going forward? Again, I think that will depend on whether or not the ECB can hike rates anymore than they currently have. I remain very doubtful that they can. So really, then it's just a question of where we head to next. Well, I think if the ECB pause and the Fed pause, then pretty much all bets are off and we're probably going to continue to range trade in the way that we have been. I think the bigger question is not so much about whether or not the ECB pause and when the Fed pause is, will the ECB be forced to cut rates before the Fed? Given how badly the Eurozone economy is performing and particularly the German economy where PMIs are manufacturing are below 40. So I think that will be the next discussion when it comes to rate policy. I don't think the ECB is going to be in any in any hurry to cut rates if inflation remains high. But if economic activity continues to stagnate or stagflate or whatever you want to call it, then the bigger question is how quickly will inflation come down and give room to the ECB to at least give an indication that they might be inclined to reverse some of the rate cuts that they've currently implemented with inflation at current levels. That's going to be a tough path to navigate, given that you've got the Bundesbank President Jürgen Nagel already arguing still arguing that more rate hikes are necessary. Despite the fact that the German economy is pretty much imploding in plain sight. Looking at Euro sterling. This once again, we can see the 50 day moving average acting as a nice little cap on any rally. I'm still I'm still minded to think that we can break below this 85 area and head back towards the lows that we saw back in 2022. You know, for me, I think it's really a question of, you know, Euro, Euro sterling, it's like two drunks at a bar, you know, which one's going to fall over first. And that for me at the moment, I think is what's currently expect is probably what is going to drive the Euro stone Euro sterling currency pair. I believe England will find it very difficult to cut rates anytime soon, which means that rates here in the UK are likely to remain higher for a lot longer than they will in the Euro area that should support the pound against the Euro. In terms of what we've got in terms of what we got companies reporting next week, it's a fairly, it's a fairly weak slate. The reason is coming to an end. We have dark trace. They've got their full year results. When dark trace reported back in July, the shares surged higher of the company reported expected to see a 31% increase in four year revenue added 396 new customers in Q4 taking total customers to 8,799. And that takes to a short selling note from quintessential capital management expressing skepticism over the validity of their financial statements to combat this dark trace employed Ernst and young to review its finances in July. The review had been completed and the financial statements were reported to accurately reflect the firm's financial position. They are finding it difficult to get back through 400p. So I think the big question here is, will dark trace upgrade its revenue forecast for the new, the new year, the next fiscal year, fiscal year 24. And will their revenue expectations and profit expectations meet the guidance that they issued back in July. We can actually put a nice little trend line here. I'll just notice this right here, right through those loads there. There's a nice little trend line there. So it might be worth seeing whether or not these shares finally catch a break and start to go higher again and break that 400p level or the November highs from last year of 415. We've also got GameStop, the meme stock craze has finally imploded and has seen AMC Entertainment GameStop and all of those meme stocks finally fall back to earth with a very loud bump. Not really expecting much great shakes from Q2 GameStop revenues, $1.14 billion. Inventories should come down. The company did post a surprise profit back in Q4, but it's slipped back into a loss in Q1 and it's likely to do the same thing in Q2. And those numbers are out on the 6th of September. So that's pretty much it for this week. Next week, obviously, it's the 8th of September, the next one of these will be the 8th of September. This will be the last one I do for about two weeks because it's going to be going off on a couple of weeks holiday, which means that I will be missing the ECB, the Federal Reserve and the Bank of England. But I will write something and I will record something to preview those meetings. So you all get my thoughts on them, but I pretty much outlined my baseline thinking around all of them. Pretty much a pause for the Fed, pause for the ECB, and I'm sort of 50-50 between a pause and a 25 basis point hike from the Bank of England. But anyway, that's it for this week. As I say, we've got the payrolls numbers later today. Obviously, I don't know what they are, but just to recap, I think if we get a fairly weak jobs report, that will cement the case for Fed pause in September. So that's it for this week. Thank you very much for listening. This is Michael Houston talking to you from CMC Markets.