 Good morning, welcome to CMC markets on Friday, the 22nd of October, and this look at the week ahead, getting the 25th of October, I was going to say a quick look at the week ahead, but unfortunately I don't think there's going to be any way that I'm going to be able to do this fairly quickly, because we've got a whole host of things to talk about over the course of the next few days from the macro to the micro to tech earnings and UK bank earnings, so we've got quite a bit to get to, we've got quite a bit to get through, and hopefully we'll be able to do so without sending you, without sending you guys to sleep. So to start off with, let's look at the markets as they are today, and it's been fairly choppy week for European markets, less so for US, we've seen new record highs, video S&P 500 and the Dow, the NASDAQ has lagged a little bit, and I think that's concern over various supply chain disruptions for tech companies and what have you. We've already seen some of the effects of that in the results from, for example, Intel, which seen a little bit of a disappointment over its numbers, SNAP, which could be a leading indicator for Facebook, which is due to report its numbers this coming week, and even Tesla has cited supply chain concerns, even though it posted record revenues and record profits. So, as we look ahead to the upcoming week, the FTSE 100 continues to look fairly well supported, even though we did have a big fall on Monday, and we have managed to rebound off those lows, which is around about 70-180, so I think in terms of the key support on the FTSE 100, anywhere between 70-180 and 70-190 appears to be acting as a fairly decent area of support in the short to medium term. We have seen a little bit of a bearish reversal on Monday, but we've seen an awful lot of these types of candles. We saw a bearish monthly reversal on the S&P 500 last month, and yet we posted yet another record high in the past few days of this month, so you've got to be very, very careful when you look at these sorts of key day reversals, key month reversals or key week reversals, they do require confirmation on a break below a key support level. At the moment, the key support level on the FTSE 100 is between 70-180 and 70-190. If we drop below that, then we could well drop back to the 50-day moving average, so still fairly constructive on equity markets. If we look at the DAX, or the newly formed Germany 40, it's having trouble getting back above the highs of earlier this week or the end of last week, 15,600 and the 50-day moving average, so I'll be keeping a close eye on that key level over the course of the next few days, but nonetheless, I think the fact that US markets are able to push up to new record highs continues to show that there is an appetite to own stocks despite the rising inflation outlook, and that's something I think in particular that we'll be paying much closer attention to over the course of the next couple of weeks in the central bank response to that. We've heard an awful lot of concern the Federal Reserve is behind the curve when it comes to outlining its exit from its very accommodative monetary policy. On the flip side of that, we've got concerns the Bank of England could be on the cusp of a policy mistake because it could potentially raise rates by the end of this year. Well, both can't be right, and I think this is the problem at the moment. On the one hand, the Fed's been criticised for not being fast enough, and the Bank of England has been criticised for arguing the case for rising interest rates, but we have to be realistic here. The economies of the UK, the US are not in the same state they were at the beginning of March 2020, so I think it's entirely justified given what's happening with inflation that central banks start to temper inflation or anchor inflation expectations. Now, that doesn't mean that we're going to stick rates up, the UK rates up to 1% by the end of next year. That's clearly ridiculous, but there needs to be a middle ground, and certainly I think QPIL, the new chief economist of the Bank of England, has pretty much outlined that in his comments in the FT on Friday. We've got the ECB rate meeting coming up on the 28th of October, and we've also got the Bank of Japan. Now, both of those central banks aren't going anywhere with their monetary stimulus measures anytime soon, and certainly the Bank of Japan. I'll be surprised if they do anything significant at all. They've got elections coming up in November, so they'll want to be as politically neutral as possible. The ECB, on the other hand, has seen Jens Weidmann resign or basically announce that he will be leaving at the end of this year, and to be quite honest, it's not hard to see why. I think when you've been banging on for the last 10 years about the risks of loose monetary policy, inflation risks and what have you, and got precisely nowhere, you sort of think to yourself, why am I even doing this? I think he cited personal reasons, and he may well have very, very good reasons for doing that, but ultimately he hasn't really tempered the largest of the ECB, and yet next week, the day after the ECB meeting, we've got flash CPI for October, and if Germans weren't worried about inflation before that, well, I'm sure they're pretty worried now because PPI, at the most recent reading, came in at its highest level since 1974, around about 14%. So looking at the flash CPI numbers for the 29th of October, for October, that is expected to go up to 3.7% for October, with core CPI expected to rise from 1.9% to 2%, and I think that's what the ECB is going to be hiding behind. It's going to be hiding behind the core CPI argument that it is transitory, that the PEP program can be moved in either direction, and certainly ECB President Christine Lagarde has certainly made a nod to that, and I think she will double down on that when she holds her press conference later in the week. So what does this mean for Eurodollar? Well, to my mind, given the fact the ECB is likely to remain on hold for quite some time, it's going to be making it very, very difficult for the Euro currently in a slight uptrend on the 4-hour chart to really sustain much in the way of gains, much beyond 116.80 or even 117.5%, because going all the way back here, we have been in a steady downtrend. Yes, we have started to ratchet a little bit higher, but you've really got to look at Eurodollar and think it has to be very much sell the rally type of market, and certainly on the 4-hour chart, while we are starting to see upward momentum when it comes to Eurodollar, you've got significant area of resistance around about 117.60, and there's likely to continue to be the case going forward, because the Federal Reserve at some point in the future will start to reverse TAC when it comes to its pairing back of its bond buying program. So in terms of next week, we've got an ECB rate meeting due on the 28th, obviously supply chain disruptions, concern that the ECB is underestimating the inflation risk, that manifested itself in the latest minutes, and the disruption to supply chains is putting upward pressure on prices. This week's CPI numbers aren't likely to soothe those concerns. If anything, they're likely to crystallize the divisions on the governing council. We've also got third quarter flash GDP. It's likely to be fairly similar to US third quarter GDP, which is also due out later in the week. Both of these are expected to see a little bit of a slowdown when it comes to the third quarter. The EU GDP is probably likely to flatline more than anything else. A little bit of a drop on the year on year level, but around about 2.1% EU GDP on the quarterly level. As far as US third quarter GDP, consensus is for a slowdown to 2.3% in Q3 from 6.7% in Q2. We already know from the dropping consumer confidence numbers that we've seen over the course of the past few months that US consumers are a lot more cautious than they were. Retail sales growth has been patchy. It's certainly been better than UK retail sales, which has been pretty much rubbish since April. One notable takeaway from the US GDP numbers is the resilience in personal consumption, which was 11.4% in Q1 and 12% in Q2. I'd be paying particular attention to that rate in the early Q3 numbers when they come out later this week. So those are the main numbers out of the US as well as the EU. I'm going to finish up by talking a little bit about the autumn budget on Wednesday. What else can we expect from the autumn budget? Apart from, obviously, in addition to the 1.25% national insurance hike that's coming at the beginning of the next tax year. Certainly, I think the fact that public sector borrowing is around about 20 billion pounds a month. There is concern about the surge in energy prices, food prices at the same time as furlough is ending, and the universal credit uplift is coming to an end. Certainly, in terms of furlough ending, with 1 million vacancies, the party line or the narrative from the Chancellor will be, well, there's plenty of jobs out there. Go and find them. We could see the government offer additional support to help vulnerable households over the winter period. I'm not really sure what form that would take. I don't think they'll go down the route that the French government announced earlier this week of a 1 off 100 euro voucher scheme to 38 million low and middle income families aimed at offsetting the impact of rising energy prices simply because there's no election here in the UK next year and there is in France. So I think the Emmanuel Macron is looking to buy off French voters or the 38 million low and middle income families which are feeling the effects of the big rise in energy prices but he could look at other measures. Government's already coming under pressure to deal with climate change ahead of the COP26 next month. We could hear about how the government intends to go about encouraging households to replace gas boilers with heat pumps as well as helping motorists to transition to electric vehicles both of which I think are pie in the sky because unless you actually improve electricity grid capacity all you're doing is you're just placing additional strain on existing infrastructure and what generates that electricity if the sun isn't shining and the wind isn't blowing. You need a third option whether it be nuclear power or whether it be gas and I think politicians need to be braver at pushing back against the green lobby. I think the government's current strategy seems to be based on the hit and hope variety where they set out a goal without any idea of how to get that. So that could be one takeaway. He could look if you recall his last budget the 130% super deduction for investment in plant and machinery assets. He could extend that to green technology and green innovation. That would certainly be one idea to try and help transition to a much greener economy. The government also needs to look at business rates. They're no longer fit for purpose with traditional retail stores getting clobbered at the expense of the online retailers. So that's another thing that he could look at. So in terms of whether or not we can expect the Bank of England rate hike, I think we'll get one. I think it'll be 0.15% and as long as they manage expectations about future rate hikes, I think it's certainly eminently absorbable. I certainly don't think that the Bank of England is in the cusp of a policy mistake. The guidance mistake if they don't strike the right tone or the right balance but certainly rates back at 0.25% by the end of the year is eminently manageable. And that should be fairly supportive of cable, certainly in terms of where we are now. We've got fairly decent support in and around 13720 and we're finding a little bit of resistance around the 200 day moving average. So we really need to push through that. But overall, if we look at, say, for example, euro sterling, again, it's a similar sort of story, fairly decent support in and around 8420. It's held on 1, 2, 3, 4, 5 days in a row. So if we get a decent break below 8420, there's not really anything there until all the way back here, February 2020 lows, just before lockdown, and around about 83, 8280, there on thereabouts. But certainly the direction of travel for euro sterling for me is for a move lower. We could squeeze back to around about 8470, 8480, but the bias for me remains very much for a stronger pound, especially against the euro. So that's the that's the autumn budget. So it's certainly worth keeping an eye out for. Now we're going to move on to the earnings numbers and we've got a whole host next week. So let's start with Lloyd's banking group. We certainly got a decent set of numbers from Barclays earlier this week. Now for me, the big level on Lloyd's is this 50p level. There was these peaks back here in June, early this year. There was also a decent area of support all the way back here. So it's a fairly key level for me in terms of where we can potentially go to next for Lloyd's banking sector. This year's been a notable outperformer. If I press the year to date button here, we can see that as a general rule, we've seen some fairly decent gains, fairly decent support. If we look through here around about 48p and as far as things go, the bank has done fairly well. The bank's already resumed dividends. We could get an announcement about a special dividend or a potential buyback on the customer side. Mortgages have seen some fairly decent numbers this year. In Q1, Lloyd's said they expected their interest margin to be more than 245 basis points. That was up from 240 at the end of the previous quarter. In Q2, they upgraded that to 250 basis points. They've got the best margins amongst the best margins amongst the UK banks compared to, say, Nat West, which is around about 1.3, 1.4 and HSBC. We're also reporting this coming week 1.21. It is looking a little bit overboard. You could argue that some of the good news or most of the good news is already priced in and the UK economy is likely to go through a sticky patch as we go into Q4. Certainly that is a valid concern. It's very much a valid concern when you look at the retail sales numbers. One thing I've taken from some of these recent numbers from Nat West, Lloyd's and Barclays is that consumer deposits have gone up. Credit card spending has gone down. I'm not saying all consumers, most consumers have probably got quite a bit of additional savings to fall back on. Certainly I think the money is there. The big question is whether or not it actually gets used. In terms of the wider economy, the loanbook structure did see declines in the previous quarter in small business and corporate lending. Certainly I'll be looking to see whether or not businesses have started to become more confident in the future since the relaxation of lockdown. That's going to be as true for Lloyd's as it is for Nat West. I'm going to try and cover these both at the same time. If we look at Nat West Group, they're pretty much exposed to the UK economy in the same way that Lloyd's is. Obviously they're coming from a much lower base. If we look all the way back here, we're still below the highs that we saw back in 2019, but we've managed to recover all of the pandemic losses that we saw from February 2020. The big level on Nat West, let's just draw a quick horizontal line through the top of that. We can see that we've more or less just about broken through it. These numbers are going to be a key test for Nat West. I think one thing in particular I'll be paying particular attention to for Nat West is whether or not they're able to improve their margins. As I say, they haven't really shown any sign of picking up. They are finding the price action is a little bit stodgy in and around this 230-240 area. It'll be interesting from my point of view whether or not we start to see an improvement there and whether it is able to continue to expect to distribute a minimum of £1 billion per annum to shareholders from 2021 to 2023 for a combination of ordinary and special dividends. Just to remind yourselves that their margins back in Q2 were around about 1.61% and last year they were 1.89%. There's room for a significant rebound in Nat West margins and certainly I think the recent move perceptions of higher interest rates have certainly helped the UK banks in that regard. HSBC, slightly different story, obviously much more exposed to Asia, heavily exposed to Asia. The only question that I have with respect to HSBC is how much has the China slowdown impacted its numbers going forward? Because when HSBC reported its first odd numbers back in August, the numbers were fairly impressive but revenues were lower. More importantly, when it reported its numbers in August, shares continued to fall. Now they've rebounded quite significantly since then and I think the asset test for me is how much impact has the China slowdown had on its business and the Evergrand situation? How much exposure does HSBC and Standard Chartered have to that? For me, when I look at HSBC and I look at the major US banks, the key takeaway was underperformance in FIC, fairly decent performance in equities and what have you and fees, banking fees and what have you. But for me, with HSBC's exposure to Asia and China in particular, how much of a hit will have that taken on their equities business? And looking at the way this price action is looking at the moment, it does feel a little bit frothy. So maybe we're building up for a little bit of disappointment in HSBC's numbers, which are due on Monday. Okay, so let's quickly move on to tech because we've got a whole host of other numbers that are due out. We've got Whitbread for a start, they're due out on the 26th, they're due out on the Tuesday. But we've got Facebook, we've got Robinhood Markets, we've got Microsoft, we've got Amazon, we've got Apple, we've got Alphabet, we've got Boeing. Now with the best will in the world, I'm not going to cover all of them. But what I am going to talk about is Facebook first and foremost, an awful lot of bad publicity in recent weeks. On Thursday, SNAP while beating profits on profits fell short in revenues. And the share price absolutely tanked, I mean, it tanked over 20% after hours, 25%. So as a proxy for Facebook, what does that mean for Facebook numbers when they come out? Or Q3. Now in Q2, we saw a 56% rise in Q2 revenues, just over $29 billion. Profits also beat forecasts at $10.3 billion. Monthly active users also rose 7% year on year, it's $2.9 billion. The big question is, all these Apple Privacy changes, which they've warned about and which the markets appear to have shrugged off, they came home to roost in SNAP's numbers. So will we see a similar reckoning when Facebook reports its latest numbers this week? Profits are still expected to come in at a relatively healthy $3.16 a share compared to the $3.61 that we saw in Q2. So watch the 200-day move in average because that has managed to hold most of this move higher in Facebook shares since May last year. If we get a disappointing number, this really needs to hold, otherwise we could see Facebook start to roll over. Apple Privacy changes, new products, iPad upgrades, Apple Watch 7 upgrades, the new MacBook Pros. All of these new product launches from Apple continue to support the share price, but again, are we starting to see a little bit of failing momentum? Are we starting to see supply chain disruption hitting what is the cash machine that is Apple? They've already announced that they're cutting iPhone production by a considerable amount. Now whether or not that was to basically shift some of those chips to their MacBook Pros, only they will know, but certainly they are big ticket numbers in terms of the iPhone 13s and what have you. So maybe in terms of cutting their iPhone production, what they're doing is they're shifting those chips away from the iPhone and towards the upgrades to the MacBook Pros. Nonetheless, profits are expected to come in around about $1.23 a share. Apple was still not offering guidance for any of its quarters, but that still hasn't stopped the upward movement in its share price. And certainly when we look at the direction of travel for prices, we're still very much in the overall uptrend. So again, 200-day moving average and the trend line support. So it's interesting how all of these sort of tech shares are still fairly close to the 200-day moving average and still significantly above them. So the trend is still higher. The big question is whether or not that trend could well be on the turn as we head into the final quarter of this year. This is Apple's Q4, by the way. I'm going to finish off with Microsoft. And again, look at this, another decent uptrend for Microsoft. It's only been a decent year for Microsoft's share price. I think for me, more than anything else, I'm going to be particularly interested in uptake of Windows 11, which went live on the 5th of October. So in terms of their guidance going forward, I'll be particularly interested in that. Obviously, we've seen fairly decent performance from personal computing and gaming, which has had a fairly decent year helped by the XboxX new gaming console. This is Microsoft's first quarter. It was a record revenue number in Q4 of $46.15 billion, driven by a 50% rise in Azure, which is their cloud business, which competes with Amazon. And that saw revenue rise to $17.38 billion. The downside was obviously Microsoft branded surface PCs declining 20%. Largely again, supply concerns. Licensed revenues from consumer PCs also saw declines due to supply concerns. However, what I would say is that slowdown could have been as a consequence of people holding back because of the launch of Windows 11. So it's difficult to tell the difference between the two there a little bit. Anyway, for this first quarter, Microsoft said it expects revenues to come in between $43.3 billion and $44.2 billion, with profits expected to come in at just over $2 a share. Keep an eye out for Amazon's Q3 numbers on the 28th of October. Alphabet on the 26th as well. Robinhood markets on the 26th in addition to that and Boeing as well. Keep an eye out for Boeing and aircraft orders and what have you. So I've pretty much gone on maybe gone on a little bit too long. But as I say, there was an awful lot to get through. So thanks very much for listening. Hopefully there won't be as much to try and cram in next week. But in the meantime, I'd like to wish you all a great weekend. Thanks very much for listening. It's Michael Houston talking to you from CMC Markets.