 Good morning. Welcome to CMC Markets on Friday the 19th of August and this quick look at the week ahead with me, Michael Houston. It's been a fairly resilient week for stock markets in general, which I think is altogether surprising when you actually look at some of the data that we've seen this week. New homes existing home sales in the US continue to look weak. They've declined for six months out of the last seven UK inflation. That's another record high the CPI that is at 10.1%. Although on the plus side at least wages appear to be heading in the right direction will be at very much half the level of the headline CPI rate, which essentially means that in real terms consumers here in the UK are taking a pay cut of around about four or 5%. That obviously is being fed out into a collapse in consumer confidence for August fell to a new record low of minus 44. But retail sales in July did see a little bit of a modest pickup against most expectations that we were going to see a decline of 0.3%. What we actually saw was a rise 0.3%. That hasn't been enough to help the pound. The pound still looks very weak. It's now down below 120 and rather calls into question that inverse head and shoulders pattern that I've been pointing at that I was pointing out just over a week ago. But essentially that was always a pattern that was only going to become valid if we broke above the neckline. The fact that we haven't done that suggests that we could be on course for further sterling weakness, but it's not just the pound that's coming under pressure. There's not much every single currency against the US dollar which has become newly resurgent once more. Having said that, I think there is still an expectation on the part of some investors that the Fed reserve will be forced to pivot when it comes to monetary policy, i.e. They will be forced to start cutting rates sometime in 2023. Now personally, I think that argument is complete nonsense. I think investors really need to start getting a grip when it comes to this expectation that somehow the Fed will start cutting rates. Now that's not to say that the Fed won't pause. Yeah, they will pause eventually because the economy will slow to such an extent that they won't feel the need to start hiking rates anymore and ultimately inflation will come down. And while US inflation does appear to have shown some signs of levelling off and rolling over, a large part of that has been largely down to the fact that gasoline prices in the US have fallen quite sharply from their highs in May and June. And on a much broader level inflationary pressures are still very much, very much apparent. And there's certainly a lot more apparent here in Europe. If you look at German PPI for July, that surged 5.3% month on month and 37.2% year on year in July. And that's largely as a consequence of continued surges in natural gas prices. If you look at the UK natural gas prices, they're back at level that we last saw back in March, record highs. And also European natural gas prices, which obviously I don't have a chart of, they are also back at record highs and continuing to go higher as European countries continue to try and build up their reserves ahead of the winter. And that's really what is driving prices higher at the moment. There's this big rush to build gas reserves up before the expectation perhaps that Putin will cut off European natural gas supplies. So that's helping to push prices up. Obviously UK inflation is also high, raising expectations the Bank of England will go by 50 basis points in September. And this is UK, this is UK two year guilt yields taken out the previous peaks. But so continuing to rise and that is likely to see further rate rises with 200 basis points of rate hikes being priced in for next year. Personally, I'm skeptical a little bit skeptical about the prospect of that happening. So conservative with a small C, the Bank of England has tended to be having said that we've just come off the back of 150 basis point rate hike. And ultimately, given the direction of travel when it comes to headline inflation and given the direction of travel when it comes to the Federal Reserve, the Bank of England probably won't have any choice but to basically follow the Fed and at least try and keep track. Another question at the moment is not really a question of how much will the Bank of England high rates and high rates in September. What will the Fed do. And that was, I think that's the discussion that markets are having at the moment. This week's Fed minutes didn't really add to the sum of overall knowledge about the Fed's intentions when it came, or when it comes to a rate hike in September. The trade is over by how much the recent softening of US data, I want to say softening I means in terms of higher inflation. A drop in weekly jobless claims has I think on the margins generated some discussion about the possibility the Fed might be tempted to go by 25 basis points in September. That doesn't really tie in with the narrative that's coming from a number of Fed speakers. Let's look at where the Fed funds rate is right now it's 2.25 to 2.5%. Many Fed speakers have said they want to see at 3.75 to 4% by year end. Okay, so that's another 150 basis points of hikes between now and the end of December. There's three Fed meetings between now and the end of the year. The first one is in September. The second one is the beginning of November. And the last one is just before Christmas in December. So if you're going to get 150 basis points of rate hikes in between now and then, you need to at least see 1.75 basis point rate hike in that period. That suggests to me that we will see that in September. Certainly, I think the comments from Mary Daly of the San Francisco Fed. That's the George of the Kansas City Fed, James Bullard of the St. Louis Fed and Neil Kashkari, who generally tends to be more of a dovish side of things suggests that the Fed wants to front load their rate hikes. So I think irrespective of the fact that we saw a little bit of softening of CPI in the July numbers and the August numbers come during the Fed blackout period. I think it's more than likely the Fed will do 75 in September. The markets aren't pricing that, they're pricing 50. And we've got the Jackson Hole Symposium coming up this week. And I think that's really the main item on the economic agenda that policymakers, investors, traders will be looking at in terms of the direction of travel for US monetary policy as we head into the winter months. There's still too much chatter about the prospect of a pivot. And I think Powell has the opportunity to really let the air out of that bubble and knock it firmly on the head. Is it realistic to think that with inflation at current levels that the Federal Reserve will start to cut rates in 2023? Let's think about that for a minute. Inflation is at 8.5%. Even if it falls by half of that, do you think it's a remotely credible that the Fed will start to cut rates when their inflation target is at 2%? Inflation is not going to be back at 2% next year. So why are the markets pricing in a pivot? It just makes no sense whatsoever. With inflation here in the UK at over 10%, is it really credible that all of those pressures are going to subside between now and next year, given the current economic? I just can't see it. I really can't see it. It really absolutely staggers me that people are pricing in the prospect of some sort of pivot in the expectation that the Fed will bottle it when equity markets start to roll over. Certainly, they've been fairly resilient and we can see that on the S&P 500. But look where we are right now. I posted this chart on Twitter earlier this week and we are still below the downtrend line. We're below the 200-day moving average and we do appear to be looking like we may well have topped out in the short to medium term. So at the moment, we still remain very much in a downtrend that we've been in since the beginning of the year. Nothing that I have seen over the course of the past few weeks and months has changed my mind about the direction of travel when it comes to equity markets more broadly. It's always about trading the price, trading what you see. And yes, we did break up above these previous peaks here. But what's significant is we're still in this downtrend and we're still below the 200-day moving average. I would only be tempted to revise my opinion if we broke above both of those key levels going forward. Same applies to the German DAX. Again, similar sort of story. These are the highs this year. We're below the 200-day moving average. We're below the downtrend line from the peaks this year. We are now starting to show signs of rolling over. That potentially looks like a bearish reversal. But if we do start to roll over further, then I think there's a good chance we could start to roll back towards the lows. So I think markets are underestimating the possibility. But markets will be anywhere near as resilient as they have been. And at the moment, we are in August. We're not in September. So an awful lot of people are still on holiday. There's not really been a catalyst per se to really knock stocks off their highs. So essentially, it's still very much a case of selling to strength until those key technical levels on the upside have been broken. Obviously, the dollar is also pushing higher. That is obviously feeding in to the bearish narrative. People don't generally buy the dollar if they're feeling particularly risk-on. They generally tend to buy the dollar if they're risk-averse. And certainly this euro-dollar chart appears to tell me that we're still very much heading back towards parity and potentially below that. And need I remind you from something that I said back in April that we could well see further euro-dollar declines over the course of the next few weeks and months. And certainly the initial target for euro-dollar still remains for me 0.9620 while we're below 10340. And those peaks that we saw earlier this month. So nothing's changed on my euro-dollar view still remain very much of a lower euro-dollar. I'm probably going to have to revise my cable view. That is starting to look very, very vulnerable now. You know, this was the potential inverse head and shoulders. The fact that we've taken out this low here suggests that we're probably going to take out this low here as well at some point. 11760 is that low there. The next target I think really you're looking back at the lows that we saw post lockdown around about 114, 115. But in the short to medium term, this doesn't look promising for cable. And in the short to medium term, if we break below 11760, then we're potentially looking at 115 in the same way that we're looking at a euro-dollar. Euro sterling retesting those peaks again 85, 84, 84, 80, 85. You've also got obviously got these peaks back in July as well, which are likely to act as a bit of a bit of resistance. But overall, we still very much remain in a range for euro sterling. I see no reason to revise that it's not really going anywhere. It's just playing the sides more than anything else when it comes to euro sterling. Again, it's broken higher again. Likelihood is we're probably going to see further dollar strength, further losses and potentially retest those peaks back at 138, 139, 40 back in July on the basis of the fact that the US economy is probably going to be the last of the major economies to really feel the effects of the prices. The higher prices that are affecting investors, consumers and pretty much everyone else here in Europe, US natural gas prices are still very much lower than European prices and UK prices. And that I think is ameliorating some of the pain the US consumers are going to feel relative to consumers here in the UK. So Jackson Hole, that's really, I think, the main event this week. We do have second quarter GDP numbers out of the US. They're not really expected to tell us anything new. The US is in a technical recession, even if it's not universally acknowledged that the US is in a recession. I think there is a difference. But, you know, whether or not we see a revision to the minus 0.9% contraction in Q2 is neither here nor there we've also got US PC core deflator which is the Fed's preferred measure of inflation. And that core PC did jump to a record high of 6.8% in June. There is a possibility we could see that soften a little bit, but it still remains awfully high. And as I said earlier, it's unlikely that the Fed will soften its language. And as I also said, Powell has the opportunity to prick the misconception that the Fed will be counting rates in 2023. And you've only got to look at the numbers to understand how unlikely that is likely to be. I certainly don't think markets are fully digested that we've also got the Germany IFO business climate for August. That's likely to be a very ugly number, given the direction of power prices that we've seen since July. They've gone up even further. German businesses are unlikely to be particularly happy about that. In terms of Brent crude prices, there is some good news. Certainly, I think for most hard-pressed drivers, these are starting to come down, even if natural gas prices are not. And that, in essence, does bias a little bit of respite at the pump. I filled up my car only yesterday and paid 167, which is probably the lowest price I've paid for about two months now. Still expensive, but certainly not as expensive as it was when I was playing 189-190 a few weeks ago. Certainly, direction of travel in Brent crude has appeared to suggest we may have hit a short-term bottom. Certainly, the formation of this candle here and obviously this trend line through here suggests that we could be heading towards the lower end of the recent range. Nonetheless, it is encouraging that we are trending lower, even if natural gas prices are not. Maybe we should all go out and get oil-fired boilers and not gas-fired ones. That was a joke, by the way, in case you're wondering. In terms of numbers, company numbers, there's not really that much on the docket. Obviously, NVIDIA and Peloton. We've also got Harbour Energy. Now, why have I picked Harbour Energy? Because Harbour Energy is one of those companies that you've probably never heard of, but it's very, very important when you talk about the obscene profits being made by big oil and gas companies due to surging oil and gas prices. I guess forgotten that companies like Harbour Energy are very much a UK-based company. It was formed out of the ashes of Premier Oil and Crise Oil. And it's still carrying the legacy of that debt to the tune of £2.8 billion, as at the end of last year. Now, the announcement of the windfall tax saw the shares in Harbour fall quite sharply. You can see that here. And last year, the company managed to generate annual revenues of £3.48 billion. Now, that's expected to rise, not surprisingly, to around about £5.18 billion. But it gets 90% of its production through five key UK hubs. And we need companies like Harbour Energy to put money into new natural gas assets. They have got a field called the Tollmount Gas Field, which they've just managed to bring online. And it's which increased UK gas output by 5%. It's also started to look outside the UK to try and make some money, simply because of the fact that it is so UK exposed. Now, in my opinion, for what it's worth, we should be encouraging companies like these to invest in new natural gas assets in the North Sea. Not whacking 80% or 65% windfall taxes on them. Because if they're paying 65% in taxes, they're not investing in UK natural gas. But what do I know? At a time when the UK needs all the investment it can get when it comes to its energy security, UK government and the UK opposition seem intent on driving their energy away. It's absolutely mind bogglingly moronic. But what can you do? Anyway, those first half numbers for Harbour Energy are due out on the first half of due out this week. We've also got NVIDIA, which earlier this month issued a profits warning on its latest Q2 numbers. A large part of that is already in the price. You can see that. That's where we saw the profit warning. We've since rebounded quite a bit on the back of that. The company blamed events in China as well as the Russia situation, which played a part in the downgrade to their outlook. As I say, they're expecting to see their Q2 revenues fall to $6.7 billion, which was basically down from a consensus estimate of around about $8 billion when they reported back in Q1. Now, what could happen here is that like Walmart, they could have decided to kitchen sink their expectations in the hope that when they beat later this week, or if they beat later this week, the shares will pop higher. It'll be interesting to see if that is what happens when they report on the 24th of August. For last but not least, that basket case Peloton. Seen a bit of a rebound in the past few days, but when you zoom the charts out, it doesn't look like that much of a rebound, does it? No, maybe not. So, as I say, we've seen solid gains in the past two weeks. The share price did hit a record low in July. For Q4, it's going to be very interesting to see whether or not they meet the very low bar for Q4. They expect to see revenues of $675 million to $700 million. EBITDA losses of $115 million to $120 million. So, they've announced 800 job cuts. They're outsourcing all their deliveries, and they're also raising prices by 25 to 30%, reversing the price cuts of earlier this year. Now, this does seem slightly counterintuitive to me, because if you're heading into a cost of living crisis, people aren't going to want to buy two grand bikes, or expensive monthly subscriptions to Peloton fitness classes. So, I can't help thinking that perhaps that's not the wisest things to do. In any case, losses are expected to come in at $0.75 a share on Peloton's Q4 numbers, which are due on the 25th of August. Okay, so I'm pretty certain that is all for this week. Once again, I'd like to thank you very much for listening. I hope you all have a great weekend. Now that the weather's cooled down a bit, hopefully we won't be sweating as much, and we'll hopefully get to enjoy the weekend in a much more pleasant fashion. But have a nice weekend, and I'll speak to you all at the same time, same place next week. Thanks for listening.