 Good morning. Welcome to CMC Markets on Friday the 5th of August and this quick look at the week ahead beginning the 8th of August with me, Michael Hewson. And it's certainly been a complex week, shall we say. We began the week, I think, with the markets trying to absorb Fed Chair Jay Powell's rather dovish comments about where he thought or the FOMC felt the neutral rate was around about two and a half percent by Powell's estimations. Certainly that does seem rather low. And certainly bond markets took that took that pretty much on its merits by pushing yields lower. But there was always an expectation that the Federal Reserve or the FOMC, other members of the FOMC would push back on that narrative once the week got underway. And they didn't disappoint. Certainly people like Loretta Mester of the Cleveland Fed, James Bullard of the St. Louis Fed, all pushed back that the Fed was on the cusp of a pivot in monetary policy and talk of rate cuts in 2023. So that was the narrative at the beginning of the week. Pushback on the messaging that came out of Powell's press conference the week before. But we also had one eye on the Bank of England meeting and the expectation that the Bank of England would raise interest rates by 50 basis points. Certainly they followed through on that, which was a pleasant surprise. The first time I say pleasant surprise. It was a surprise that they raised interest rates by 50 basis points for the first time since the central bank got its independence in 1997. So while the decision to raise rates wasn't a surprise, the economic summary that came afterwards was pretty bleak. Even now, 18 hours, 21 hours later, and having read it again, I'm still shocked at how bleak it was. Central banks generally tend to soft-soak when it comes to bad news. They don't want to admit they're not in control of events. But the frankness behind the Bank of England's economic assessment was pretty much as dark as it could be. So in terms of the short-term economic outlook, there was little to cheer. The Bank of England once again raised its inflation forecast for October from 11% to 13.3% with a Q4 CPI average of 13.1%. That downgraded their growth forecast for this year, next year, and 2024, and also projected that inflation this time next year would be pretty much where it is now, 9.5%. So when you look at that sort of economic assessment of the UK economy, you're sort of thinking, you know, what else, you know, how bad can things get? And certainly the reaction of the pound in response to that assessment, because it certainly didn't react to the rate hike itself. The likelihood is we will probably see more rate hikes coming in September, given the fact that we've seen the Fed pushback. We've heard James Bullard of the St Louis Fed say that he sees the Fed funds rate between 3.75 and 4% at the end of this year, which means at the very least we're probably going to have to anticipate at least another 50 to 75 basis points from the Bank of England between now and the end of the year. But obviously what we also need to do when we look at this Bank of England forecast is it's just that. The forecast, and it also doesn't take into account any sort of fiscal response from the government. And while the, you know, while the Conservative Party is distracted by the leadership contest that's currently being played out, pretty much in plain sight across the media. The goal of any political party is to get reelected. And given the challenges facing the UK economy right now, it's hard to imagine either or any political party doing a worse job or a better job because ultimately what we're experiencing now is a culmination of 25 30 years of failure of energy policy because if you actually look at where this inflation is hitting. It's pretty much it's in natural gas prices, natural gas prices are pretty much trading at the top of their recent ranges. If you look at oil prices, if you look at commodity prices, they are now all lower than they were pre Russian invasion of Ukraine. In fact, there's just a there's an bloomberg red news headline just hit the wires just now, as I'm recording this video, World Food Price Index drops to its lowest point since January. So that tells you pretty much all you need to know where the where the bulk of inflation is currently happening and it's in natural gas. This is the UK natural gas contract for September. And we can see that it peaked at the end of July at around about 450 MBT you so it has come down a little bit it is very much in an uptrend at the moment. And for all the pain and pretty much everything else that the UK economy is currently experiencing and is likely to continue to experience. Europe is probably in a whole world of even bigger pain when you consider how reliant Germany is on Russian natural gas now the moment Putin hasn't cut off the gas supply, but that doesn't necessarily mean that he won't. What does this mean for currencies going forward will certainly we can see that yesterday's negative headlines did knock the pound lower and knocked it down to one 2060, which pretty much matched the lows from last Friday. So that suggests to me that there is some area of support through there. I'm finding it very you know an awful lot of analysts are finding it very, very difficult to have anything positive to say about the pound. And certainly to a certain to a certain extent I sort of share that sentiment, but ultimately you can only trade what you see. And at the moment with respect to the pound, there is decent support at around about one 2060, which is these twin lows here and a series of lows here. And until such times, as we break those twin lows on the pound, a against the dollar, then you basically have to. You basically have to take the view that you should find a fairly decent area of support through those lows until such times as that breaks and then we'll probably head back to this series of lows through here which is around about the one 1961 1980 area, which I identified in my chart forum update this morning which you can access on the left hand side here under where it says chart forums. What we've also seen in terms of pushback when it comes to bond yields is the more hawkish sentiment or rhetoric that we got earlier this week from the likes of Loretta Mester and James Bullard did prompt a spike in this 10 year yields from just above 2.5% all the way back to 2.8. What's significant though was that this head and shoulders reversal that I targeted that suggests that we can see lower yields just about managed to remain intact. We also remained below the 100 day moving average and we're also below this downtrend line here. So my target of lower yields over the course of the next few weeks is still it's still valid simply because the downtrend is intact. Yes, we did break below this head and shoulders neckline and did test back above it. But what was significant about this particular move was that even though we rebounded strongly. We were up significantly higher on the day we actually closed down. So that suggests that the momentum for a move higher is fairly limited in the short to medium term. You can argue that this is a bullish reversal. Absolutely it is. But all bullish reversals need confirmation and this but this confirmation hasn't happened yet. A confirmation would be if we close above the neckline and we also close above the 200 day moving average is a 100 day moving average that hasn't happened yet. The downtrend scenario, the US 10 year yields remains intact while you remain below the neckline and the 100 day moving average. So markets bomb markets are still screaming recession slowing economy by virtue of the fact that even though central banks continue to remain hawkish. In terms to interest rate expectations bomb markets are not reacting to it in the longer term they're reacting it they're reacting to this on a short term basis by spiking higher in terms of yields popping higher. But they're not sustaining the move. And if they're not sustaining the move then ultimately bomb markets have this perception amongst bond traders is that even though more rate hikes are coming. The likelihood is that the economy is going to slow, which means that additional rate hikes become much less likely, no matter what central banks are saying. So what does this mean for stock markets well, we're still remaining remarkably resilient. Certainly what we've seen thus far this week has been the company earnings. They're middling to better than expected. Yes, there have been some disappointments and certainly companies that are disappointing are being punished. But, you know, we've seen some fairly decent numbers this week. The FTSE 100 continues to slowly move higher. It's currently above a 200 day moving average and holding above the 200 day moving average, even though it looks overbought. But ultimately, you know, this is just an indicator you basically trade the price action not the indicator. So the price action is showing that dips are being bought into. And at the moment there's fairly decent supported around about 7,370 with a view to edging higher. Obviously if we drop back below that, then we're still we're still in the overall range that we've been in for several months now. And it's a similar sort of story when you look at the German DAX, albeit in the context of the downtrend that we've been in over the course of the past few months or pretty much since the highs of early this year. And we are slowly edging higher. And it does look as if we're going to test this downtrend line here, even though we still remain overbought. But as you see, we were overbought here. The high was there. We've continued to trend higher. So that goes to show that ultimately you trade the price and not the oscillator, whether it's being overbought or oversold. So what we've got here is a nice little uptrend, which is currently being played out with respect to this move through here. So on a 30 minute chart, we can see that there is fairly decent support coming through on the 30 minute chart, draw a nice little trend line in through here. And that will give us a fairly decent indication of where the support levels are on any dips back. So again, DAX is looking to edge its way higher, which seems enormously counterintuitive when you consider the economic backdrop and the economic challenges that are likely to hit Germany over the course of the next few weeks and months, given how much more exposed the German economy is to higher gas prices. So we can probably extend that trend line back as well. And there we have that low there. So you can actually probably redraw that line in a way that allows you to draw it from those lows all the way back there on an early chart. This is one of the good things about being able to flip between timeframes. You can actually fine tune your trend lines, either on the upside or on the downside. The S&P 500, we continue to track higher. We've broken this little downtrend line through here. We could well look to retest 4200. That's the next key resistance level for me on the S&P 500. So I'll be paying particular attention to that to get some idea of where the next level is. On the ASDAQ, we're right on a significant resistance level. So how we behave here over the course of the next couple of days is going to be very interesting indeed, particularly with the payrolls report, which is due in a few hours time as I record this video. One of the things that I took away from this week's comments from Fed policy makers was that they remain committed to very aggressive rate tightening while the US labor market showed or maintained its resilience. So I think in terms of the payrolls numbers, we need to keep our focus now back on the headline number because we've seen weekly jobless claims continue to rise. We're at now their highest levels in seven or eight months this year, 260,000, and yet US jobs growth continues to be positive, albeit its lowest number this year is expected around about 250,000. That's a really bad number. Obviously that could well be a bit of a red flag for more aggressive rate tightening from the Federal Reserve. I don't think it will affect what they do in September because it'll just be one jobs number and we'll have another jobs number before the next Fed meeting as well as two CPR reports, one of which is next week. I think one of the things or one of the key factors I think determining where or what central banks will do in September will be what inflation does over the course of the next couple of months. Certainly US CPI, that's due out on the 10th of August and that's probably going to be a keeper whether in terms of whether or not we see a softening of inflationary pressures after we saw it move up to 9.1% in the June numbers, which was a new 40 year high. That always did seem to be a little bit of an outlier to me that that that big jump higher, given what we're seeing pretty much everywhere else when it comes to commodity prices. And that's no better born out, I think, than if you look, for example, at the agricultural index, which we've got here. Now the agricultural index is a bespoke CMC markets index of commodity prices, particularly agricultural commodity prices. Now, let me just quickly change the font on this so you can actually see what I'm looking at in slightly more detail. And this is important because this this ties into the headline from the World Food Index, which has seen a big fall in commodity prices from the peaks we saw back in May. And I think this is the thing. Commodity prices are actually been falling pretty much or inflation has actually been falling back core inflation since May, but it's not being reflected in the headline numbers. We are now back where we were in January when it comes to agricultural commodity prices. And one part of the reason for that is obviously that wheat cargoes are now starting to come out of Odessa. And I think there is in Ukraine. And now there's a hope that those cargoes will actually make it to market the next big test will be how good this year's harvest is going to be in the US. And particularly in the Ukraine and whether or not they can get that harvest out of the ports. But certainly in the overall scheme of things what we've seen over the course of the past few weeks is oil prices also come down. They're at the lowest levels pretty much since March. So again, that's a net positive when it comes to inflation. The real outlier here at the moment is natural gas and that is where most of the pain is being felt. Anyway, brings me back neatly to the events for the coming week. And I've already talked about US CPI. And in June, the headline number did grab all the attention, but it was notable that core prices actually fell back from 6% to 5.9. And at around about that time in June, there was some concern that that might prompt the Fed to go for 100 basis point rate hike in the July meeting. Now, that didn't happen and an awful lot of Fed policymakers pushed back on that. And we did get the 75 basis points rate hike, which was pretty much as expected. But bond market pricing since that June CPI has seen yields fall back, which you would have thought would have had the opposite effect. But ultimately what we're seeing in the commodity space is feeding in to the bond market. And also what we're seeing in terms of expectations about a slowdown in economic data is also feeding into the bond market. So yes, we are going to get more rate rises in the course of the next couple of months. Perhaps the bigger question that investors are asking, and this is the one that I think is being reflected in bond pricing is how many more are we going to get? Because certainly the pricing suggests probably not as many as we perhaps thought was going to be the case four to five weeks ago. So keep an eye on US CPI, particularly the headline number, but also the core prices number. That's probably still going to remain steady at around about 6%, but the headline number for US CPI is expected to fall from 9.1% back to 8.8. PPI as well for July. That also saw a bit of a jump in June for US PPI. That's the day after it went back to 11.3%, which was pretty much near the highs that we saw in in May. That said, I think again, that is likely to have been a one off. Why do I say that? Well, simply speaking, when we looked at the ISM surveys, manufacturing and services, we saw big falls in the prices paid components of those surveys, particularly manufacturing that fell by 18 basis points from 78 to 60, which was a huge fall. The massive fall in the manufacturing prices paid index, which suggests that at the manufacturing level prices have fallen quite sharply. Services also fell back as well. And I think a large part of that is obviously lower gasoline prices in the US as well. That's probably had a part to play. The expectation again here, we could see a sharp fall in headline US PPI. Certainly core prices didn't jump in the same way they actually fell back in June. So again, I would expect that PPI jump in June to be a one off and that we would see a fall from 11.3% to 10.3%, which is quite a big fall. Certainly that's what economists are predicting on a Bloomberg consensus survey for the data for next week. We've also got China trade numbers which are due out over the weekend. Again, there's zero COVID policy is likely to weigh on economic activity there. So while exports have picked up because the ports have reopened, you're probably going to see a fairly decent jump in exports of around about 14 or 15%. But it's the imports that are likely to be a problem for China because internal demand still remains weak. COVID restrictions are still very much on off, more on than off because of China's zero COVID policy. And consequently, any economic rebound in China is likely to remain weak, certainly in terms of the imports data. While the exports data is probably going to compensate to some extent, but certainly not to the extent that they will probably wish it to. We've also got UK second quarter GDP. And that's likely to be interesting in the context perhaps of how well the UK economy did in the second quarter compared to how well the economy did in Europe. The UK economy in Europe had a really strong performance, largely as a result of tourism. We saw Spanish and Italian GDP show fairly significant jumps in economic activity, 1% in the case of Spain. The first part of that was down to tourism, even the French economy enjoyed a fairly decent rebound, largely on the basis of a Southern Europe bounce and the South of France and tourism there. Germany was the under performer there. The economy in Germany stagnated and I'm guessing that's because no one really wants to go on holiday in Germany. I'm sure to go to Spain, Italy or the South of France and you know the risk of being controversial who can blame them. But in terms of UK second quarter GDP, we're expected to see a significant slow down from the 0.8 growth that we saw in the first quarter. And certainly projections are for a negative print of minus 0.1. I would argue that to some extent the UK could also have experienced a bit of a tourism boost as well because let's not forget we had the Platinum Jubilee at the beginning of June. The pound is fairly low in relative terms, which means that we'll probably could well have got an awful lot of US tourists, Canadian tourists here for the Jubilee to see the sites. So we might avoid a negative print for second quarter GDP, even with the fact that we have no consumer confidence, consumer confidence at record lows and retail sales, which have been a negative thus far in the second quarter. So in terms of euro sterling, there's an awful lot of people who are negative on euro sterling in terms of they expect euro to push higher. I still can't buy a bullish euro sterling story. I think for all the problems that the UK economy has and there are plenty to try and pretend that Europe is somehow better placed to weather the problems that are currently being experienced pretty much across the block. I think that's wishful thinking. So for me, I'm still very much euro sterling. Salon rallies, we may get a squeeze back to 8480 or 85, but you draw a line through these peaks here. And we're very much still I think in a case of range trading when it comes to euro sterling, I can't really see a positive case for being long euro sterling at this point in time in terms of actual earnings numbers coming up. The ones that I'm particularly interested on delivery services economy, obviously is having to put up with an awful lot of increased costs, higher energy costs in terms of petrol, diesel, and general costs more broadly. So in terms of delivery, trying to pick a bottom in this share price has been problematic at best shall we say, but we do seem to be finding a little bit of a base in and around the ATP area. So there are grounds for optimism certainly deliveries made great strides and signing deals with Amazon and waitrose. Let's help to push q one gross transactional values up to 1.8 billion pounds, which is a rise of 11% from the same period a year before. It has unfortunately downgraded its expectations of GTV guidance of 15 to 20% 15 to 25% this year down to 4 to 12% but it has maintained its EBITDA guidance, left that unchanged so I think if it can actually come in. In line with expectations and not downgrade its expectations further after it downgraded them in July, then I think an awful lot of the bad news might be might be priced in so be worth keeping an eye on delivery shares. On the wider scheme things in terms of US earnings numbers we've got Disney. That share price does appear to have found a bit of a base, but it's got a sizable barrier to get through 112 dollars and certainly in terms of the streaming model. We've already seen from Netflix that we've got a challenging environment. Certainly Disney is shaping up to be its main challenger, shall we say, when it comes to market share. In the second quarter Disney was actually able to add to its subscriber base by around about 8 million subscribers, increased from 129.8 million to 137.7 light Netflix Disney said it's also planning and add supported dear of Disney plus in response to concerns over rising prices. Nonetheless, Disney will have to face hits from COVID closures of Shanghai and COVID Shanghai and Hong Kong theme parks in China, and it said that's going to cost it around about $350 million so swings and roundabouts on Disney, which might mean that we could see a little bit of a gap and around about $113 on the Disney share price. And we've also got Rivian that's had shall we say a pretty ropey start to life when it comes to its IPO which was priced at $78 seems a long time ago now. But on the plus side, things can really only get better from here on in Q1 revenue was $95 million, which was below expectations of 131, but it is ramping up its target for car production. The company says it remains confident of turning out 25,000 target of annual vehicle sales. I think that will be a stretch, given the fact that only built 2500 vehicles in Q1 and only delivered 1200 of them in that period. So, you know, can the company deliver 4000 vehicles in Q2? That's its target. So you're looking at five, 6000 vehicles in the first half, 19,000 in the second half. That's a big jump. So we'll have to wait and see. But certainly losses aren't expected to diminish any time soon. And as we've seen from Ford and Amazon, they've already written down their stakes in Rivian quite sizably over the course of the past few months. So that's the review of next week. Equity markets still looking fairly positive, but we are now starting to approach some some key resistance levels. And the big test will be is whether or not we're able to move above those resistance levels. We're still in a longer term downtrend within the context of a shorter term uptrend. So we're getting to what I would call a little bit of a key inflection point when it comes to where we head to next. Certainly in terms of the earnings announcements that we've seen thus far, we're broadly fairly positive. The bigger question is, have markets faced up to the reality of a much weaker growth outlook going forward? And has that has that been priced in in terms of equity markets? So that's it for this week. Once again, thank you very much for listening and speak to you all same time, same place next week.