 Good morning. Welcome to CMC Markets on Friday the 6th of October and this quick look at the week ahead beginning the 9th of October with me, Michael Hueson. It's been a tough week for markets, concerns, over rising yields have kept investors predominantly on the back foot this week. And I think the big question at the moment is whether or not this continued sharp rise in long-term yields is likely to continue. Well, that certainly seems to be the big question that has been basically dominating market sentiment this week. Obviously, US economic data has probably been more good than bad. And ultimately, I think it's a good idea if we look at why markets have been freaking out so far this week. So let's start with the US 10 year yield. Now US 10 year yield has been predominantly moving higher for quite some time now. You can probably predate the rises from the changing guidance on the Fed minutes all the way back at the end of September around about the 21st of September. When the Fed altered its guidance round about here for the number of rate cuts, it was pricing in for 2024. And it revised its Fed funds rate expectations up from 4.6 percent to 5.1 which obviously prompted a big move higher in the longer end of the yield curve. If we look at, say, for example, the 10 year here, we've gone pretty much from 4.5 percent to 4.75 percent on the 10 year and to the highest level since 2007. Compare that to what's happened with the two year and while we have made marginal new highs, the move up hasn't been anywhere near as extreme relative to the previous peaks of earlier this year. So if you then basically extrapolate that out into the inversion, the current inversion in the yield curve, which we've seen pretty much for all of this year, at some point that yield curve will need to un-invert. And I think it's basically how it un-inverts, which has really been driving sentiment so far these past few weeks, because obviously we've got we've seen much higher oil prices. Oil prices have gone significantly higher since the lows in June gone from around about $70 a barrel to $95 a barrel. And that obviously has also started to get priced in to the way yields have started to move over the course of the past few days. On the basis of the fact that I think people are thinking that inflation is likely to remain not only higher for longer, but also become an awful lot more entrenched. Even though the evidence that we've seen thus far is that the rising oil prices that we've seen over the course of the past three months has been fairly limited. Certainly, I think at the front end, in terms of when I say the front end, at the coal face as regards to consumers, obviously they feel at the first in terms of filling up the petrol tank. And obviously that erodes disposable income over the course of the past three months and probably will continue to do so as we head in. But the hope is that might wash out. We've seen a big, big fall in oil prices so far this week. And I think perhaps the fact that we've seen that big fall in oil prices may be accounts for the fact that we've seen this sharp fall in the 10 year yield from levels just below 4.9 percent to current levels, 4.74 percent right now. So I think the main question, I think the main question is, how does this here un-invert? Because it will un-invert and for a stock market friendly scenario for this to un-invert what we would ideally like to see is a fall in the two year yield and not a sharp rise in longer term yields. So essentially what markets are concerned about is this. If we start to move towards 5 percent, go to 5.25 percent and two year yields also continue to go higher. There is a concern that that can increase financial stress in the financial system. And in so doing obviously un-invert the yield curve, but not in a way that is likely to particularly be market friendly. To be market friendly, we'd want to see a sharp fall in the two year yield back towards the 10 year yield. But without the 10 year yield going up significantly above where two year yields currently are at the moment. So a softening in two year and resilience in five and 30 years is an ideal scenario. If they remain around about 5 percent and two year drops to around about 4.75, 4.80. That would probably be a fairly benign scenario for stock markets. Anything other than that. And you're going to find that the markets are going to be very sensitive to that. So we've got non-farm payrolls later today. The jobs data thus far has shown little sign of a significant slowdown. And obviously that's raising expectations. The Fed's going to go by another 25 basis points on the 1st of November. And that's predominantly I think why we've seen the dollar move higher this week. And we've seen yields move higher this week. It's basically higher for longer. And that obviously is that's obviously helping in the context of the U.S. economy being probably the better of all the economies out there right now. So let's look at some of the key support levels on the markets this week after the declines that we've seen in the first part of the week. Once again, FTSE 100, pretty much nothing to see here. Still fairly decent support at around the 7200 area. Obviously, we have a little bit of interim support around 7375. So keeping an eye on that in terms of valuations, I'm certainly much less concerned about a big slide in the FTSE 100, even accounting for the big fall in the oil prices that we saw earlier this week. Let's have a quickly look at Brent, because I think what we've seen so far this week is encouraging, I think, not in terms of obviously the outlook for demand, but in terms of affordability when it comes to consumer incomes, I think consumer spending. I think if this trend lower continues, we could see oil head back towards $80 a barrel, which is probably eminently more bearable than, say, 95 or 100. Though OPEC Plus is probably going to have a great deal to say about that, given the fact that they've extended their production cuts and confirmed their production cuts until the end of this year. But there are concerns about demand destruction. And I think part of that is behind the reason that we've seen this sharp fall over the course of the past few days with oil posting its biggest one day fall this year and since September last year. So have a keep a close on the 50 percent retracement of this up move, which is around about $84 a barrel and below that at $81.50. But the hope is that potentially we've seen a short term peak in oil prices. And consequently, we could well see us start to range trade between 80 and 90 dollars a barrel over the course of the rest of the year. In terms of the DAX, nothing much has changed here. Last week, I talked about the fact that we broke below the 200 day moving average and we broke below $15,480 that has continued to act as resistance. We've traded below it towards $14,800. Obviously, we haven't come back to the lows that we saw back in March. But there is a risk that we could continue to do so, particularly if rate expectations continue to remain at their currently elevated levels, what's also a little bit concerning is that we are starting to see a roll over the average for the 200 day. I'm not overly concerned at the moment of a crossover here. We're going to get a crossover here for the 200 day moving average. It's still pointing upwards. And ultimately, when we see a death cross on the 50 and 200 ideally, what we want to be seeing is the 200 day either flat or starting to slope lower at around about the same time as the 50 day. This is not a strong signal of negativity. But that's not to say that we're not in a downtrend now. We are. We've got major resistance of $15,480, $15,500. And we need to break above that to break the current negative cycle on the DAX. The S&P 500 is at a big level as well. This week has touched a key level, the 200 day moving average. I'm keeping a very close eye on that. The 4,200 area, if we break below 4,200, there's a fairly decent chance we could see a sharp move lower down to around about 4150. And certainly, I think the levels that we saw at the end of May have around about 4,100. So we're on the cusp of a potential breakdown here. Again, 4,300 is the resistance level on the upside that we need to overcome to break the cycle of negativity when it comes to the S&P 500. And a lot could depend on today's non-farm payrolls report. A good report could actually be negative for stocks positive for yields. So ultimately, I think what we're hoping for is a fairly softish report for non-farm payrolls in line with the softish report that we got from ADP. OK, looking at quickly have a look at the NASDAQ. Similar sort of story, very decent support in and around 14,340. Is this the potential irregular, head and shoulders, reversal, triple top, whatever you want to call it? There is a decent chance that if this support level breaks, we could see a test of the 200 day moving average. It's interesting to know how well the NASDAQ 100 has managed to hold up given the rise that we've seen in yields. But a large part, I think, of the resilience around the NASDAQ 100 is largely around the resilience of the Magnificent Seven, those Magnificent Seven stocks of Amazon, Facebook, Meta Platforms, as is Alphabet, Apple, Tesla, Nvidia. They still remain fairly resilient. Certainly earlier this week, 60% of the NASDAQ were actually down on the day. But the NASDAQ actually managed to finish in positive territory. So that sort of tells you something in terms of how the NASDAQ is being supported. And obviously 40% of the NASDAQ is made up of those Magnificent Seven stocks. So that's certainly worth keeping an eye out for, particularly if we get a break to the downside. So we've got obviously payrolls today. Next week is also a big week for markets because we have the US CPR report for September. And we have started to see a tick up in headline inflation in the US. We hit lows in June of 3%. We're currently at 3.7%. But don't get too hung up on the headline number. A large part of the reason the headline number has been higher since June has been as a consequence of the rally that we've seen in crude oil prices and gasoline prices at the pump. Core prices are still trending lower. And I think that's really where you now need to start to focus your attention if you haven't already been doing that. Core inflation is still trending lower. And in August, that fell to 4.3%. And that is expected to slow to 4.1% in the September numbers. We've also got USPPI next week. So pay particular attention to that, given the fact that that has also started to show a little bit of a pick up in the past few months on the headline rate, but on the core rate still remains trending lower. We've also got Fed Minutes. Fed Minutes likely to be fairly interesting in the overall scheme of things, just as a quick reminder as to what the Fed decided at its last meeting. They raised their 2024 rate guidance but a Fed funds rate to 5.1 from 4.6%. So we talked about that earlier. It also revised its guidance for 2023 GDP higher to 2.1%, as well as it's revising its unemployment guidance lower to 3.8% for year end. So against that much more resilient economy, that is essentially why we've seen the move higher in yields. And really now it's becoming ever more incumbent on what the data does as to whether or not we can expect to see a Fed rate hike in November. Next week's CPI reports. Today's payrolls report are going to be very, very key in that regard. And at the moment, markets are pricing in around about a 25, 30% possibility of a rate hike in November. So the data over the course of the next few days is likely to be critical as to whether or not that number goes higher or lower. We've also got China. China is back in the markets this week. They've been off for Golden Week holiday. Which means that we haven't really had any sort of steer when it comes to the resilience of Chinese equity markets. Yes, we've had the Hang Seng. The Hang Seng has been under pressure this week and is probably likely to remain so. And we've got China trade and China CPI this week for September. And certainly in terms of China CPI inflation, that has been very weak in over the course of the past 12 months, slipped into deflation in July, although we have seen a modest uptick in headline CPI then since then to 0.1%. PPI on the other hand has been a negative territory since October last year. So we'll see whether or not that trend starts to change in the September numbers. Exports and imports are likely to remain in negative territory. And I think the ability for Chinese authorities to stimulate further is being, I think, fairly is being limited by the fact that their property sector, they still need to deal with the problems inherent in that. Let's have a quick look at the currencies. Euro dollar still very much in a downtrend. We can see that here. Found a little bit of a base in and around 104.50. There's big, big support at 104.06. What I've done is I've taken the lows back in September 2022 from the highs earlier this year and calculated some FIB levels for you. So the 50% at 104.05 is likely to be a very, very big number, as is obviously this downtrend line from those peaks back in July. And this peak from last Friday, Friday the 29th of September, at 106.11, 106.20. So we need to break above 106.20 on Euro dollar to break the downward cycle. But we also need to break this downtrend line here to signal that perhaps we are probably going to see a turnaround in sentiment at the moment. The sentiment for the dollar still remains predominantly positive going forward. Let's quickly talk about dolly yen, because dolly yen saw a really big plunge lower earlier this week on purported intervention from the Bank of Japan. Thus far, we've seen no evidence that the Bank of Japan did intervene. Certainly, I think in terms of the data published by the BOJ, there's no evidence that they actually sold dollars. But sometimes intervention is less about the actual physical act and more about just picking up the phone and checking levels. And I think that's probably what happened when we moved above 150 this week. Someone at the Ministry of Finance, somebody at the Bank of Japan picked up the phone to various banks to check levels on dolly yen. Well, it was certainly effective because we saw a big spike down to 147.35, coinciding with those series of lows in and around there. That's the next key support for dolly yen. If we break below that level there, then we could well signal that a top is in. But the fact that we rebounded so strongly would appear to suggest that at the moment, the bias remains for buying dolly yen on dips irrespective of what the Bank of Japan might be looking to say or do. Until they actually come in and clump the market, it's going to be it's going to make for a very difficult calculation to make as to whether or not we've seen a top in dolly yen. We've also got UK GDP for August next week. Again, we've seen a fairly decent rebound on cable from these series of lows around about 120, 120.35. 120 is always going to be a little bit of a support level round number on what have you and has acted as a fairly decent pivot in the past. So, you know, I think as long as we can hold above 120, we can certainly get a squeeze back to 123. And that's what we really do need to overcome. 123 to signal that a short term base is in. If we can get back above that, then we can certainly retest the 200 day moving average. But again, the trend here for sterling is probably less positive than it was, say, for example, a few weeks ago. As I say, the UK economy is in much better shape than perhaps an awful lot of people thought it was in light of the recent updates from the Office of National Statistics to their GDP methodology. We've discovered that actually the UK economy is outperformed both Germany and France since 2020, which is obviously undermined a political narrative that the UK economy had been a basket case since Brexit. I mean, you know, I'm one of the first to criticise the current numpties in charge of fiscal fiscal policy, the politicians and what have you. But the challenges facing the UK aren't that much different to those being faced in Europe in coherent energy policy. Is Germany shutting down its nuclear power stations? I mean, what's all that about and reopening coal power stations? Yeah, you know, really joined up thinking there. But we haven't got off to a good start in Q3. And when it comes to monthly GDP, we saw a contraction of 0.5 percent in July, the hope which of which reverse the 0.5 percent game we saw in June. So I think what we've got to see here for August is hopefully we'll see a modest rebound of, say, for example, 0.2 percent. At the same time, is obviously we saw a sharper than expected slowdown in headline CPI. So maybe that offered a little bit of a modest boost to consumption patterns during the summer holidays. In terms of earnings, it's going to we're kicking off US earnings season. We've got the banks, the US banks, which are all out on Friday. There have been concerns, obviously, about the US banking system, particularly the regional banking system, since the blow up in March. Those haven't gone away. There are still concerns about that. JPMorgan notwithstanding, which, you know, and JPMorgan has continued to set itself apart from its US peers. But even here, we're at a fairly key support level on the JPMorgan Chase share price, holding above the 200 day moving average for the time being expected to announce Q3 numbers is Q2 numbers were a record. Record revenues of 42, just over $42 billion blowing through expectations, $39.3 billion. And profits of $4.75 cents a share or $14.5 billion. That was a 67% increase from a year ago. The bank at the time also raised its guidance for net interest income for the year to $87 billion as the gap between loans and deposits margins blew out even further. For simply, JPMorgan has more deposits than he knows what to do with. And so far, it remains the biggest winner. But you can from the from the the March regional banking crisis compare that, however, to Citigroup and it's a completely different story. Citigroup is undergoing a major restructuring process with just above this series of lows back in October 2022 and could be on the cusp of breaking lower. CEO, Jane Fraser is in the middle of yet another restructuring program. Job losses. Let's not forget she's been in charge since 2021. The bank has already shared 5,000 positions year to date and probably is going to be shedding a hell of a lot more. She's stripping away layers of senior management. Last year, Citigroup said they would focus on five key business areas, including wealth management, investment, banking, five senior managers will be overseeing these two areas along with trading services and retail, all of which would report to her. Q2 revenues weren't great. They slow to nineteen point four billion dollars. That's one nine point four billion dollars and profits of dollar thirty three cents a share decline in revenues was down one percent from a year ago and was a nine percent decline from Q1. So the business is definitely struggling. And staff costs is probably the first area where Fraser is probably going to be taking a scalpel to and is taking a scalpel to. There's certainly higher staff costs as a percentage of income than the likes of JPMorgan Chase. Anyway, Q3 revenues, the forecast to come at nineteen point two billion profits of a dollar twenty one cents a share. And at the last set of numbers, Citigroup reaffirmed its four year forecast of seventy eight to seventy nine billion dollars in revenue. And expenses of fifty four billion dollars. So it'd be interesting to see whether or not those numbers get tweaked. Last but not least, we've also got Wells Fargo. So keep an eye on that. But we've got easy jets numbers, fairly light on numbers when it comes to UK earnings. We've got easy jets, fourth quarter numbers. Love them or hate them. They've actually been doing fairly well over the course of the process. Last few quarters, easy jet holidays is continuing to generate some fairly decent profits. Group revenue in Q3 rose thirty four percent, two point three six billion dollars. Fuel costs were higher by forty percent, while costs were also higher by seven percent. So the expectation for Q4 is revenues to come in three point two billion pounds. Did I say dollars in the last one? I think it should have been pounds. Three point two billion pounds, while pretext profits are expected to surge to six hundred and ninety one million pounds. So all in all, the numbers look good. Shame about the trust pilot scores. But hey, never mind. Anyway, that's that's a quick summary of what's coming up over the course of the next few days. As I say, non-farm payrolls is likely to have a big say as to what happens next with two equity markets, but a resilient payrolls report and a sticky inflation number could well see stock markets move lower. We want to see a softening of the labor market and a softening of inflation. Anyway, that's it for this week. Thanks very much for listening. It's Michael Cusin talking to you from CMC Markets.