 Good morning. Welcome to CMC Markets on Friday the 6th August and this quick look at the week ahead beginning the 9th of August with me Michael Houston Before we get started on that. We obviously have the small matter of today's US jobs report, which I think has been dominating most of the news flow this week Across the financial press, but also I think There's there's a wider there's a wider story playing out at the moment with respect to events in Asia and more specifically in Rising infection rates across across China Causing anxiety that the rebound story in that part of the world is about to become the weakest link in the global recovery story We're also We're also seeing An acceleration of cases across Indonesia Thailand as the virus hunts out the parts of the global economy with low vaccination rates and obviously we've also got rising infection rates in Australia as well which are prompting new lockdowns in places like Melbourne rising infection rates in Sydney so There is a concern. I think that Rising infection rates in unvaccinated parts of the world could create a little bit of a an economic recovery Split or divergence if you like that hasn't really affected markets here in Europe or the US And nonetheless if you look at say for example the Nikkei 225 I'm over the course of the past few weeks there has been there has been evidence that the Gaines there I've really been struggling. I mean since those since those since those peaks in February We haven't really gone anywhere. I mean we've traded sideways albeit in a fairly Broad range with the bottom of that range in and around these sorts of blows In July that we saw that around about the 27,000 area What's notable? I think well, what's more worrying? I think more broadly is the fact that every subsequent rebound has been a little bit shallower and previous one so obviously that is a concern going forward and It's something that I think we do need to keep an eye on nonetheless if we look elsewhere We've seen fairly decent gains across the board this week. We've seen Record highs in the stock 600 we've seen this record highs in the footsie 250 the NASDAQ And the S&P 500 could well put in a new record high Later today. It's trading in and around that level right now ahead of today's jobs report so I think before we look ahead to The events of the upcoming week She's she's I think fairly fairly light in terms of Macro announcements, we've got China trade numbers at the weekend and we've got US CPI We've got UK second quarter GDP More broadly, I think we need to talk about the jobs report because there's been an awful lot of column inches Set aside for today's number But ultimately I think for me is really Is it likely to clear up the picture for the Federal Reserve when it comes to the timing or otherwise of a taper and Or a rate rise There's been plenty of speculation about the importance of today's jobs report in terms of the timing of Timing of a tapering of asset purchases and whether or not we get a rate hike in 2023 or late 2022 I think the reality is whatever today's number is picture is unlikely to be any clearer After the numbers drop than it is now Which means this month's Jackson Hole symposium probably won't offer investors any steer on Monetary policy or any significantly new steer than they currently already have Now why do I say that well? Because when we look back at the June jobs report the headline number was certainly a very decent improvement on the main number eight hundred and fifty thousand new jobs up from five hundred and eighty three The unemployment rate however edged higher While the under employment rate came down All the while the participation rate remained unchanged at sixty one point six so despite all the narrative of the various Fed members Richard Clarida the deputy vice chair with the sorry the vice chair Christopher Waller permanent board governor New York a chicari New York Fed president John Williams for examples one member concerned about the lackluster participation rate given where it was pre-pandemic at sixty three point four percent and It's expected to rise later today to sixty one point eight You know, what does it tell us today's July report comes against the backdrop of elevated prices Weekly jobless claims that appear to have found a base in an around four hundred thousand this week's ADP report was very You know, it's a lot weaker than expected falling back to three three hundred and thirty thousand So on the flip side of that we had both ISM reports showing some decent gains in the employment components so you know and the median number of consensus ranges from 350,000 for today for today's job for jobs reports of one point six million will pick the bones out of that You know, what what happens with respect to that? I think as we look ahead I Think we'll get a much better clearer idea Post September when schools go back and all the unemployment benefits roll off Then what you'll find is an awful lot of people who have been claiming unemployment benefit or various benefits As a result of the last stimulus plan We forced to go back to work And that's where we'll get a better idea of where the US labor market is right now for the here and now equity markets continue to push higher and all the while We still have US 10 year treasuries heading back towards the lows that we saw from early July so If we look at this chart here, which is the chart of the US 10 year yield We've managed to find a fairly decent area of support in and around 112 113 Those were the those were the highs of those were the lows of earlier this week So we're getting a bit of a rebound I think there is an expectation and there is certainly this pressure being brought to bear on Central banks to start to pair back some of their monetary stimulus We saw that earlier this week with the Bank of England Who suggested that higher inflationary pressures might cause them to pair back their monetary stimulus and potentially even Push start to push rates up towards the end of next year and the beginning of 2023 so that's had an upward That I think that is Help to put a flaw Under yields whether or not that is sustained is anyone's guess. Certainly. We're getting a bit of a rebound In US 10 year yields whether or not that is sustained after today's US non-farm payrolls is another matter But I think we'd need to get back above 1.3 percent to really Undermine the downtrend that's pretty much been in place since early March We've got US CPI coming out on the 11th of August and In the June numbers the temperature in the US economy went up quite a bit You know my headline was feeling hot hot hot When we saw headline inflation rise to 5.4 percent On the headline CPI number with core prices rising to 4.5 percent, which was the highest level since 1991 Now, yes a large part of the US CPI number Increase was driven by another ten and a half percent rise in used car prices and a one and a half percentage points increase in energy prices While food and rent inflation also rose more than expected the big question is how much of this is Transient or transitory or whatever you want to call it and how much of it is persistent at the end of the day We're probably not going to know For at least another two or three months, certainly if Junes number of 5.4 percent doesn't mark the high watermark Then Fed officials may start to shift a little bit more uncomfortably as we head into the autumn Certainly if PPI numbers have been any guide They also saw an increase in June which suggests that CPI is probably going to head a little bit higher As well And I think that really is the big conundrum that's facing an awful lot of you know an awful lot of investors how far Will the Federal Reserve allow inflation to rip higher before they start to get a little bit anxious about the overall direction of travel of Prices in general, you know if we look at what PPI PPI Final demand came in at seven point three percent in June, which was nearly two percentage points above US CPI and that was up from the previous month now There is an expectation in the CPI numbers for July that they could soften a touch Certainly the PCE core deflator did that In the most recent numbers, so there is some evidence as well as the recent prices paid numbers out of the ISMs Inflationary pressure is starting to modestly level off that's certainly not borne out by the Behaviour in the dollar index this week which saw Big declines at the end of July before rebounding modestly at the beginning of this week nonetheless I'm still of the opinion that the dollar is likely to gain ground on the basis of the fact that Ultimately the Federal Reserve Is still more likely to tighten Monetary policy or tape-reset purchases and then then is the ECB the European Central Bank And we've seen that borne out this week By virtue of the fact the euro dollar has drifted back below 118 and a half and could well head back towards 117 and a half over the course of the next few days and Weeks certainly the dollar does appear to be giving the impression that it may say may have Bottomed out, but you could also argue this has the potential to be a little bit of a head and shoulders reversal on The CMC dollar index chart that we've got here. So what am I going to do here? I'm going to draw a little line in through here and keep an eye on Not only these lows that we saw at the end of July around about nine five seven But also this trend line through here if this is in fact Starting to build up to be a potential Reversal on the head and shoulders, but at the moment while we remain above This trend line here Remain very much and buy the dips when it comes to the US dollar Talks about euro dollar and the fact that we broke below 118 and a half Earlier this week. We now appear to be heading back towards these lows around about 117 60 You know given the direction of travel with respect to European ECB monetary policy For me the line of least resistance is for a week euro We're seeing that playing out in terms of the euro against the dollar We're also seeing it play out in the euro against the pound In the wake of yesterday's Unexpectedly slightly hawkish tilt by the Bank of England. We can see that here in euro sterling The likelihood is that now that we've we've finally got below 85 We're probably going to head back towards not only this April low here of 84 70, but more importantly Head back towards the lows that we saw in early 2020 February 2020 of around about 83 They're all there at thereabouts euro sterling still for me remains very much sell the rally Type of trade which brings us on to the pound We've broken to the upside on the CMC sterling index Which suggests that we have potential for now further upside and retest the highs that we saw in February Now with that in mind, we've got UK second-quarter GDP Joe on the 12th of August Having seen the UK economy contract by 1.6% in the first quarter. That was a much shallower Contraction that was originally being priced in at the start of the year I cast your mind back to then and the Bank of England was Penciling in a minus 4% contraction so minus 1.6 is is is a pretty significant Improvement in the months after March, we've seen strong PMIs of over 60 across the board manufacturing construction and services for all of Q2 Retail sales growth has also been decent help by falling unemployment as businesses reopen Rising prices have been a headwind Although the can park the comparatives from last year Need to be taken into account so When we look at the comparatives, obviously the Q2 lockdown a year ago So the UK economy contract one minus 19.8% So you're going to certainly see a little bit of a whiplash effect when the annualized Q2 numbers for the UK economy come out next Next week on the 12th You know, you should see a significant rebound preliminary Rebound of 22.1% year-on-year 4.8% on A quarterly basis is what is being predicted for quarterly GDP for the UK in the numbers Next week, which is not too shabby and certainly 22.1% annualized needs to be set in the context of the 19.8% contraction that we saw in the numbers a year ago, so Certainly in terms of the pound Particularly against the dollar. I'm still very much of the opinion that we can Head higher. Obviously the stronger dollar may act as a little bit of a drag on the pound But a weaker euro sterling should help to support the pound to a certain extent Fairly decent support in and around 138. That's this series of lows through here We can just change that to a four-hour chart and that Illustrates the support level Slightly better. I just draw that in through there. You got that 138 60 70 level there And but you've also got a fairly decent area of support in and around 138 and also these big big lows around about 135 70 so overall Feels like it wants to head back towards Towards the highs that we saw in June 142 Be aware that 140 is likely to be a very very big obstacle So you could see a little bit of selling interest in anywhere between 140 and 140 20 If 140 30 gets traded then we could well see a move back towards the highs 142 40 so that's certainly worth keeping an eye on going forward So that's euro dollar euro sterling sterling dollar I'm looking at Brent crude prices for starting to see a little bit of a softening there Concerns about demand out of China Last three days of games Monday Tuesday Wednesday, we've had a little bit of a rebound Thursday But nonetheless, we still remain very much in an uptrend here So it'll be really dependent on whether or not we can break this little trend line here on Brent crude as to whether or not We've actually seen the highs. I'm still of the opinion that 80 is going to be a Very very tough enough to crack and if you've got concerns about slightly weaker demand at a time When OPEC plus are slowly increasing production I think the offset to there is likely to mean that $80 it should be they should be I mean into an interim top for the near term Looking at gold very briefly it's a similar sort of story here continues to be Undermined by slightly higher yields the rebound in US 10 year you would have seen gold prices drift back But again, we still remain very much in an uptrend from the lows that we saw in March So pay particular attention to the lows of around about 1780 1790 in this trend line support here The only way that I could see gold trending quite a bit lower from here is if US Treasury yields Start to head back above 1.3 percent towards 1.4 and we could then see this roll over so very much Very much at very much a yield play there in terms of earnings this week before we move on to that Let's quickly look at the various Equity markets earlier this week. We had Goldman Sachs come out and revise upwards their end of year target for the S&P 500 4700 4900 by the end of 2022 well when we look at a chart like this It's not hard to see why they've come to that conclusion ultimately They're playing the Tina trade there is no alternative So for me, it's really about just following the trend that's sitting right in front of you It's being displayed right in front of you So for me, it's really about any dips by the dips by the dips by the dips Look at the way that these these dips have been bought. Look at this here Down move down move here down move down move here quick reversal quick reversal quick reversal It's rinse and repeat pretty much Sustain move below the 50 day moving average could well undermine that narrative But for the time being it remains very much by the dip On the S&P 500 we look at the Nasdaq 100. It's a similar sort of story drawing this This one here This is a daily chart and once again We've hit new record highs earlier this week FTSE 100 Bane of my life Just does not want to go up even though the FTSE 250 continues to make record highs We could well be on course to see a new record high in the DAX before too long Again, you can see the narrative here is pretty similar Strong sell-offs followed by strong rebounds a clear line in the sand is delineated here by for me This blue line that I've drawn in there So keep keep an eye keep an eye on that if we get back anywhere closer that as far as the FTSE 100 is concerned I Think as long as we hold above 7000 Then we should should head back towards those peaks that we saw in June We still remain some way short of The all-time highs that we saw pre-pandemic Doesn't mean that we're not going to get them. Certainly the numbers that we've seen from UK companies this week have been fairly decent unfortunately, the FTSE 100 has a high proportion of cyclical stocks and in particular Travel and leisure stocks which are likely to Act as a little bit of a drag until such times as we get some evidence of a rebound in global travel and that is likely to Remain subject to significant restrictions. I think pretty much until Early next year. So I think the prospect of a rebound in the FTSE 100 needs to be tempered against that backdrop It's unlikely that we're going to get strong rebounds in the likes of IAG International Consolidated Airlines, Intercontinental Hotels Group, Travel and Leisure, EasyJet TUI, that sort of thing until such times As we get a clearer idea of where things are but certainly in terms of the overall direction of travel There's really strong support around 6800 And also fairly decent supported around about 7000 so still very much remains a case of buying the dip on the FTSE 100 In terms of some earnings announcements this week, we've got onto Intercontinental Hotels I mentioned them just now first-half earnings. The ones I'm particularly interested in Deliveroo, that's very much a Lockdown stock if you like, but it has actually Been doing fairly well despite a pretty disastrous start when it IPO'd back in March At 390p listing price. We've seen a slow recovery back from the April Lows. We're still below the listing price but The business has seen a fairly decent rise in orders 88% rise in orders in Q2 Companies undoubtedly benefited from the slightly slower relaxation of the restrictions that we've seen over the summer Obviously, we're due to unlock in June. We didn't we unlocked in July We've had a summer of sport including your 2020 Domino's Pizza at their busiest ever day this year During the England-Scotland game So you would expect that Deliveroo would have seen some fairly decent Activity turnover over the course of Euro 2020 as well. Full-year revenues are estimated to rise by 53% from 2020 levels of 1.2 billion so I think It's around about 1.8 billion So so any sort of number close to a billion pounds for first-half earnings first-half revenues is likely to Be well received looking for around about nine hundred thousand nine hundred nine hundred million One billion pounds for first-half revenues First Deliveroo, you know, can we get back above these highs of around about three forty? hopefully the Hopefully for delivery shareholders that will be very much positive Let's talk about Cineworld and AMC Two cinema chains who've had very divergent fortunes over the course of the past few months notwithstanding the fact that they're both equally is in difficulty as each other Difference the Cineworld has is it doesn't have The reddit crew watching its back So I think the big question for Cineworld is and we've seen that I think even though restrictions have been Relaxed that doesn't appear to be any respite for the share price and I think the reason for that is that while revenues are likely to improve Cineworld's biggest problem is its debt pile and You know while while we've seen a decent recovery in its revenues as The economy has reopened and they've managed to restructure their finances to May 2024 It's debt is still within touching distance of eight billion dollars. So Expectations for 2021 revenues back in March were in the region of two and a half billion pound with a return above four billion Sorry two and a half billion dollars With a return above four billion dollars expected in 2022 Both of these targets. Mmm. Yeah, I'm unsure about them particularly given the fact that if cinema releases follow the Black Widow model whereby The stream simultaneously made available for streaming simultaneously You could see football take quite a significant hit. The hope is the hope is that a strong release slate in The second half of the year including the new James Bond film will help to get those revenues up Certainly in terms of the AMC numbers, I Just can't buy into this. I mean the the share prices bears no relation to where it was Pre-pandemic if I take this all the way back AMC is at record highs despite the fact that its finances are in worse state and in a worse state than back in 2015 the only reason it is where it is is because of of the reddit crew I mean basically the share price is way too high It's way out over its skis and really shouldn't be anywhere near as high as that But now since when evaluations mattered when it comes to some of these companies So in terms of AMC It's gonna be a similar sort of outlook or be it the fact that US cinemas have been doing quite a bit better than the ones here in the UK. We've also got Coinbase and That's likely to It looks as if it could well have found a base no pun intended In the short to medium term second quarter earnings Profits that profits are expected to come in at $2.41 Bitcoin has settled down a bit in recent days so the lack of the lack of significant movement in Bitcoin could well play a part in Coinbase's share price. What's interesting about this is how We look at Coinbase over the course of the past few weeks It's all pretty much traded sideways The share price is bottoming out. If we look at Bitcoin It's pretty much done the same thing. They're almost mirror images of each other So it'll be interested to see if Bitcoin does break higher Whether Coinbase follows it will be an interesting it'll be an interesting one that again Coinbase is to on the 10th finishing up with Disney This is a nice little chart here drawn a line through these lows here a Lot of anticipation Around these numbers obviously the theme parks have reopened holidays have restarted Disney Plus is Doing very very well There's a host of new content which may attract new users including The addition of Loki the new animated Star Wars series the Bad Batch and they've also added for UK and Australian users Star Which is the Fox catalogue of films like X-Men Avatar And what have you as well as the addition of National Geographic Also, you get for con 4k content Without having to pay extra might you do for Netflix so be interesting to see Whether or not Profits for Q3 match the improvement that we saw in Q2 So expectations there are for profits to come in around about 56 cents a share just slightly below the levels of 79 cents a share that we saw in the second quarter This year Okay, so um, that's pretty much. I think that's pretty much it for this week's week ahead like to thank you all very much for listening and I'll speak to you all same time same place Next week and have a good weekend one and all