 Good morning and welcome to CMC Markets on Friday the 14th of August and to join me Michael Houston to look ahead at the week beginning the 17th of August before I do that have a quick look back at the events of the last few days and why after a fairly decent start to the week equity markets have started to roll over into the weekend before we do that just a couple of risk warnings to get out of the way before we get into the details of the events of the last few days because we've certainly seen some significant moves not only in equity markets but also in bond markets but also in precious metals markets we've seen a rather large sell-off in gold well overdue in my opinion we've come an awful long way in a short space of time and it's always healthy when you get a bit of a decent shakeout of long positions when they move up or short positions on any move down so let's have a quick summing up of the events so far for this week and ultimately we've seen Monday Tuesday Wednesday fairly decent rebound in equity markets that has started to falter over the course of the last two days and I think to understand why the market has started to fall over the last two days you've got to really look at expectations and what expectations were at the beginning of the week and at the beginning of the week President Trump signed an executive order at the end of last week he did to replace some of the benefits that expired at the end of the at the end of last month form of stimulus program to replace the one and markets perceived that executive order as a baseline pretty much a baseline for any agreement that Democrats and Republicans were likely to come to with respect to a new stimulus package now as the week has gone on we've also had a number of other headlines a Russia vaccine for example which helped push the markets even higher putting aside the fact that you know the Russia vaccine still has a long way to go before it becomes in any way in any way whatsoever a potential solution to this coronavirus this coronavirus virus I mean not not being funny I mean President Putin says he's given the virus not given the virus he's given the vaccine to his daughter yeah he's not confident enough to take it himself hmm okay all right I'm sold and we also have the prospect that the stimulus program that some US politicians have been bickering about will finally start to coalesce into some form of agreement now as the week's gone on expectations around that stimulus plan have started to diminish somewhat and I think a large part of the reason for that those expectations diminishing when Nancy Pelosi pushed back and essentially said that they still remain a million miles away is largely because of the data economic data out of the US is thus far so in little sign of slowing down weekly jobless claims for example have continued to improve yes they are still eye-wateringly high but nonetheless they have continued to improve dropping below the one million level for the first time since before the lockdown in early March more importantly continuing claims have also fallen back to 15.48 million now that's not to say they won't start to move higher again over the course of the next two weeks but at the moment the pressure is not there for US politicians to come to an agreement with US stock markets close to record highs and little sign at the moment that their inactivity and procrastination is causing a slowdown in any of the economic data that's coming out so where does that leave us well it leaves us starting to look at the German Dax and we can see after we bounced off the 200 day moving average with this key reversal here we started to move higher but importantly we haven't actually taken out the previous highs from July and we have now started to roll over so this is Thursday's price action this is Fridays we still are in positive territory for the week so putting aside all the geopolitics and everything else we still remain very much in a very slowly moving higher upward trend at the moment there is a risk however that we might start to run out of road because what we are seeing here is the first indications the new highs are starting to become much more difficult to maintain we haven't taken out this high here we've fallen short here now we could drift all the way back here more importantly we're still in a pretty broad range in the same range that we've been in since the end of May beginning of the June beginning of June and it's a similar story for the FTSE 100 now FTSE 100 could well struggle to maintain the gains that we've seen thus far this week and a large part of the reason for that is simply because the FTSE 100 has an awful lot of what I would call high beta stocks very very exposed very exposed to perceptions of an economic recovery and that then therefore makes it very prone to underperforming on the way up and overperforming on the way down ultimately we're still in the range that we've been in since the end of May and this little sign that we're likely to break out of it big big resistance above 6300 fairly decent support just below 6000 and I think that's likely to continue to be the way of it obviously new quarantine measures have been implemented on the part of the UK government we've seen the latest second quarter GDP numbers come out which were not the greatest numbers in the world but at the end of the day we also want the worst and lots been made of the 20% contraction in Q2 but what it doesn't take account of is the fact that Q2 pretty much accounted for the entire lockdown period for the UK economy we locked down later than pretty much everyone else and we've started to ease restrictions later than everybody else on the plus side and what we do have is a fairly decent rebound in GDP in June of 8.7% on a month-on-month basis so even though we've seen a 20.4% contraction in Q2 we are starting to see flickers of a rebound in economic activity in June and July and as we look ahead to the week ahead there's a couple of data items that I will be paying particular attention to when it comes to the UK economy and more specifically how that's going to affect the pound now what we've seen thus far from the pound is a fairly decent amount of resilience over the course of the past couple of weeks fairly decent support between 129.80 and 130 which I think offers optimism that we could well move higher now what we're looking at for the 20th of August is a couple of items we've got UK public finances and if you're at all worried about government finances then really I think you've got to sort of hide your eyes shield your eyes because no government at the moment is going to have healthy public finances so and what we've seen over the course of the last three months they've seen the government borrow over 100 billion pounds and which is an exceptional absolutely exceptional post-war intervention but just to support an economic shock or once in a lifetime economic shock that will reverberate for years to come so we've got an awful lot of speculation as to how long Chancellor Sunak will be extending the furlough I think he does have slightly more flexibility to extend it beyond October and the reason I say that is because when he initially when he initially rolled the furlough out I think there was an expectation that companies would make heavy use of it but more importantly probably wouldn't pay any of the money back well since then a number of UK companies have since said that they will be repaying the help they received from the government so in essence there you could make the argument that because of these companies repaying the furlough funds the government has actually probably spent less than expected in terms of the overall furlough payments so that could give them a little bit of wriggle room when it comes to potentially extending the furlough beyond October and anyway I mean with government bond yield still a very very low level is the two year and five years still in negative territory with a 10 year below 0.25% I don't think that what government needs to worry too much about onerous interest rate expectations still expecting to see a big number in July but I think the total amount spent so far probably been less than what was initially envisaged all the way back in April we've also got UK retail sales July now we we've seen a really decent bounce back in May and June we saw a 12% rebound in May seen a 13.9% recovery in the June at numbers so that sort of brings this nicely on to expectations around the July number for retail sales now that could go either way we I think we're expecting some number in the region of around about 1% to 2% so that would in essence be the third successive monthly rebound and pretty much put us back where we were say for example at the end of February beginning of March which in the scheme of things it's it's certainly a lot better than probably would have been thought to have been the case all the way back in all the way back in April May when things were looking not to put too fine a point on it pretty bleak we've also got the latest flash PMIs for August as well so as the economy continues to reopen some of those economic reopenings have been delayed somewhat but nonetheless they are they are continuing to happen albeit on a pretty piecemeal bit piecemeal basis we've got the latest flash PMIs for Germany, France and the UK and you have to remember the UK is slightly behind France and Germany in terms of the economic reopening so there's certainly potential for the pound potentially outperform the euro and we've also got the fact that UK EU trade talks are also scheduled to restart on the 19th of August and there is some optimism that there could be a deal as soon as September certainly I think it needs to be wrapped up by October but I think there is some optimism that some form of bare bones deal could well be sketched out so that there isn't a cliff edge to come the end of this year looking at the overall numbers in terms of the UK economy restaurants and bars have done a really good trade over the course of the past three to four weeks with the help of the Chancellor's eat out to help out proving a very popular so the UK numbers we could see significant improvements in those numbers UK services PMI flash PMI expecting a number in the region of 57 above the 56 and a half number that we saw in July more importantly in terms of France and Germany we're also seeing probably similar sorts of numbers 56.2 for France for the flash PMI and a number of around about 55.3 for Germany and those are all on Friday next week so let's have a look at this cable chart because I think when we look at this this has the potential to be a little bit of a smaller triangular wedge consolidation or a flag with a strong base in at around 130 130 tools 132 still remains a very very decent top we change that to a weekly chart we can certainly see that we've seen a very strong impulsive move higher could this be a consolidation between 130 and 132 takes up to 134 it's certainly worth keeping an eye out for because I think if we do get a break above 132 if you've got a stop loss on cable where are you going to put it on a short position you're going to put it above 132 so if 132 20 gets paid then you could see a very sharp move back to this 134 135 level so I'll be keeping a close eye on any move above that 132 level by the same token a sharp move below 129 80 is likely to prompt a little bit of a sell-off as well towards 127 80 so certainly keep an eye out on on the cable for that similarly euro dollar similar sort of consolidation potentially you could argue that might be the start of a potential head and shoulders because you've got a little bit of a left shoulder there ahead there and a right shoulder there what is significant however on a technical basis is this this this level here so you've got 116 90 116 18 so keep a close eye keep a close eye on that particular level there because if you get a breakdown through 116 80 you're likely to get a 250 point rapid move down to around about 114 so keep an eye out on those particular key levels on euro dollar and cable because they could prompt a significant move one way or tether what else do we have well we've got the latest fed minutes no I don't know I didn't headline with that but I think the minutes are probably less important than what's coming up a week later for the federal reserve because I think one of the things that we have that has been notable over the course of the past few weeks is how inactive the Fed has been in and around its various policy meetings is generally tended to act outside of them and one of the notable things about the performance of the dollar over the course of the past few weeks has been how weak it is certainly the attractions certainly the attractions of the US dollar have become much less as US Treasury yields have started to come down and I think that's one of the reasons why gold prices have done so well up until recently but there is some evidence that the dollar may be starting to find a little bit of a base and this 990 level on the on the CMC dollar index is a level that I'm going to keep a close eye out for I mean also you could also argue that it coincides with the previous highs on euro dollar as well around about one 1925 but nonetheless I think it's an important level so I think in terms of the publication of the minutes I think it is quite apparent particularly when you frame the minutes against Powell's Jerome Powell's for Fed chair Jerome Powell's recent comments about what the Fed needed to do with respect to future monetary policy he said that the Fed needed to hope for the best but prepare for the worst and I think he was aiming his comments more than anything directly at the politicians on Capitol Hill and the partisan nonsense going on there rather than the actual stop start nature of virus outbreaks because you know stop start nature of virus outbreaks we've seen them here in Europe in the UK and in the US you're going to get localized outbreaks and as a result you're going to see various quarantine measures implemented and that's going to make it very very difficult for certain sectors of the economy namely travel and leisure particularly travel airlines and travel companies and what have you but also I think in terms of expectations around future oil price demand we've already seen this week that the OPEC the IEA and the EIA all all very important oil agencies revised lower their outlook for crude oil demand not only for this year but next year as well it's become increasingly apparent this coronavirus pandemic or the virus itself is going to be with us not just until the end of this year but throughout the rest of next year as well until such times as a vaccine becomes available and ultimately the vaccine won't be the panacea or silver bullet that an awful lot of people think that it will ultimately you would argue that if you get coronavirus if you get coronavirus you could somehow be immune but that's not necessarily the case that doesn't necessarily mean you can't catch it again which means that if you have the vaccine it doesn't automatically mean that you then can't catch it so I think it's really about expectations of whether or not you can effectively treat it while keeping the mortality rate down and I think that's probably the most important aspect of the debate that's going to take take shape over the course of the next few weeks and months so in terms of the Fed minutes have gone slightly off topic there and I apologize for that. Powell made the claim or he made it clear that the Fed was in this until we're well through it now that suggests to me that there will there was probably some discussion of how to implement an extensively easy monetary policy how long it might last whether or not there was any further discussion of yield curve control personally I don't think there would have been that much simply because I think the main focus for this month won't be on the FOMC minutes but it will be on the Jackson Hole Symposium which is due to start on the 27th of August and this will be a virtual symposium this will be the first time that this symposium has been held on a remote basis not surprisingly because of the coronavirus pandemic which means that we won't get these wonderful vistas of the Grand Teton National Park and the Grand Teton Mountains over there in Montana and the topics that they're going to be discussing will be navigating the decade ahead implications for monetary policy so I think the Jackson Hole Symposium will probably be the key the key the key arbiter in terms of where monetary policy for the Federal Reserve goes to next and it's probably going to be less about the minutes that are going to be released on the 19th of August so certainly in terms of the dollar the trend is very much down if we're going to get a rebound on this particular dollar then we need to really move above this series of peaks here so you're looking around about 1003 this this particular high on that candle there but certainly a strong move back above 1000 in the short to medium term we've also got the latest weekly jobless claims that talks a little bit about them at the beginning of this of this presentation and again you know I think the fact that the US economic data that we've seen this week thus far has been fairly positive I think has tempered expectations of an imminent stimulus deal and I think that's why you're seeing a little bit of weakness towards the back end of this week and the fact that that doesn't appear to be any indication in the short term that US policymakers are inclined to make any sorts of compromises so the claims numbers are back below a million nine hundred and sixty three thousand and a continuing claims are below sixteen million so unless these levels start to rise again and there's a good chance they might we're only two weeks into August so there could be a little bit of a lag effect in terms of the data then I think it's highly unlikely that we're going to see much progress on the jobless claims front let's look at the S&P 500 slightly softer haven't quite reached the all-time highs that we saw all the way back in February all the way back here but we're pretty much as close to three thousand four hundred as you can throw a stick at it but definitely the trend still remains towards the upside for the S&P the NASDAQ has continued to outperform as all of the big tech companies continue to act as safe haven proxies companies like Apple made new record highs this week but also we can't forget Microsoft, Amazon and Alphabet all have continued to do well making good use of their huge balance sheets and massive market share in their respective markets and you can see that here in terms of the NASDAQ so very much in an uptrend here drawing a line through the March from the March lows we so far respected that line on the advance higher. Can I have a quick look at gold in the wake of the big sell-off that we saw at the end of last week or the beginning of this week there was that key reversal day then we got the strong move down which we saw last Friday, key reversal day on the Friday, Monday and then the sharp move down as treasury yield spiked earlier this week over rising inflation concerns in the US economy we saw those big jumps in PPI and CPI which sort of fed into a narrative of potential recovery and higher pricing pressures. What was interesting about this down move was that we again respected the trend line from these March lows and have rebounded off it now can we get back above $2,000 an ounce well I think that's going to be the next key resistance level and only rebound this series of highs through here which is around about 1975-1980 that sort of area there 1988 yeah so basically between 1980 and $2,000 an ounce we can get back above through there then the move higher can definitely continue if however we fall below that and there was certainly potential for us to fall all the way back towards a 200 day moving average but ultimately the upward trend continues to remain intact for now also looking at a couple of a couple of a couple of other key earnings announcements we've got the latest first-half numbers from Cineworld which were postponed from a couple of weeks ago and the prognosis for Cineworld I have to say does not look great this month's decision by Disney to push their new cinema release of Mulan straight to Disney Plus is another body blow for the cinema industry now you know they would be the share price of Cineworld did pop higher earlier this week and that was largely as a result of a ruling by a US judge that overturned the rules that dictated the release of how films are released in the US since the 1950s Hollywood has had a monopoly on how films could be produced exhibited and distributed which is the practice that has now had time called upon it now what this has done is that it's taking the control of how films are released out of the hands of the big Hollywood production companies and put it back where it should be I think in terms of the cinemas and how they want to and what films they have to display but of course what this has also done is it's raised the prospect that some of these big Hollywood companies could actually look at basically buying a cinema chain to try and get that so called monopoly back now certainly there is there is probably some business sense to that sort of logic but when you actually look at the shares of Cineworld and they've certainly taken a battering which means that the shares do look cheap they're cheap for a reason and the reason they're cheap is because of the company's debt Cineworld has an over two and a half billion dollars of debt because of the fact that it bought the regal scene regal chain of cinemas two or three years ago and footfall is already at record low levels had been in decline even before the coronavirus pandemic and now these new rulings mean that you have to wear face masks when you go to the cinema but I'm not being funny the whole point of going to the cinema is to have a couple of hours of escapism from what's going on in the real world by and large it's very difficult to sort of immerse yourself into that escapism when you've got to stick a face mask on so for me you've seen a bit of a rebound in Cineworld shares but the big question I think to me is whether or not they can actually reopen effectively and actually more importantly actually get people through their doors so they've seen a big spike above 60p big question is can the numbers that they're going to bring out over the course of the next few weeks or in terms of how what what measures are they going to be able to take to actually underpin the share price and continue the recovery that's been in place since the lows of early this month around about the 10th of August. Now Cineworld we've also got Walmart that's had a really good run and one of the few US retailers that can compete with Amazon in its first quarter numbers E-commerce sales saw a rise of 74% pretty much everyone shopped online during the lockdowns the only problem with that was that the company had to employ an extra 200,000 people to help clean stores stack shelves and get online orders out of the door or that counted for an extra 900 million dollars in costs so even though the company turned over much more than expected in Q1 its costs also rose as well so it's all big as the question is is that already priced in we could also get some details on the progress that Walmart is having in terms of spinning off ASDA there was some talk earlier this year in July in February and July about an IPO of ASDA so it'll be interesting to see whether or not that's got legs or whether or not there has been any progress in terms of spinning off ASDA into a private equity type of offering I would have suggested that an IPO probably seems much less likely given the even thinner margins facing the supermarket sector in the UK but certainly in terms of Walmart's price action very much the trend in it trend is your friend in terms of this particular this particular company last but not least we've got person in the UK house builder which has outperformed pretty much ever since the chancellor announced the stamp duty holiday all of the house builders have performed fairly well certainly recent mortgage approvals data suggests that consumers are becoming a little bit more cautious certainly average selling prices for person and have been a little bit higher but all in all the outlooks probably looks more promising with respect to demand outside of London than it does inside of London certainly in a post COVID world I think people are probably not as incentivised to live in highly dense populations and one would probably consider about moving further out now that working from home has been proved to be a fairly achievable prospect so that's personal let's just finish up with Brent Crude a little bit of compression in terms of the 50 and 200 day moving average but ultimately Brent Crude is not really going anywhere at the moment it is still continuing to slowly edge higher but it is very very tight range and to all intents and purposes pretty uninteresting so I think that pretty much sums up everything that I really wanted to go through this week just quickly looking at my sheet of paper to see if I've missed anything out and I don't think I have I mean there are other earnings announcements due out like Nvidia Q2 numbers Home Depot Q2 numbers Deer and Co Q3 numbers so I mean in terms of the overall week ahead the highlights of the Fed minutes UK retail sales US weekly jobless claims UK EU trade talks and China US trade talks as a as an aside are also supposed to be restarting this coming weekend but I'm not anticipating anything significant from those and those those could be famous last words but in the interim thanks very much for listening this is Michael Houston talking to you from CMC Markets