 Good morning and welcome to CMC markets on Friday the 5th of October and this quick look at the week ahead beginning The 8th of October, but before we get on to that and the return of Chinese markets I think it's important to look back at the events of the last few days because I think we've had a choppy week for equity Markets on both sides of the Atlantic. We've seen the Dow make fresh new record highs But by contrast we've also seen the S&P and the Russell 2000 underperformed particularly the Russell 2000 Which has really accelerated moves lower over the course of the past couple of weeks And this divergence I think in US equity markets not only in US equity markets But also I think in European markets is I think making things a little bit Confusing for where the overall market direction is headed to certainly if we look at the DAX We can see that the downtrend that's been in place since the June highs remains firmly intact Concerns about European politics particularly. I think Brexit talks That's not that there is not a binary outcome between the UK and the EU But also the deterioration in the rhetoric between Italian politicians and the EU I think is weighing on risk sentiment in the Euro area And that's before we even start talking about the Breakdown in talks between China and the United States over trade with the Latest chip story unlikely to make things any better. So Looking looking ahead to the next week or so I think the big story of the week has been the rise in the US dollar But also the rise in US Treasury yields Now earlier this week. I wrote a piece on US US 10 year on the brink and certainly I think the breakout that we've seen earlier Earlier this week Above the highs that we saw in May and to the highest levels since 2011 has got an awful lot of people speculating that we could be on the cusp of a big move higher in the two and in the US 10 year Yields and a big sell-off in the US 10 year Treasury Now While I think there are concerns that inflation may be May well be coming in higher than people had expected. I think one of the drivers behind this move higher in yields Was comments earlier this week by J. Powell chairman of the Fed where he did a little bit of a reverse ferret on his comments At the FOMC press conference a week before In particular his remarks that were a long way from neutral have raised the prospect that raise could go quite a bit higher in The next few months particularly since he went on to state the interest rates Were still accommodative even if they aren't extremely accommodative now Obviously that's got an awful lot of people speculating about the pace of future US rate rises And I think it's made a December rate rise that much more likely more importantly I think what it's done is it's made markets consider very seriously the prospect that we could see three or four rate rises next year As well, and I think that's caught an awful lot of people the wrong side And I think that more than anything is what's caused this big sell-off in US treasuries But we are on the cusp of a very very key level on the US 10 year is between three point two percent and three point two five percent And that's where the two hundred month moving average is and you can read my comment You can read my commentary piece on the news and analysis section and the carousel Section of the website just scroll across and you can find it to listen to my thoughts or Read about my thoughts on the particular topic in question more importantly We've seen a bit of a break higher in the dollar index, but it's not been totally Conclusive if we look at this chart here, we can see what I would call a counter-attack candle So we had a very strong move higher on the Wednesday We opened quite significantly higher on the Thursday and closed pretty much back Where the previous close was the previous day that is called a counter-attack candle And that suggests to me that maybe just maybe this recent run higher in the dollar May start to run into a bit of steam But of course all of this is caveated by the fact that I'm recording this video just prior to the non-farm payrolls report and that could change the picture Completely we've had some really decent economic data this week out of the US If wages data this afternoon later this afternoon and the payrolls report later this afternoon Comes in particularly hawkish Then we could have another crack higher in the US dollar, but we could also see further pressure exerted In higher US yields now given the fact that we've already risen quite sharply from 306 percent already this week And they're currently sitting at 3.2 You have to question whether or not a slightly higher wages number isn't already priced in so I think you've got to Gotta bear that in mind. I'm recording this video blind It could be completely out of date by the time you listen to it on Saturday or Sunday So looking ahead To the upcoming week. I know I've used about five minutes of this video already We've got the latest UK. It is quite UK centrics next week. Obviously the brexit talks are likely to hang over the market There's still an awful lot of concern that there may be no deal on the Irish border And at the moment that does appear to be weighing on sentiment a little bit having said that the pound is looking fairly well supported So I think there's an awful lot of positivity seeing the economic data this week But ultimately while both sides are basically indulging in a staring contest Ultimately, they will come to an accommodation. I certainly think that's what the markets are pricing in We can certainly see that in the context of this cable chart posted a fairly positive daily candle On the Thursday of this week, which might suggest that we could well have another move higher We're still broadly in this uptrend from the lows in August and until such times as we take out one twenty eight fifty I'm not overly concerned that we're going to start to fall off a cliff EUR a dollar slightly more problematic. We did break below one fifteen found support around about one fourteen sixty Could well find a little bit of support down here But ultimately even if we do break lower, I don't see us breaking much below one thirteen in the short to medium term So looking ahead, we've got UK GDP and UK trade and that's out on the 10th of October, which is on the Wednesday Now last last, you know last week's September this week September PMI numbers have showed that the UK economy I think ended the quarter on a positive. No Manufacturing was at a four months high after a slowdown in August And I think the monthly GDP number should show an economic expansion of 0.3 helped by that rebound in manufacturing We've also got manufacturing and industrial production data for August On the Thursday and again the PMI data shown that manufacturing activity slowed sharply in August so that could well be a disappointing number Exports were a particularly weak area Now this could have been just a summer holiday induced slowdown as a result of maintenance shutdowns in key areas And probably won't be shown in next month's numbers So I think and let's nonetheless July. I think was a decent month And I think a rebound in September could actually offset that but we won't know that for at least another four or five weeks We've also got China trade And I think the big question here when China's Chinese markets returned from their Golden Week holiday Is whether the further implementation of US tariffs last month could have Significant effects on the Chinese surplus, which was at a record level in In in September. Oh, sorry August So I think judging by recent US data in the other direction the imposition of 10% tariffs that appears to have made a little difference having said that These will be the first numbers that could be affected by the 200 billion Dollars of tariffs that kicked in towards the end of last month And I think that's going to be a key area in the context of How Chinese exports do relative to imports? We've also got US CPI for September. That's going to be particularly prescient given the big jumps that we've seen in Prices paid in the recent ISM surveys As I had pointed out in my earlier on in the video Fed chief Jay Powell was at pains to admit that US policy makers weren't seeing much evidence of inflation repressions at the FOMC press conference He went he deviated from that slightly earlier this week So I don't think it's immediately clear what Fed policy makers views are with respect to inflation Certainly the move higher in oil prices is going to have an effect and it's certainly going to have an effect on Emerging markets in the days and weeks ahead particularly if we move to $90 a barrel Emerging market currencies still remain under enormous amount of pressure India in particular Indian Rupees made record lows as have a number of other currencies In emerging markets the Indonesian Rupiah for example has gone back to levels last seen in the Asian Financial crisis and the Turkish lira also still remains under pressure and we've also got the Chinese one which is back at 6.9 so The emerging market story still remains a story Particularly if the oil price continues to move higher, which I think there's a good chance that we could well head towards $90 a barrel. So certainly over the course of the next few days in the next few weeks The oil price story is going to be a factor the yield story is going to be a factor and the emerging market story It's going to be a factor There's a lot to get your teeth into Hopefully we'll be able to get the direction right or the general direction right. So that's it for this week Thank you very much for listening. It's Michael Houston signing off from CMC markets