 Good morning. Welcome to CMC markets on Friday the 8th of December and this quick look at the week ahead beginning the 11th of December where we've got a trifecta of central bank decisions to dissect or basically pass through. It's been a choppy week this week for global markets we've seen significant declines in the Nikkei 225. But on the other hand we've also seen the German DAX push up to new record highs and a large part of the reason for that divergence has been differing expectations of what could be coming out of the ECB European Central Bank over the course of the next few months in the early weeks of 2024 but also from the Bank of Japan as well because this week we've seen some indications, some early indications that both central banks, the ECB and the Bank of Japan could be on the cusp of a significant shift when it comes to monetary policy expectations. And while we're probably not going to get some steers, significant steers from either the ECB next week or the Bank of Japan the week after, some of the movements that we've seen this week in Dole yen, or we've seen a big decline in Dole yen, but also the German DAX pushing up to new record highs would appear to suggest that the markets are now pricing in the very real possibility that the ECB could be closer to cutting rates than any other central bank in the early part of 2024, but also that the Bank of Japan could be about to pull monetary policy out of its current negative rate state. Certainly what we've seen this week is that central banks markets continue to price in the prospect of rate cuts from central banks in 2024. So certainly the higher for longer narratives that central bankers would like to have markets believe has taken a significant hit over the course of the past couple of weeks. We can only have we only have to look at the US 10 year yield to see that that is very, very true. We've come down pretty much since the middle of November from 4.5% to as low as 4.1%. If we look at the German two year yield, we can see a similar move lower when it comes to yields as well a big, big drop from levels above 3% to down to down to 2.6%. And that's been really notable in terms of how German German yields have repriced relative to US yields. And I think that more than anything is going to be the key debate for 2024. Who's going to be first out of the traps when it comes to rate cuts. If you look at the UK two year yield market surprising in the prospect of three rate cuts in 2024. You know that that could well happen for me in terms of the currency moves is about who goes first. And looking at the data that we've seen over the course of the past few days. I would suggest that the ECB is probably going to be forced to cut first. We've also seen a significant narrative shift from the ECB. And while I don't expect Madame Lagarde to signal that the rate cuts are coming. We do know from some of the narrative that's come out from very senior ECB governing council policymakers that they believe the top is in. We've heard from the likes of Isabel Schnabel, who's the German ECB governing council member. That she's acknowledged that the ECB is done when it comes to rate hikes and that's significant because obviously Germany tends to be the most hawkish on there. And while Jochen Nagel of the German Bundesbank might not necessarily agree with that interpretation, the fact that Schnabel expressed surprise at how quickly inflation has come down. It does appear to suggest that a large majority on the ECB governing council are leaning now towards how long they can keep rates at current levels. And certainly it's hard to escape the feeling that the ECB erred in September. Given the fact that French governing council member de Villeroy de Howe has also suggested that rate rate cuts could start to come in 2024, even though he's not directly indicating that they're going to come particularly early. But markets are already pricing in the likelihood of cuts by the end of Q1, potentially the beginning of Q2 next year. I don't know why central bankers are surprised that inflation has slowed as quickly as it has. You've only got to look at the PPI numbers over the course of the past 12 months to know that at some point they were going to see pin to the headline CPI numbers. And they certainly have and you can certainly see in terms of the trend when it comes to yields in the UK, the UK two years down from four and five and a half to four and a half. And that will inevitably ease some of the pressure on hard pressed consumers as we head into 2024. So I think the debate now really is very much geared towards when do we start to see rate cuts in 2024. And that's certainly reflected much more in the way that German 10 year yields have come down and two years have come down. We've broken the uptrend that they've been in and it's now very much a case of how low can they go. We've also seen the dollar index pull back quite a bit in the past couple of days or the past day or so. That's largely as a consequence of that big drop that we saw in dollar yen. And, you know, that is again, I think that's a narrative shift from the Bank of Japan. I mean, that's one call that really I didn't get right in 2023. I expected the Bank of Japan to shift on monetary policy much sooner. And now we've got the very real possibility in 2024 that the Bank of Japan will start to tighten monetary policy ever so slightly. Precisely the point that the ECB, the Federal Reserve and the Bank of England are looking to start shifting away from tightening policy to moderating or paring back some of the rate hikes that we've seen over the course of the past 18 months. And that's going to make for a very interesting narrative shift as we head into 2024. So inflation is slowing. And that's something that both the federal, all three central banks will have to take into account when they meet next week. So we've got the Federal Reserve on the 13th. We've got the ECB in the Bank of England on the 14th. One thing we do know that growth is slowing. Obviously the China trade numbers that we saw earlier this week pointed to very, very weak in internal demand, domestic demand. We also saw Moody's ratings agency downgrade China's outlook for 2024, which suggests that we might see further stimulus from China over the course of the next few months. But certainly in terms of the headline numbers out of Germany in terms of industrial production, factory orders, the diabolical. The PMIs are starting to show flickering signs of improvement pick up in the services sector. Is that a dead cat bounce? Is that a response to continuing slowdowns in headline inflation? And what does that mean for rate policy going forward? If we look at, say, for example, the FTSE 100, that continues to basically be the perennial party pooper when it comes to trying to rally. We are very much in an uptrend from the lows back in October. But we still remain confined to this squeeze in the price action from the highs, the record highs back in February. Big level for me. It remains at around about this 75, 35 area. And then above that, obviously the 50, the 200 day moving average and obviously the upper line here. So I really don't expect the FTSE 100 to significantly break out of the range that it's been in over the course of the past two to three, four months. If we look at the German DAX, we've made new record highs this week as markets start to price in the possibility of easing and monetary policy from the ECB. We've broken above the previous peaks back in August. That would appear to suggest that we could well see further gains, even though we remain very overbought, but it's very much a case of momentum is starting to turn positive on the 50 day moving average. Yes, we are extending higher. I don't expect as we head into the end of the year, much of a selloff over the course of the next few days and weeks. And even if we do, we're likely to find people or traders investors buying on the dips. S&P 500, we remain very much in a choppy range on that. We still remain below the March 22 highs of last year in the record highs that we saw back at the beginning of 2022 in the end of 2021. So still an awful lot of chop when it comes into the S&P 500. And the same applies I think very much to the NASDAQ 100. I'm still not comfortable with the idea of these very high valuations for the likes of the NASDAQ and the S&P. I think there are cheaper areas of the market to go in. But ultimately, you can't argue with what the price action is doing. But you can argue with the idea that valuations are still very expensive. And if you look at US markets in isolation in terms of the S&P and the NASDAQ, it's easy to buy into that bullish narrative. If you look at, say, for example, the Russell 2000 on the other hand, the picture isn't quite as rosy perhaps as the S&P and the NASDAQ would suggest. Because if we look at the Russell, we can see that if you strip out the Magnificent 7 and you look at the US economy on a slightly broader level, it probably hasn't done as well this year as perhaps other US markets would lead you to believe. We pretty much traded sideways for most of this year. So NASDAQ 100 and S&P 500 very much skewed towards those US big caps, which give you a very false impression of where US markets are currently sitting. This week, we've seen the Nikkei 225 drop quite sharply in response to the possibility that we could well see this Bank of Japan shift on monetary policy. It's interesting that this week's rally and the recent rally hasn't been able to take us above the highs that we saw back in June. So again, I think this very looks very much like a range trade even. Plurancies. Eurodollar. Finding a little bit of support in and around 10750. Got the 200 day moving average here. Gips and Eurodollar likely to find support in and around the 50 day moving average momentum does appear to be turning slightly more positive. So really, I think the next moves in Eurodollar won't very much depend on the messaging that we get out of central banks next week, but also the broader data that we're seeing out of the various regions. Cable seen a nice pullback from those peaks. At 12720, which was the 61.8 retracement level of this down move here, currently above the 50 day and the 200 day moving averages. I would expect I would hope to see that this level will hold and cable will continue to push higher, given the directional, given the directional bias that we're seeing in these two moving averages. You know, I'm hoping to see further sterling strength as we head into 2024. Looking at Euro sterling. I think that's been particularly noticeable over the course of the past few days. We found a bit of a base and around about 8550. It's not going a little bit toppy at 90. We can potentially head back to 8640. But I think if you're working on the basis that the ECB is likely to cut rates first, then there's a distinct possibility that we could on on on the scheme of things, perhaps see a lower Euro and a higher pound. The end, I think the dolly ends going to be the big mover. Currently, we're holding above the 200 day moving average. As long as we hold above the 200 day moving average, we can see potentially see a squeeze back to 146 or 148. But I think the Bank of Japan is going to be very comfortable with the idea that a break of this 200 day moving average, we can see us move back to the mid 130s 135 136. Over the course of the next few weeks, but the 200 day moving average is going to be very important in the overall direction of travel when it comes to whether dolly yen continues to track lower over the course of the next few weeks. So that's sort of a quick summary of what's happened this week. We've also seen big declines in Brent crude, despite the output cuts agreed by OPEC. This is very much a demand driven move concerns about demand. Yes, we've seen a fairly decent rebound or seeing a very decent rebound today. But the fact remains that we have we've we've declined significantly over the course of the past few weeks. We're looking to find a little bit of support around about 200 week moving average. And I would argue perhaps that downside is likely to be fairly limited in the short term, particularly given the fact that OPEC plus could well signal further production cuts if we continue to see declines over the course of the next few weeks. An awful lot of another another another reason why we've seen weakness in oil prices is US production has hit new record highs, which means it's going to be much more difficult for OPEC plus to squeeze supply when the US is continues to generate record levels of production. It's now around about 13 and a half million barrels a day for US crude output. So as we look ahead towards this week, we've got the Federal Reserve on Wednesday. Obviously, Powell insisted at the start of this month the prospect of more hikes was still a possibility and rate cuts would are unlikely to follow in the coming months. We do know that Fed policy makers, get my words out, we do know that Fed policy makers have guidance of a Fed funds rate of 2024 of 5%. Now the markets are pricing in 4% by the end of next year. So that's a significant mismatch, which I think Powell will need to somehow address when he holds his press conference on Wednesday. He will want to basically say that policy makers remain aren't confident that policy is sufficiently restrictive, although they have come a long way. We've heard one hawkish Fed member Christopher Waller saying that monetary policy is well positioned to slow the economy and get inflation back on target. He did go on to say that if disinflation starts to become a concern, then rates could be cut in response and obviously that's what markets are reacting to. But obviously the bond market reaction is going to be a cause for concern, given the fact that the slide in yields has prompted financial conditions to loosen. So while we don't expect any change in policy, the Fed has a very significant tightrope to navigate. Well, it comes to the FOMC looking at the dot plots for next year. Because obviously the initial tightening of monetary conditions that we saw earlier this quarter was as a result of the Fed raising their dot plot expectations for rate cuts next year from 4.6 to 5.1%. Market surprising rate cuts down to 4.1%. So it'll be interesting to see how they manage that mismatch at the press conference. Obviously we've got the ECB. I've talked about that a little bit with respect to headline inflation falling to 2.4% in November, just within touching distance of the ECB's 2% inflation target. So Christine Lagarde's biggest challenge I think is convincing the markets that rate cuts won't begin much before the summer of next year, given how dire some of the economic data out of Europe already is. That's going to be a big uphill struggle for her to do. Markets aren't buying it. And I don't think whatever she says on Thursday, markets will buy it. And that is going to be the challenge. Bank of England, obviously the whole decision in September was a close run thing. But on the balance of risk, it was also probably the right one given the challenges facing the UK economy and the latter part of this year. We started to see evidence of those challenges being played out. Obviously the energy price cap inflation is now out of the headline numbers. CPI is now back at a more manageable level of 4.6%. But that's still well over 2% above where EU CPI is. So I think when markets are pricing in three rate cuts next year, I think it's a much bigger hurdle for the Bank of England to overcome than say, for example, the ECB. That's why I think maybe the Bank of England is mispriced and the ECB probably isn't. Bank of England's biggest concern is obviously wage growth, which is currently trending at 7.9% or services inflation is at 6.6%. And that is obviously behind some of the dissent on the Monetary Policy Committee who want higher rates. Although this number has now shifted to the three external members of Catherine Mann, Megan Green, Jonathan Haskell, who all both voted for a rate increase at the last meeting in November. So it'll be interesting to see if they drop their dissent for another rate hike at next week's meeting and not for the status quo. I think that could be a significant shift given where inflation is and given how the data has come out over the course of the past five or six weeks. I think it will be a surprise if they did drop their dissent, but it'll be interesting to see how that is managed going forward. We've got UK wages coming out. We've got US CPI coming out next week as well. That US inflation fell to 3.2% in October. That was down from 3.7%. Reversing a trend that had seen inflation 4 to 3% in June and then age higher. So I think it'll be very interesting to see whether or not prior to that Fed meeting, whether we get a further slowing of headline inflation. Markets are pricing in around about 3.1 for November. If we get a move below 3%, that could certainly set the cat amongst the pigeons in terms of hawkish or a dovish repricing of when to expect Fed rate cuts next year. We've also got China retail sales. The really significant decline in Chinese imports data could be instructive in terms of a tail-off in demand for retail sales in November. Chinese consumers do appear to be spending a little more. However, as various European luxury brands can attest, products aren't exactly flying off the shelves. So it'll be very interesting to see whether or not Chinese singles-day sales actually provide an uplift to Chinese retail sales for November. We've also got the monthly GDP numbers out of the UK for October. That should give us an indication as to whether or not the stagnation that we saw in Q3 has continued into Q4 or whether the economy has continued to remain on that cluster going forward. On the earnings front, we really don't have an awful lot coming up next week. We've got Curry's first-half numbers, electric retailer Curry's. Some of the retail numbers that we've seen thus far have actually been fairly decent and UK retailers have actually had a fairly decent year share price-wise or at least some of them have. So we're going to take associate British foods going the Primark brand, next JD Sports Phrases Group, all done very well. Boo-hoo, ASOS, not so much, very much Boo-hoo for Boo-hoo. Not been a good year for them. We've also got numbers from Darden restaurants who own the Olive Garden chain of restaurants in the US and Q4 numbers from Adobe. A fairly decent week in terms of what to expect from central banks next week should give us a steer. And then the week after that, we've also got the Bank of Japan, and I may talk about that a little bit in next week's video. Obviously, we've got non-farm payrolls today. That should also be instructive in terms of the US labor market. But I think it's unlikely we'll see a significant evidence of a slowdown in the US jobs market much before next year, given the fact that we see an awful lot of temporary hiring in the lead-up to Christmas and obviously Thanksgiving as well. So that's likely to keep the numbers fairly robust. Anyway, that's it for this week. Thank you once again for listening. This is Michael Houston talking to you from CMC Markets. Thank you for listening and have a nice weekend.