 Good morning. Welcome to CMC markets on Friday the 18th of August and this quick look at the week ahead beginning the 20th 1st of August 23 It's not been a good week for the footsie 100 Five looking on course for five days of declines on top of a for on top of a poor finish To the end of last week With the index down over 4% Over the last five days down at five week lows and More broadly while the performance of the DAX has been slightly better the narrative for this week has been pretty much a case of Stock market weakness So what's caused it? Well, there's a number of factors at play concerns about the health of the Chinese economy The the the banking system the property sector country garden Potentially restructuring There you've also got Evergrand filing for chapter 15 Bankruptcy Protection in New York And a missed coupon payment or a missed payment from Zhongji, which is a Chinese wealth trust fund which suggests that perhaps it has significant exposure to the Chinese real estate market, so There's there's an awful lot of concern about the growth prospects for the Chinese economy So more disappointing economic data early this week in the form of retail sales industrial production all coming in well below Expectations unemployment rate in China ticked higher and they didn't publish a number for youth Unemployment which at the last count was around about twenty point nine percent So that's probably gone up in Chinese youth unemployment Measures the unemployment rates of those between sixteen and twenty four So we've got Weakness coming out of China That's a double-edged sword to some extent because ultimately I think if there was a big China rebound Then you could well see oil prices Starting to head back to was $90 a barrel the fact that we're getting a weak recovery out of China Could well temper some of the upward pressure that we're seeing in inflation Over here in Europe as well as the US. We've also seen Higher bond yields this week. That's no better illustrated than in these particular charts here This for example is the UK 10-year guilt yield Which is at its highest level Since 2008 what's been notable? I think recently About the rise in yields that we've been seeing on the bond market as it has been the fact that we've been seeing a Significant increase in the longer end of The guilt curve as opposed to the shorter end But that's not to say that the shorter end isn't rising to it is we've got UK two-year guilt yields here On the up over the course of the last five days. We're seeing a little bit of a pullback now That's largely as a consequence of this week's Wages unemployment and inflation numbers today. We got UK retail sales, which were disappointing Coming in much worse than expected But that's also got to be put in the context of the fact of how they're measured Measured very much on a volume basis If you actually look at the value basis of UK retail sales, they're actually up So essentially what's happening is because consumers having to pay higher prices and having to pay more to get less If we looked at the July retail sales numbers in terms of spending Barclay card sort of big 15.8% rise in spending in July Largely on the back of entertainment expenses, so Stuff like Cinema visits music venues live events including Taylor Swift Taylor Swift concerts also saw big movie releases during July and the Anna Jones and the Dala destiny mission impossible dead reckoning Barbie and Oppenheimer so there was no Barbie bounce in retail sales, even if spending Was higher than the previous years Consequently that disappointing retail sales number has prompted a little bit of a slide in Guilt yields though. I would argue that that could well be just a consequence of a little bit of haven demand for bonds today On the back of the weakness that we're seeing in equity markets if we look at say for example US to year yields, you'll probably see a similar sort of trend taking place Just bring that up here. There we go Though we've got and retested that 5% level on the two year pulled back a little bit if we go US 10 year We can see that even though we've seen a move higher in two year And we're seeing a little bit of a pullback again today in terms of yields. If you look at the 10 year We're back at levels last seen in 2008 So again seeing a little bit of a pullback after some strong moves higher in yields and the same applies to The German German 2 and 10 year as well And I think that speaks to a slight change. I think in emphasis when it comes to Interest rates. I think for so long The debate has been about high How high Interest rates would be likely to go and I certainly think there is potential For more rate hikes, particularly from the Bank of England, even though those retail sales numbers were disappointing We're still pretty much priced for a 25 basis points rate hike by the Bank of England at their September meeting although I would caveat that with The fact that we still have another CPR report And a wages and unemployment report between now and then but certainly the wages data that we saw this week 7.8% 8.2% if you include bonuses Obviously an awful lot of that bonus number was as a consequence of an NHS and public sector bonus Which is very much a one-off and is unlikely to be repeated but certainly 7.8% wages Coming against a backdrop of an inflation rate that in June was at 7.9 Means that we are slowly starting to claw back That's a real term real time real earnings real earnings drop that basically has been that has hit UK consumers over the course of the past 18 months We are now potentially starting to turn positive in terms of wages Relative to inflation and I'm not necessarily I don't necessarily think that is a bad thing It's certainly not a wage price spiral Which is what some people on the Bank of England are suggesting it might be what's happening is that wages are slowly starting to catch up to the 15 20 percent increase in food prices and other prices That have been squeezing consumer incomes over the past 18 months that for me is not a reason to hike interest rates aggressively further ultimately we still have quite a bit of lag to come through in terms of tightening in terms of Consumers rolling off the fixed rate mortgages and going on to new much higher fixed rates And I don't think that we've seen even the beginnings of that start to Take effect and that is likely to be a potential drag going forward on the plus side however Savings rates have been edging higher over the course of the last six months So if people have been on a fixed rate mortgage, they will certainly have been getting a higher return if they do have any savings And inflation has been slowing and if you shop around You can certainly I think get much lower prices relative to what food price inflation is currently trending at at 12.4% Particularly if you've got a loyalty card or what have you so I would imagine that in some respects you are already seeing price cuts on Staple goods like milk eggs and what have you looking forward It's going to be a fairly well it's shaping up To be a fairly light macro week coming up. We've got the Jackson Hole annual symposium, which starts on the 24th This week's This week's Fed minutes just gone didn't really Add to the add to the sum of overall knowledge When it comes to what the Fed is likely to do in September The bias I think for me is still erring towards another pause a hold if you like, um, I think one of the Things that stood out from this week's minutes that there was only two US policymakers who favored a hold or erred towards holding rates in july I would have expected it to have been more than that and essentially I think that's what also helped push rates higher, but certainly in terms of the framing of the debate um around How high interest rates are likely to go I think people are now more concerned about not by how much further they have to go but how much How long are they likely to stay at current levels? And I think that's why you've seen rates at the longer end Start to go higher because I think there was a perception Which has now started to shift the Once we'd hit peak rates we'd see rate cuts quite quickly That no longer looks to be the case However, obviously that doesn't That doesn't include the scenario whereby china exports deflation Because of an economic slowdown There so I think we need to obviously keep that in the back pocket We've already seen ppi in the uk Head into negative territory in the july numbers And I think the bigger concern going forward It's not so much about headline cpi. It's about really about how resilient core cpi is And that remains steady in july at around about 6.8 percent But certainly I think on the headline numbers We should start to see headline inflation head back towards 5% by the end of this year Which would obviously be in line with the government's target, but ultimately That has absolutely nothing to do with anything the government's done It's just basically that will that should happen organically. So it's an it's really it's really a fairly easy claim for The government to make because ultimately inflation should Should come back to around about 5% by the end of the year anyway Um But anyway looking looking ahead to the looking ahead to the the jackson hall symposium Um, I think the fed's going to be fairly comfortable with the idea Of being data dependent. I don't think That we're going to hear a victory lap from pal I think what we've seen from a number of fed policy makers in recent weeks is that There are increasing splits and there is some concern about the effects that the current rate hikes Have had and will have over the course of the next few months And I think similarly there are concerns on the bank of england monetary policy committee Leaning in a similar direction. So I think while we can sort of speculate About where the peak rate is for the uk And the markets have still got 6% seriously. I I really do doubt that But that's that being said I wouldn't rule it out either But certainly I think we're going to get 25 basis points in september. I think the bar is very high for us not to get that But as we look ahead to next week, I think the main focus will obviously be on jackson hall We do have flash PMIs Which are due out on the 23rd for august And we already know that manufacturing has been very very weak Um on the manufacture on on pretty much across the board for france Germany the uk as well I mean the germany pmi for july came in from manufacturing pmi came in at 38.8 I mean, that's the worst level since the covet locked down in 2020. Yes just over a three and a half year low so Germany is pretty much the sick man of europe when it comes to its economy Luck could well see a third quarter of economic contraction there France was in negative territory for both services Or contraction charity below 50 in other words For manufacturing and services being twisted to see whether or not that remains the case uk PMIs have been slightly more resilient Saw 51.5 in july for services 45.3 for Manufacturing we've also got the german ifo survey as well which Saw the business climate fall to its lowest level since october last year in july at 87.3 so not expecting to see much in the way of optimistic data In the silly season of august or the summer season Because I think you'll find that an awful lot of businesses may well shut down for For holiday for for that for that particular period So before we go on to the earnings numbers, let's have a quick look at some of the key support levels We've been talking at as I say the footsie 100. Is that a bit of a shocker? On course for its worst run of declines On a daily basis since october last year In the wake of the quasi-quarteng budget here are the six declines here one two All the way back here So six six daily declines there On course for a similar sort of run through here the big level On the footsie 100 7200 Right there between That low there and that series of lows through there so Coming up to a very key support level on the footsie 100 similarly V-dex Also the 200 day moving average But the lows back in july so that's around about 15 1,400 also the 200 day moving average So that's going to be a very very key support level over the course Of the next few days We have already seen significant breakouts On the s and p 500 and the nasdaq. We've both seen them break below Their 50 day moving averages But we've also seen them break below key support areas For the s and p 500 Broken below 43 80 This this series of lows through here and also below the 50 day moving average So momentum is definitely stalling there Be interested to see whether or not That Is maintained And we see further declines, but certainly the move higher in yields Is not helping The nasdaq and it's not helping the s and p Fortunately, we are still in the uptrend on the nasdaq that we've been in since the start of this year So there is certainly potential for further weakness And a test of this key support area back in june Which is 14 200 there or thereabouts So approaching some key support levels on the nasdaq But the fact that we've broken below the 50 day moving average on both Would appear to suggest that we could well be on course For further declines and perhaps us markets Need to be we need to be thinking more in terms of Sell the rally Then buy the dip But we'll have to see how that plays out over the course of the next few sessions The dollar's also seen a fairly decent bid On the back of the recent Concerns about higher yields for longer But also concerns about a broader slowdown On an economic activity more broadly Euro dollar Looks as if it's going to be heading back to support At on on that trend line that I've drawn in there But as well as a 200 day moving average at around around about 107 30 at the moment We're holding above 108 30 so that's these two lows through here and That support just below the lows that we saw yesterday. So 108 30 Perhaps headings of towards the 200 day moving average and that trend line support from the lows back in March But i'm actually quite surprised that euro dollar isn't weaker Given the weakness that we're seeing in the data And I think some of the data that we're seeing out of europe has prompted Some on the governing council Um to perhaps reassess where their terminal rate actually is Um, not in kazakhs not in kazakhs. I believe is the latvian ECB Governing council member who's previously fairly hawkish Um, this suggested that perhaps Um more rate hikes May not be the answer and perhaps they need to basically wait and see what transpires um over the course of the next few months And perhaps they shouldn't push their luck on pushing for more aggressive tightening going forward pound however As a slight has had a slightly more positive week. Yeah, we're seeing a little bit of weakness today Um, that's not surprising come off the back of four days Of fairly these five days of gains We've held that key support area Through those lows from the 30th of june Which currently comes in around about 126 126 30 So if we get a break below 126 Then that could well complete the potential Head and shoulders reversal perhaps left shoulder here head here But of a messy right shoulder here But if we do break below then we could head back towards the 200 day moving average there But at the moment there's a fairly decent area of trend line support through there And while that holds We need to see a break back above the 50 day moving average, which we're currently struggling to get back through In the short to medium term Euro sterling So quickly look at that Back at the lows back in july. This is a range trade. This is a range trade all day every day Fairly decent support and around 85 resistance at 87 pays your money. It takes your choice There's not really much going on there And dolly n is A currency pair that i've really got massively wrong I really thought that with the bank of japan looking to pivot on its monetary policy That would be beneficial for the n it could well be it could well be but at the moment Any dollar shorts are getting squeezed and at the moment we still i'm still not convinced That um, we can't potentially go back higher towards 147 115 The bank of the bank of japan has shown no inclination that it wants to intervene And the last time it intervened it intervened at around 145 146 where we're there now And we haven't seen much evidence of that thus far However, if equity markets do go full risk off that should be positive for the yen And push the yen higher and the dollar lower will have to wait and see whether or not That transpires, but japanese inflation is still at 4.3 percent and starting to look a bit sticky It remains to be seen how long the bank of japan can afford to ignore that um in terms of the earnings numbers We've got harbour energy Obviously there all their profits got wiped out by the windfall tax um last year They there was some speculation earlier this year that they were in talks With a us oil company called talos Energy, I think it was talos energy us based talos energy um They're already partnered with talos in an oil and gas field in the gulf of mexico And this move if it does play out could well see harbour energy um potentially Drop any future investment in the uk and just carry on with basically Refocus its efforts elsewhere and to be quite honestly who can blame them If we look at the key support and resistance area on this particular chart We can see that 270 is a key resistance level I'd be interested to see whether or not harbour energy is able to generate any semblance of profits from It's largely domestic oil and gas producing 90 percent of his production takes place through five key hubs here in the uk Obviously gas prices are lower oil prices are lower So revenues are also likely to be lower um last but not least We've got invidia That's been a big AI play artificial intelligence play still very much In the up friend that it's been in pretty much since the start of This year It's due to announce its second quarter earnings on the 23rd of august As a quick recap back in may the shares got a significant lift After surpassing expectations on first quarter revenues coming in at 7.2 billion dollars Raised its revenue guidance for q2 To record breaking 11 billion dollars now That's a huge increase on its q2 numbers of previous years or any other quarter. It would be a record quarter The improvement is expected to be driven by A big increase in sales of data center chips along with investments in artificial intelligence In q1 data center chips alone generated 4.28 billion dollars Followed by gaming which generated 2.24 billion dollars The q2 data center revenue is expected to come in at 7.78 billion dollars Which is more than the entire revenues that they generated in q1 Gaming expected to remain fairly flat at around about 2.4 billion dollars With profits expected to come in at two dollars and seven cents a share Um Nvidia Nvidia CEO jensen huang um laid out a statement of intent In june announcing a raft of new ai related products which help which could help shape Our the company's network and advertise. So there's potentially huge growth prospects there The bigger question is is whether or not all of that is priced in and whether or not their q3 guidance Um, we'll be slightly more modest. We've also got numbers from q2 numbers from snowflake As well and zoom video on the 21st Um, so that's I think I think I pretty much covered everything that I need to Um cover for this week Once again, thank you for listening ladies and gentlemen. I hope you all have a great weekend And speak to you all same time same place next week. Thanks very much for listening and have a nice weekend