 Good morning. Welcome to CMC markets on Friday the 2nd of December and this quick look at the week ahead with me Michael Houston starting the 5th of December and It's certainly I think been a fairly interesting week in The wider scheme of things November another strong month for European stock markets the DAX closed the month 8.6% higher the FTSE 100 may gains a 6.74% At the same time the March higher in the US dollar Has come to a shattering halt With the greenback posting its biggest monthly decline Since 2010 certainly the last two months have been a welcome respite for stock markets after a year that at one point Saw the likes of the DAX and the S&P 500 firmly in bear market territory and now here we are testing a very key Resistance level on the DAX the 61.8 Fibonacci retracement of the entire Down move from the highs this year to the lows back in October I think the bigger question now Is whether this is a bear market rally Or the beginning of a move to new highs Now with the end of year coming up It's highly unlikely that we won't know We're certain until early next year simply because I think Given the direction of travel when it comes to the economic data there has been Rising or increasing evidence of a softening Of economic data particularly when it comes to manufacturing What we're also seeing is a little bit of a softening in the inflation numbers and Powell's comments to the Brookings Institute on Wednesday This week would appear to suggest that the Fed is quite comfortable with the idea Of a slower pace of rate hikes going forward So I think the bigger question here Is whether or not Not whether or not rather we get a 50 basis point hike In just under two weeks time It's really a question of what comes after that And I think that will be a big determinant Of the type of market volatility that we get In 2023 So You know Essentially, you know, what's what's the next few days Got in store for us. Well, certainly the payrolls numbers Later today They're likely to show A slowing In the pace of job job job gains The expectation is for around about 200,000 jobs to be added But the ADP payrolls report earlier this week showed a significant softening of the headline number 127,000 And when you break the numbers down Service sector growth was for service sector job growth was fairly decent But manufacturing saw a net loss of 87,000 The manufacturing ism earlier this week Also pointed to weaker employment component Weaker prices paid And a perception perhaps that inflation has peaked Something that I've been suggesting has been the case for at least the last four or five weeks Certainly seeing in the PPI numbers Particularly out of Germany and Italy And this morning out of Europe which saw the annual number drop from 41.9 percent to 30.8 Was a month on month decline of minus 2.9 So we've got central bankers trying to convince the markets that they're going to continue hiking Because they're not convinced that Inflation is coming down in a sustainable fashion But if you actually look at some of these monthly declines, but also year on year declines Or softening There does appear to be a suggestion that Given the fact that central bankers were late to the party when it comes to dropping the transitory narrative They're going to be similarly late in recognizing that inflation is coming down an awful lot faster than perhaps They think that it is So while we can expect 50 basis point rate hikes from the Fed, the ECB and the Bank of England And just under two weeks time While central bankers are talking tough The bigger question is what comes after that? Will it be further rate hikes? And if they are will there be 25 25 basis points in nature? Or will they will they continue in 50 basis point increments that More than anything is the bigger question And I think the bigger question that really does need to be addressed Will central bankers run the risk of continuing to tighten aggressively at a time when the data is clearly showing Um, but the economy is heading for a slowdown in 2023. Now. There's an awful lot of uncertainty about china and obviously the latest china trade numbers that you out on the 7th of december And they're likely to point to an even more significant weakening And the exports and imports data over and above what we saw In october and october exports declined 0.3 percent That was the worst performance this year as well as the worst performance in two and a half years Speaking to falling global demand for chinese goods As well as a continued disruption in supply chains caused by china zero covet kerbs What was more interesting was in a note that I wrote earlier this week The durries composite shipping container index Hosted its 39th successive weekly decline So that shows that freight rates are coming down I'm coming down quite substantially 70 lower than they were this time last year They're still above pre-pandemic levels But nonetheless they have fallen precipitously over the course of the past year Now that could be as a consequence of lower global trade It could be a consequence of overcapacity irrespective of the reasons for that Prices are a lot lower. So we're seeing significant evidence of deflation or disinflation In the supply chains more globally. So in terms of october china trade numbers, they were weak november November's are likely to be even weaker We could well see exports slide to minus 4.2 percent and imports slide by minus 6.7 percent A large part of the import decline will be obviously weaker domestic demand because of rising covid rates And covid lockdowns now there is some chatter that china might look at relaxing some of its more onerous covid restrictions But that doesn't mean the chinese economy is going to count rebounding back strongly It just means that the restrictions may not be as onerous But ultimately when you put the fear of god into your population about covid Um, they're not likely to come out of hibernation particularly quickly. So what does that mean for markets? Well, we've seen strong gains and we are approaching some key resistance levels not only on the dax but on the s and p 500 Let's look at this trend line here through the highs from Earlier this year. We're really at a very key inflection point on the footsie 100 We are above the 200 day moving average What was significant is we haven't broken above this trend line from the peaks through here So we are at a potential tipping point. The dollar is weaker That is significant the dollar is likely to potentially get weaker still if that happens Then you could see a significant move Back into stock markets over and above what we've seen already the us 10 year yield is quite significant This looks like a potential head and shoulders break out to the downside Which would appear to suggest That an economic slowdown is coming and that longer term rates could well be coming down as well This break here if it is confirmed Could we'll see a break towards 3% on the 10 year over the course of the next two to three months which suggests that ultimately Recession is coming in that longer term than that rates aren't potentially going to go up by anywhere near as much Has been originally priced in so it's worth keeping an eye on that 10 year yield It's worth keeping an eye on this 14,576 area on the german DAX 61.8 Fibonacci retracement we get a breakthrough there Then we could well be heading back towards 15,000 potentially even higher at the moment It's unlikely we're going to see a massive in a massively aggressive sell-off as we head towards christmas Simply on the basis of the fact most people are done for the year They've either done their boots because equity markets have fallen Although we're very reluctant to take on new positions ahead of the creep ahead of the pre christmas break when ultimately Liquidity tends to dry up and generally there's A lack of interest in taking on new positions over the christmas and new year period so All all of the next few days are pointing to the central bank meetings the week after next And the guidance when it comes to what's coming after this month's rate hikes What is indisputable is the dollar has come crashing off has turned around We've seen peak dollar in my opinion and it looks to me as if we're probably going to be heading higher When it comes to Euro dollar cable and heading lower when it comes to doll again The bigger question is where do we rebound from when the dollar does find a little bit of a base? But certainly on the basis of what the dollar index has been showing me There is certainly rising evidence that we have seen a short-term peak In the dollar and we could well be heading lower over the course of the next few weeks We can see that in this particular chart here. We've broken We're low we're on the customer breaking below these lows here at 104 60 With euro dollar breaking higher doll again breaking lower There's certainly potential for further declines in doll again and there's certainly potential for a move back to 106 20 On euro dollar, which is these peaks here and also the 38.2 Fibonacci retracement level from The peaks earlier this year to the lows back in September October so certainly on a technical basis there is scope for further dollar weakness That's no better borne out in the way doll again has been trading We are below the 200 day moving average and we've broken below this particular area through here And that would suggest that we're probably going to see a return to the august lows of 131 60 Over the course of the next few weeks I see nothing at the moment in any of the Any of the economic data that suggests we won't see a continued weakness in the dollar Then the fact the Bank of Japan have suggested that they might be looking at revisiting their current monetary policy settings Which will should be fairly yen positive and push the dollar yen lower in terms of cable We've also seen a really nice Technical breakout there above the 200 day moving average We're currently pushing against resistance 50% Fibonacci retracement from the peaks back in 2021 to the lows all the way back In october 50% is 123 We break above 123. We're certainly going to head back towards one We should expect to see move back to 127 And what's particularly notable is we're now back above the 200 day moving average Which suggests that this this 123 will eventually give way and we'll head back to 127 50 and who could have foreseen that All the way back in september when everyone was calling for parity with the dollar Now it looks as if we're probably going to see 130 and that's certainly what i'm looking for over the course of the next few weeks and months in terms of What else is coming up next week? We've also got the rba and the bank of canada The rba surprised the markets by dialing back on the aggressiveness of its rate hiking cycle when it met last month When it raised high when it raised rates by 25 basis points rather than the expected 50 Not really a surprise to understand why they've done that concern about the housing market In australia So we could we should we are we are expecting to see another 25 basis points Governor philip lowe said that the rba wanted to slow the pace Of rate hikes and also better to judge the lag effects of previous hikes which could take time to trickle down So this goes back to what um fed officials were talking about policy lags I want to study the effect of existing rate hikes and certainly there is evidence that it is slowing the various economic recoveries that we have been seeing there's increasing evidence that growth is slowing fortunately from a position of still fairly full employment and plentiful vacancies so hopefully any Any landing or soft landing or hard landing slow down should be fairly tempered What's interesting with respect to the australian dollar is that We could well head back to the 200 a moving average here Which is capped every single australian ozzy rebound Pretty much since april last year. So that's going to be a key area around about 69 20 But I would expect the ozzy to head back to that level. We've also got the bank of canada They surprised the markets by hiking by less than expected in november They hiked by 50 basis points instead of 75 And really you can copy and paste what I said about the rba When we're talking about the bank of canada again The canadian housing market showing signs of strain as a consequence of higher mortgage rates So again here I would expect to see something in the region of either 25 basis points from the bank of canada or 50 At the moment, it's an each-way bet with the market erring towards a 25 basis point rate hike And the bank of canada meets on the 7th of december the rba meets on the 6th We've also got us ppi now that could be Extremely important in the context of the peak inflation narrative Both cpi and ppi have been rising at a progressively slower rate since the summer peaks The bigger question is whether this trend can be maintained Against the skewer central bank that wants to keep the prospect of a terminal rate Of say over five percent now the fed funds rate at the moment is four percent I'll add the upper bound The rate hike that we're going to get later this month will take it up to four and a half Which only puts us 50 50 base points away from five percent The fed could struggle to convince the market is serious about that if The ppi numbers which generally tend to act as a leading indicator cpi See a similarly aggressive slowdown now as a reminder headline ppi In october came in at 8 on the headline rate while core prices fell to 6.7 percent from 7.2 percent Looking at the expectations for the november numbers. We're expecting another big decline From on the headline rate to 7.1 percent from 8 and a fall from 6.7 percent on the core To 5.8 percent we get a big fall on that And really it's a question of will we even see any more rate hikes after december? Given the rate that we're seeing Ppi and cpi falling back. Let's also not forget That US cpi is also due out the same week as the fed meeting, but certainly a very weak A bigger bigger than expected fallback in us ppi Could we'll put the cat amongst the pigeons when it comes to rate hike expectations and certainly Perpetuate further dollar weakness. We've also got services PMI services Activity has been fairly positive Certainly jobs growth in the services sector is showing no signs of slowing Unlike the manufacturing sector where it's looking fairly Week we did see job losses in the adp payrolls reported around about 86 000 in the manufacturing sector We're also seeing the employment components of the ism Going to contraction territory as well So the manufacturing sector is showing pockets of weakness The bigger question is whether or not the services sector starts to go the same way We're certainly seeing that in some of the big tech companies announcing job losses amazon Meta platforms facebook and obviously twitter as well and even microsoft has suggested that they are going to freeze hiring so As I say big next couple of weeks Certainly should feed into the weaker dollar narrative. Certainly looking at Brent crude prices We are trading also at the lower end of The recent range which suggests that the markets are pricing in certainly the prospect of lower demand Going forward. So On the earnings front, it's a fairly light calendar. We've got British american tobacco. We've got game stop. We've got broadcom Not really too much to talk about game stop Should be interesting in the context of whether or not it's able to cut down The levels of his losses and also The company's exposure to the ftx collapse Those of you will remember that A few months ago They announced the new collaborate collaboration easy for me to say with that ftx To set up this move into the nft marketplace So the shares did take a bit of a dive in november and they've since bounced back As a result of the collapse of ftx, I don't think there's potentially any exposure Financially to ftx, but it certainly will mean that their plans for an nft marketplace Will have taken a bit of a blow, but losses are expected to come in around about 29 cents a share fairly decent support in and around 20 dollars But i'm not really expecting a particularly upbeat set of numbers for game stop as we look ahead to Next week's price action. So that's pretty much it for This week ladies and gentlemen as I say we've got the payrolls numbers later today Hopefully they should give us a little more information about the health of the us labor market But I think in terms of a market mover They're probably not going to add too much to the sum of overall knowledge when it comes to Fed rate hikes We're going to get 50 basis points in december and really the only question that the markets are asking now Is what comes after that? So that's it for this week. Thank you very much for listening Michael Houston talking to you from CMC markets