 Good morning. Welcome to CMC Markets on Friday the 1st of December and a quick look at the week ahead beginning the 4th of December. Now it's been a while since I've done one of these. My absence has been for family reasons which I won't go into here but certainly we've seen a significant move higher in equity markets and we've also seen a significant reduction in bond yields and a sell-off in the dollar. So essentially what does that mean? Well in the past couple of weeks we've seen markets undergo a significant shift in when they think or how long they can think central banks can keep rates at current levels. Just before my my two-week absence the narrative was very much higher for longer with the prospect of rate cuts much before 2025. Pretty much not really up for discussion. I think you could probably make a case for the fact that we might see rate cuts at the end of 2024 but certainly I think the expectation was that we wouldn't see them much before that. So what's changed? Well quite simply it's the market perceptions of inflation and the recent inflation numbers from not only the US but also Europe, China as well obviously is in deflation or disinflation has really shifted the dial and consequently markets are now much more confident that central banks will be forced to cut rates potentially as early as the middle of next year or even sooner and not for good reasons either and I think that is really where I think there is some uncertainty as to whether or not central banks being forced to cut rates is actually a good thing because they are responding to a significant economic slowdown. Nonetheless we've seen big rises in equity markets over the course of the past couple of weeks. Well some equity markets anyway FTSE 100 has been really underwhelming and I think these concerns about the economic outlook have really manifested themselves in the oil price and the decline in Brent crude prices despite the events in the Middle East close to the lows of the last few months and obviously that has affected the FTSE 100 given the fact that it has a high number of commodity stocks in it because obviously if you get a weak economic recovery then obviously demand for basic resources starts to diminish. That said we are still edging higher on the FTSE 100 currently testing resistance at around about 7500 here this previous peak back in the middle of November we're struggling to get much above that. More importantly I think we're also very much in the downtrend that we've been in since we posted those record highs back in February this year so I think if we are going to get excited about a rebound in stock markets then what I really want to see is a breakout of the move higher from the downtrend in the FTSE 100. We've seen the DAX go from strength to strength that has really outperformed a bit like the S&P 500 but significantly despite the fact that we've rallied strongly from our October lows I mean that is a sizable move higher over the course of the last few weeks and it's been largely driven by an expectation perhaps that we are starting to see a bottoming out in manufacturing activity in the euro area or be it from very very low levels but also I think that for all the ECBs European Central Banks protestations that rates need to be higher for longer no one's buying it and to be quite honest I'm not buying it you know we've certainly seen the fact that rates bond yields in particular have seen a significant decline over the course of the past few weeks we can see it here in the UK we can see it in the US we can see it more importantly in Europe as well and if we look at the Germany two-year index which I've got here we can see that German two-year yields are the lowest levels since June so pretty much closing in on six month lows which suggests that the market is now looking to price in rate cuts from the ECB as soon as April next year I certainly would buy into that unless we start to see evidence that inflation is starting to bottom out but given the fact that German inflation has fallen really sharply since August and EU inflation EU CPI is now 2.4 percent well we're pretty much back to the ECB's inflation target and given the lagging effects of monetary policy you could reasonably argue that an awful lot of the heavy lifting when it comes to rate hikes actually hasn't completely filtered down into the European economy the UK economy or the US economy so as we look ahead to December and the end of the year the big week is the week just before Christmas it's see when we have the meetings from the Federal Reserve the ECB and the Bank of England now obviously not expecting any change in policy but I think one thing that these central bankers will want to do is they won't want to open the door fully to the idea that they are now starting to look at cutting rates anytime soon they've done the heavy lifting in fact you could argue that they've probably gone too far when it comes to rate hikes they've done the heavy lifting they don't want to start cutting rates until they're absolutely sure absolutely certain that they slain the inflation genie and you know people are talking about deflation I don't think we're there yet but that's not to say that we might not get there just on the basis of the fact that economic activity basically falls off a cliff we look at the two-year yield we in the US we look at the 10-year yield in the US we've seen significant technical breaks lower in all of the all of the all of the all of these charts here we saw that back earlier this month in November when we broke below those lows back in October at around about three at around about 450 on the 10-year we've now broken below that around about 4.3 percent if we stay below any if we get any rebound back to 4.5 and we could well do because I think that you will start to see some pushback on the behalf on the part of some Fed officials of this narrative that that rate cuts are coming because I think the last thing they want to do is loosen financial conditions to the point whereby inflation starts to find a little bit of a base just above that 2 percent area yeah we have seen a slowdown but an awful lot of the effects that we that we've saw from the high inflation of last year will now start to drop out of the numbers and inflation will start to stabilize in and around the current levels in the US of around about 3 percent and they'll want to make sure that that final move between 3.5 which is where the PCE is now and 2 continues to drift lower I won't want to see a significant pickup so we could get a pullback in 10-year yields back to 4.5 and that could well be dollar positive in the short to medium term which could then mean that we start to get a little bit of a stabilization after the big moves that we've seen in November and we have seen some big moves in November we see the very big moves particularly in equity markets but also in the dollar and also in bond yields so we look at the DAX if we do get further upside it'll be interesting to see whether or not we take out those previous peaks back here the record highs back in August so that's where I've got my particular eye on if we also look at say for example the S&P 500 we are back above 4,500 but I think it's also important to note that even though we are starting to approach these highs back from March 2022 in the last two years to all intents and purposes you've gone nowhere we've just wiped out the losses from 2022 and clawed them back to back to where we were at the beginning of 2022 so to all intents and purposes US markets haven't really gone anywhere if you look at it through the prism of the S&P 500 the NASDAQ 100 or the Dow obviously be broken higher on the NASDAQ and get rid of that this is another weekly chart so over four years trading above the previous July peaks but again as with the S&P we're back at the levels that we were at the beginning of 2022 if you actually look at the Russell 2000 the picture is completely different which is obviously a much better barometer of the US economy and look where we are there so even though the S&P the Dow and the NASDAQ are all back close to the levels in 2022 around here the Russell 2000 is not the NASDAQ to say that we can't recover back to the peaks that we saw earlier this year but certainly there is something not quite right about what's going on with respect to the US economy and I think that is being reflected in how the Russell 2000 has performed and is performing so what does that mean for the dollar going forward well obviously we saw a really big rebound in the dollar in November so sorry a big yeah we saw a little bit of a sell-off in the dollar in November what am I talking about and in the past couple of days we've seen that start to pull back a little bit and certainly if you look at these daily charts you could argue that we've seen a short-term top in euro dollar and we could start to drift back down and we could start to see a resumption or a consolidation of the recent dollar move that we saw to the downside dolly ends obviously got a bit weaker as well but certainly I think if we look at euro dollar on a daily basis on a weekly basis we may well struggle to make further gains and there's a couple of reasons for that obviously you've got the fact that Powell and a number of Fed officials will push back on the narrative of rate cuts but for me it's not about whether or not we get rate cuts next year I think we will it's the question of who starts the rate cut process now an awful lot of people have suggested it might be the Federal Reserve I struggle with that I struggle with that because the US economy is in a much better place than the economy in Europe the economy here in the UK and ultimately central banks generally tend to respond to economic weakness and if you're working on that basis then the ECB is probably the safest bet when it comes to rate cuts now I fully expect I would expect the ECB to start cutting first yes there are a number of hawkish members on the governing council but they only make up around about three or four central banks obviously Austria the Netherlands Belgium and Germany but for all of that when you look at the inflation numbers you know inflation is slowing very sharply Italy is in deflation now on headline CPI disinflation and PPI has been in pretty much deflation for most of this year and that generally tends to be a leading indicator now you might argue that we might start to see a pickup pick up an inflation at the start of the year and certainly I think that is a valid concern inflation generally doesn't slow in a straight line it ratchets up and down we've certainly seen that in the US in the summer where we bottomed out at 3% on CPI and then we edged higher we edged higher to 3.7% but we have now since started to drift lower again so looking at this chart you could argue that we could see a little bit of a pullback in euro-dollar to around about the 50-day or 200-day moving average to around about 107.40, 107.50 certainly you've got the evidence there that there is a little bit of a pullback and ultimately if you think that the ECB is going to be cutting first in response to economic weakness that's not going to be positive for the euro that's no better played out than in what euro sterling has been doing these past few days and weeks 20th of November we squeezed all the way up to 87.70 since then we've dropped below 86.50 we're now heading towards 86 and could well head back towards these lows here but ultimately euro sterling is a range trade has been all year and I don't expect that to change anytime soon also the Bank of England is probably going to be the central bank least likely to encourage the idea of a rate cut on the basis that headline CPI here in the UK is that much higher also we're still trending wage growth at 7.9% and services inflation is at 6.6% so I can certainly see the Bank of England pushing back on the narrative of rate cuts in the first half of next year whether or not of course we get them is another matter but certainly on the basis of who I think will be cutting rates first I think it will be ECB followed potentially by the Bank of England and last but not least by the Federal Reserve though you could probably interchange the Federal Reserve and the Bank of England but I certainly think based on the data the ECB will probably be forced into cutting rates first looking at cable seen a bit of a reversal there barely decent support of 125.90 what was particularly interesting about this particular move here was the highs in 2023 to the lows in October we got a perfect 61.8 Fibonacci retracement of that entire down move from 130.140 to 120.35 we've seen a nice pullback of that 127.20 area we've seen a fairly decent reversal here which might suggest that we could see a correction back towards 124.50 but while we're above 125.90 then we could see a retest of that 127.20 area but certainly I think at these sorts of levels we may be due a little bit of a pullback towards 124.60 while below this 127.20 area here and we're certainly looking overbought on the slow stochastic dollar yen similar sort of story we found a little bit of a base around about 147.146.80 seen a bit of a rebound back into the cloud but again here with the 50 day moving average that acted as a fairly decent barrier around about 149.70 149.80 and as long as that caps along with the cloud resistance we could start to see the dollar drift lower over the course of the next few days and weeks as we head in to year end but I think while we're below 150 we could drift back to 147 but we're probably we could go back to 151st before we start to drift lower again we could see a little bit of dollar strength in the short to medium term before we start to resume the downtrend that we've seen in the past few days let's have a quick look at Brent if like me you notice that petrol pump prices have become cheaper over the course of the past few days and weeks well yeah not wrong and this is why if we look at October the 7th which is basically when Hamas did that awful terrorist attack on Israel so a big move higher in oil prices but since then we've come all the way back down making new lows back here at around about 77 dollars a barrel and at the moment we're currently capped to 84.5 dollars a barrel why well because it's a fairly decent area of support through there resistance through there and resistance through there so I think as long as oil prices stay in and around these current levels then hopefully those prices at the pump will continue to come down certainly well certainly be keeping on that over the course of the next few days gold has taken an absolute surge higher back towards the peaks of earlier this year around about 2070 2080 I think that's the next key barrier much will depend on yields in that regard we've seen a significant slide in yields since the beginning of October and we've seen a significant rally higher in gold prices along alongside the weaker dollar this area here will be a big barrier and I think it'll be I'll be surprised if we break it this year we can certainly see that based on this series of highs through a year it's a big big barrier if we can get above it then we could well kick on but for the time being I would probably expect that to hold in the short to medium term so as we head into December not much in the way of earnings announcements but we do have non-farm payrolls to look forward to US payrolls last month's October jobs report was the first one this year when the headline number came in below market expectations though certainly not by enough to raise concerns over the resilience of the US economy the US still remains very much the best performing economy in the G8 unlike September when US jobs surged by 297 thousand jobs growth slowed in October to 150 000 while the unemployment rate ticked higher to 3.9 percent now obviously that's a good thing because what the federal reserve will want to see is unemployment edging a little bit higher we also saw a similarly weak ADP payrolls report as well so certainly the number of job gains is slowing we saw a softer ISM services survey as well and we've seen obviously yields come off quite considerably since that last payrolls report and as I said previously this is the next challenge for the US central bank who will be keen to at least give the impression that they're not going to be bullied by the markets into dropping their higher for longer rates mantra it's also it's also worth noting that the jobs the jolt's job openings are still elevated at levels of nine and a half million and weekly jobless claims are continuing to trend at around about 210 000 though the last claims numbers did see continuing claims jump quite sharply to 1.95 million up from 1.87 million so there's a big jump there expectations are for 100 around about 160 170 000 jobs to be added in November however you do need to remember that after the Thanksgiving weekend generally US retailers do an awful lot of seasonal hiring which could boost the numbers also the auto workers strikers have also the auto the auto workers strikes have come to an end so you could start to see those numbers get added back into the payrolls numbers so I think if we are going to see any evidence of cracking in the US economy we're not going to see it in the November payrolls report so I would expect to see a fairly strong number as I said previously the estimates for November payrolls were for a number in the region of around about 163 000 though that could well be revised up and the latest revision now is 200 so again when I when I originally wrote this little piece of a narrative it was about a week or so ago and the estimates have gone up from 163 to 200 so make of that what you may and also wage growth is still trending at around about four percent so I would expect next week's payrolls report this coming week's payrolls report to reinforce the narrative of a fairly resilient US economy we've also got services PMI's for November we have started to see some improvement in manufacturing but manufacturing numbers still remain pretty poor French economy fell into contraction in Q3 obviously weaker inflation numbers point to falling prices as well particularly when we see the manufacturing level the big question I think going forward is whether or not we're starting to see a slowdown in prices in the services sector and at the moment we don't appear to be seeing that to the same extent services inflation does appear to be a worry for the ECB we've also got the RBA who are due to meet later this week not really expecting anything surprising from them back in November the RBA took the decision to diverge from its recent peers and hike rates again by 25 basis points to 4.35 percent after five months of keeping them at 4 and 4.1 now you could argue this is an admission of failure that their decision to keep rates and hold at 4.1 percent was a mistake and I would certainly argue I certainly can't see the rationale for the RBA to hike rates but they have they did the big question now is whether or not they will be forced to cut them again sooner rather than later I can't see much in the way of upside for the Aussie dollar at this point in time if we look at the peaks of the last few weeks months rather there's a big big top at this 6890 area will be I think will be lucky to get back there there's a certainly resistance at the highs this week of around about 6680 so we really I think it'll be interesting to see whether or not they are hawkish or they continue to be hawkish in the same way that the RBNZ was earlier this week when they actually adjusted higher their expectations for their terminal rate which prompted a spike in the Kiwi we've also got China trade numbers for November we've got the Bank of Canada rate decision as well which could well be a fairly decent indicator for the Federal Reserve a week after that on full-time employment we haven't really seen any growth in the Canadian economy at all in the last three months so I can't see that there'll be any indication that they're going to be moving on the rate front there for in full-time employment we saw the first decline in jobs growth since May in the October jobs report a decline of 3.3% even though there was a rise of 17.5% between full and part-time all of the growth came in part-time positions and inflationary pressure is starting to subside in Canada as well so again I think we're looking at status crow very much on rates for pretty much all of this month on the earnings front we've got we're coming into the dying embers of the earnings season we've got phrases group owners of sports direct their first half numbers on the 7th of December and we've also got GameStop on the 6th of December and we've seen some really strong moves higher in GameStop shares on the back of some options buying where traders have been hoovering up $20 calls ahead of this upcoming Q3 earnings announcement for GameStop so obviously I think there's an expectation perhaps that we could get a decent set of earnings numbers from GameStop we will see sounds a bit like a false error into me but who knows in these markets these days anyway thank you very much for listening ladies and gentlemen hope you all have a great weekend and if you want to listen into the last non-farm payrolls this year on the 8th of December I'll be starting the presentation at around about 1 p.m covering the numbers live at 1 30 p.m you can sign up for it on the news page underneath webinars and events if you so choose thank you very much for listening have a great weekend and speak to you all next week