 Good morning. Welcome to CMC Markets on Friday the 27th of September and this quick look at the week ahead beginning the 30th of September It's been a little bit of a disappointing week for global equity markets. Asia markets finished the week lower and it looks in all probability as if US markets could well go the same way the one bright spot Has been the performance of the FTSE 100 and I think that's largely down to the fact that the pound has had a disappointing week Not only against the dollar, but also against the euro So what have we seen? What have been the key drivers for this week? Well, obviously there's the China trade story Which has prompted a little bit of weakness. There is there are some signs of optimism There has been talk that China trade talks US China trade talks could resume on the 10th of October But on the flip side of that particular coin, you've got concerns about Impeachment of the US president on the back of these whistleblower allegations with respect to President Trump's conversations with the Ukrainian president Zelensky and then obviously you've also got Concerns about slowdown in the economic data in Europe the ability of central banks to be able to offset these This economic weakness and then obviously you've got the ongoing saga of Brexit and the return of MPs to the UK Parliament which Resulted in a little bit of a slanging match and not a lot else What we have seen is the pound come under pressure once again as Markets look at what's going on at Westminster and not unreasonably deduced that the prospect of any type of deal between MPs To try and get a deal across the line at the end of October is becoming increasingly less likely As a dysfunctional place, I think there's pretty much I think you pretty much struggle to find anything more dysfunctional Than UK politics as well and that's really saying something when you look at US politics Across the Atlantic. So what are the key levels that I'm looking for this week? Well The FTSE 100 has made a key breakout towards the top side. It's broken above that 7,380 level and That would appear to suggest that there's potential for further gains While we're above this key resistance level here, which I've identified Here with this dashed line Across here, and I think really as we look ahead towards next week the key The key economic indicators that I will be paying particular attention to are Pretty much several. There's obviously the global manufacturing PMIs for September And it's no secret that for most of 2019 We've significant we've seen significant divergence in those numbers with Manufacturing underperforming while the services sector has managed to hold up fairly well Unfortunately, I think we are starting to see some evidence that services is now starting to Feel the trickle-down effect of the weak manufacturing sector And I think that nowhere is that more better illustrated in those shocking flash PMI numbers out of Germany That we saw at the beginning of this week We can look at some key levels on the German DAX and I'm paying particular attention To this trend line From the highs that we saw in the middle of the summer If we can sort of zoom in on that a little or zoom out on that a little bit try and try and get some illustration We are still below the trend line from these lows that we saw at the beginning of July And that roughly comes in around about 12,450 12,470 So on the 1st of October we have global manufacturing PMIs. So we'll have China PMIs We will have Italian and Spanish PMIs all of those have been fairly weak and obviously the German number Came in its worst level in 10 years at 41.4. If that's confirmed then obviously that will Reignite Concerns that the ECB is really pushing Against the limits of monetary policy expectations and there was no better borne out by the surprise resignation Earlier this week of Sabine Laudan-Schlauger, who's the German member of the governing council And that suggests to me that the splits on the governing council are really starting to show themselves ahead of Mario Draghi's departure at the end of October Services PMIs the overriding concern here has been that the weakness in manufacturing will start to seep in To the underlying numbers in services And I think there is some evidence that these fears are being realized when we got much weaker than expected readings From both Germany and France and that has started to really seep in to the performance of the euro We can see that here. It's 109 level. It's a big big level. It's held 109 20 109 10 20 big big level the lows here the lows here. We have managed to hold above 109, but I think if we get a break below 109 then really there's not much there much before 108 which is this gap from 2017 there's a nice little gap between April 2017 and This this candle here So I think there's a good chance if we break 109 We could see a very sharp down move towards 108 filling that gap and potentially retargeting levels last seen at the beginning of 2017 where the euro was trading between 106 and 107 So very very crucial level for euro dollar over the course of the coming days the US dollar Continues to remain strong. It's made two-year highs Earlier this week and a break of 109 in euro dollar could well see that US dollar starts to move significantly higher another key level in terms of the dollar story is Cable we've seen a little bit of a pullback over the course of the past few days From those highs that we saw at 125 80 earlier this month And we're now testing the 50-day moving average which currently comes in between 122 60 and 122 70 now There is an argument at the moment that you could see a significant area of support between 122 60 and 122 80 if we do break below that then there's a decent chance We could well see a retest of the lows that we saw in early September just above that 120 area So we're talking 120 10 between 190 80 and 120 10 if we're able to hold above the 50-day moving average then we could see a decent rebound PMIs that we've seen coming out next week are for Like are for manufacturing Construction and services both manufacturing and construction were very very weak in August at 47.2 and 44.8 not really expecting to see a significant improvement in either of those numbers With services at 50.3. So hopefully the services sector will be able to offset any weakness in the much smaller construction and manufacturing sector Also coming up next week. We've got the RBA now the RBN said earlier this week held off from cutting rates further and That prompted a little bit of a rebound in the Australian dollar or a certainly a stabilization in the Australian dollar over the course of the past couple of days and I think this is a big I think this is a big meeting for the RBA on the 1st of October Because the RBA started this year's rate cutting cycle from central banks all the way back in May when they cut rates from one and a half percent To one point two five percent now since then they've cut the cash rate down to one percent And the odds are we could well see another cut to a new record a low of naught point seven five percent this week Even if we don't see a rate cut this week and the odds are around about 50 50 We will probably see a rate cut in November certainly the Chinese data that we're seeing The course of the past few weeks has not really been that Encouraging and I think that will prompt the RBA to cut rates further in the next couple of months Despite the fact that RBA Governor Philip Lowe has expressed pessimism that further rate cuts were likely to be Particularly effective ultimately if all of your peers are cutting rates and really to keep up you really much have to do The same thing certainly we've seen some Reports out of this week from Michael Saunders of the Bank of England where he's talked about the possibility that even in the event of a Brexit deal The Bank of England may well feel compelled to cut rates further personally I don't see the point in that if you actually look at where UK guilt yields are at the moment on twos fives and tens They're still well below the the UK base rate. So the markets have already priced in a rate cut anyway So really I think the Bank of England just needs to Keep its monetary policy on autopilot and stop tinkering with market expectations Markets have already made up their own mind and the Bank of England is really should I think just keep its mouth shut In terms of what else we've got coming out this week. We've also got the latest numbers first-half numbers from Tesco's They've been one of the Better performers in the UK supermarket sector this week Looking to Breakthrough and above the highs that we saw in the middle of the summer They've probably more than anything else in much better shape than its peers because they've sold off their mortgage business Lois banking group for 3.8 billion pounds earlier this year And I think that has helped in the context that it gives it much more room I think the take the fight to Sainsbury's Morrison's and Asda and certainly in terms of its sales volume sales in the most recent can't also They showed a rise of not 0.9% a year ago. Also got numbers from Imperial brands and Ted Baker as well as Ford Motor Company and PepsiCo One thing that I course Shouldn't overlook. It's obviously US data and the big big event of the week And I know I've left it till last but I think that's for a very good reason it's the US payrolls report for September and Having cut rates as expected in September the US labor market has continued to hold up fairly well So I think in terms of the performance of the dollar I think as long as US data this coming week continues to do fairly well continues to show fairly decent Evidence of economic activity this week's US payrolls report As long as it shows jobs growth in the region of 130 140,000 Like it did in August and wage growth in and around 3.2 percent then I think the prospect of A fed rate cut in October becomes that much less likely Certainly, I think markets have started to get a little bit more cautious about Fed rate cuts This year may be not in December, but certainly in October the divisions on the FOMC Point to a difficulty in coming to a consensus Certainly James Bollock bullard of the St. Louis Fed has been very vocal in In talking about cutting rates further But he is encountering a significant amount of resistance to that from the two dissenters of Esther George and Eric Rosengren And certainly there are other members on the FOMC who I think remain yet to be convinced of the need for further Rate cuts that certainly think in terms of further QE or further liquidity injections There is certainly a case for that but in certainly in terms of further headline rate reductions I think the Fed could start to tilt towards maybe loosening up the balance sheet a little bit more Loosening up liquidity than actually dealing in headline rate reductions Certainly in terms of the overall dollar Story and dollar yen It's difficult to establish really where the dollar is likely to go to next certainly in terms of where we are here Decent resistance in dolly in around about 10850, but it's also finding fairly decent support in The low 107s and probably the high 106s So I'm really not expecting to see a significant breakout in terms of dolly in but I could we could well see further dollar strength In the terms of dollar gains against the euro and potentially to a lesser extent against the pound so Those are the key events for this week would also be doing a webinar on the US payrolls report tune into that from 1 o'clock on Friday the 4th of October where I will cover the numbers live as they break Otherwise, that's it for this week. Once again, thank you very much for listening to Michael Houston talking to you from CMC markets