 Good morning. Welcome to CMC Markets on Friday, the 23rd of October, and me, Michael Houston, and this look at the week ahead beginning the 26th of October. Before we get started, just a small matter of a little bit of housekeeping, disclaimers, and what have you. It's certainly been an interesting week for equity markets. By and large, I think we've probably seen more weakness than actual strength. But overall, I think the direction has been dominated by rising infection rates, tighter restrictions, the announcements of tighter restrictions not only here in the United Kingdom, but also in Europe, and particularly in France, Spain, and Italy. And I think there is a concern that this second wave that we're also worried about is starting to actually accelerate with respect to the infection rate. Hospitalizations are also starting to grow, and obviously that is a worry. And that is that is weighing on equity markets more broadly. And then of course, you have the wider question as we head towards the November 3rd US presidential election is the subject of a stimulus deal. You know, I think it's scarcely believable that US investors still expect that to be some form of stimulus deal. Even at this late late stage, I think for all the warm words and optimism from House Speaker Nancy Pelosi, I think she's playing a game. It's all about optics. The fact is, the big gaps remain on the key issues of state and local funding and liability provisions. And I don't think these gaps are likely to be resolved quickly if at all, which means that a necessary amount of pragmatism takes over, and that both sides agree on a package on the bits they can agree on and bin the rest than a deal is unlikely to happen this side of the election. And I think more importantly, it's unlikely to happen this year. And I think one of the reasons that's one of the things that's really supported markets over the course of the past few weeks is even if we don't get a deal this side of the election, and that continues to look that continues to look unlikely, particularly if the Senate continues to block it, which has a slightly Republican majority headed by Mitch McConnell, then the fact of the matter is post-election, there'll either be one or two outcomes, either Trump will be a re-elected or Biden will become president. And then he won't get sworn in until January, which means that if we do get a stimulus deal from the Democrats, we're not really going to see it much before the end of Q1, beginning of Q2 by which time the US economy, even though it is improving and has continued to improve on the basis of jobless claims, and a host of other data, could well be in a much different place, a much more different place to the one that it is right now. And I think that is one thing I think markets are underestimating just ever so slightly, central banks can do so much, but what they can't do is fiscal measures. And ultimately, I think unless we get some form of deal or Trump gets re-elected and is able to push something through post-election, if he is re-elected, then we could well be looking at the beginning of Q2 before we get a US fiscal stimulus. And let's not even get started on the European Union, because they still haven't signed off their own pandemic recovery package, which brings, I think, which neatly segues me into what's coming up over the course of the next week or so, because we've got a whole host of economic data coming out of the European Union. Most of it is backward looking. It's certainly backward looking relative to the flash PMIs that we've seen earlier today, which has showed a significant divergence between manufacturing, which has been broadly fairly positive, and a sharp slowdown in services, particularly in France, less so in Germany. But ultimately, they paint a picture of a very sharply slowing economy as we head into the end of the year. But we do have the latest third quarter GDP numbers from France, Germany, Italy, and the rest of the European Union. And as I said, they are backward looking, but they will still point to a fairly decent recovery in the third quarter for pretty much all of the economies in Europe. So say, for example, we look at a French GDP that's expected to recover 14.2% in the third quarter after a 13.8% contraction in Q2. Germany is set to recover 7.5% from the 9.7% decline seen in Q2. More broadly, European Union GDP is expected to rebound 9% from the 11.8% decline seen in the second quarter. So that then really, I think, shines a spotlight on the ECB, the European Central Bank. And you may notice I've got the S&P 500 chart up here. Obviously, that was because I was talking about fiscal stimulus. I'll come back and look at that in a minute. Certainly, in the context of Euro-dollar, what we've seen Euro do over the course of the past few days has been not a lot. Yes, the dollar has weakened a little bit over the course of the past over the past few days, and the Euro has strengthened. But once again, the Euro is finding it very, very difficult to push significantly higher anywhere near above 119 or 120. But we've got the European Central Bank rate decision out on Thursday, the 29th of October. And I think when the ECB expanded the size of its pandemic emergency asset purchase program from 750 billion euros to 1.35 trillion euros, as well as extending it into the middle of next year, I think there was an expectation on their part that any recovery seen in Q3 would be sustained into Q4. That is looking increasingly unlikely if recent PMI data is any guide. And that presents a problem for the ECB because the ECB is increasingly split on the need for fresher and new measures to help mitigate the slowdown that we are likely to continue to see in the fourth quarter of this year. The ECB has gone to great lengths to insist that their monetary toolbox still has plenty of ammunition to deal with the prospect of a double-dip recession. And certainly, Christine Lagarde has highlighted that on any number of occasions every time you speak to one of the things she's also highlighted is the need for some fiscal measures. Now, individual governments are doing an awful lot to try and support their economy. So the fiscal compact has gone out of the window. That's a good thing because it allows EU government significant more headroom to try and mitigate some of the economic damage that's being done as a result of the pandemic. But there's a number of people on the governing council who are very uneasy about the prospect of giving the green light to unlimited monetary policy stimulus. Certainly, we've seen significant pushback from a number of northern European countries, the more fiscally conservative, shall we say, or the more monetarily conservative as well. Conservative EU member states of the likes of Austria and even France to a lesser extent has been a little bit more reluctant to unilaterally do more asset purchases. So it'll be very interesting to see what the ECB does with respect to not only its forward guidance, but also its inflation expectations and its GDP forecasts and whether or not we can expect further measures at the December meeting. We've also got Bank of Japan rate decision as well earlier that day. I'll cover that in a minute, but let's look at Euro Dollar and we can see from this price action that there's really not too much to write home about at the moment. We're pretty much in a range and I think you can probably throw a blanket over 115 to 120. But I think what's important here is that there is significant resistance anywhere near and above the 119 area between 11870 and 119. It's going to be a bit of a tough nut to crack. And if you actually look at the daily candles on this, as I have been doing, every time we've gone up to these sorts of levels, we've got very long upper shadows, which suggests to me ultimately that there is an awful lot of selling interest anywhere near those levels. And you will probably find that ECB policy makers, given the deflationary pressures at play in the Euro area, won't be comfortable with a Euro Dollar much above 119, 120. So you'll have people like Philip Lane, the ECB's chief economist, talking it down. If we look at this candle here, this daily candle here, we've got a nice key reversal day there, which would suggest that maybe we could well see Euro struggle anywhere above 118, 181, 19, the figure, and could well drift back down towards 117 and a half. Looking at the DAX, again, we're stuck in this box range. Once again, we've tested towards the downside, and this 12,340 area, the lows that we saw in September, we've rebounded off them again, a very long lower shadow on this, which suggests that there is significant demand for German equities in and around these sorts of lows and also near the 200-day moving average. The oscillator is also looking particularly oversold. So I don't think we're going to see much of a change in terms of the way equity markets have been trading, much more of a range trade going forward. Buyers coming in at the lower end of the range of the past three to four months and sellers coming in at the top end. Firstly, 100 has been slightly more problematic. It's still been trading in my broad downward trend. We did briefly make a new five-month low earlier this week, but we've rebounded quite strongly off that, and that would suggest to me that the inability to follow through on that break lower suggests it will continue to range trade on the footsie and potentially head back towards the 6,000 level over the course of the next few days. At least that's the way I'm reading. Obviously, if we move below and close below this 5760 area on the downside, then we're likely to head quite a bit lower towards this series of lows down here, which is the May lows, comes in around about 5,600 there or there, about 5,660. So certainly that's the weak link. The UK 100 is the weakest link when it comes to European equities, and I think a large part of that has obviously been the way the pound's been behaving. Obviously, there are Brexit talks going on, not Brexit talks. EU trade talks, my mistake, Brexit, we've already Brexit it. I've got this such a force of habit. So we've got UK EU trade talks going on. The tone around them seems to be slightly more upbeat, and I think that's simply because we've got an immovable deadline approaching and not an infinite number of days to come to an agreement. And that's really borne out by this really sharp move higher here that we saw in the sterling index, the CMC sterling index. If we can consolidate this move higher through 970, then we could well see further sterling strength over the course of the next few days. And it's in both parties' interests to come to some form of a deal. Even if it's a skinny deal, I think given the deteriorating economic outlook, people, populations, voters won't look too kindly on politicians on either side, on either side here, who put political ideology ahead of pragmatism. And this is really what it's all about. So I think we will probably get something along the lines of some form of agreement between now and the end of the year. Something that essentially will get us across the line, and then the finer details can be thrashed out as and when they need to be thrashed out. So what does that mean for Cable? Well, I'm still fundamentally fairly bullish on Cable. We're still very much a by-the-dip trade for me. That's borne out by this trend line here. Certainly on the daily chart, it still looks fairly positive. 132 areas, the next area of significant resistance for me. This 128.5 area through here is going to be a big, big support area. So any dips back to there, certainly there's an opportunity to potentially get along with the stop-loss below those twin lows at around about 128.60, with a stop-loss around about 128.30 or slightly below that. But certainly the highs are getting higher, the lows are getting higher. That uniformly is fairly positive, even if the political noise around it does whip you in and out quite a bit. What's also encouraging on the sterling front was this fake was this bull trap on the euro sterling. We broke higher. The potential was for a sharp move higher. We weren't able to take out those previous peaks here. We've come all the way back down here. I think a break below 90, 0.900 could trigger a little bit of selling back towards the lows that we saw in early September around about 89.20. And that's likely to come about if we start to see the framework of an agreement over the course of the next few weeks. We could still see short squeezes back to these sorts of highs through here. But ultimately, I'm still in the opinion that the risk for euro sterling is lower and not higher. Okay, so bank of Japan rate decision. Not really expecting too much from that. One of the things that has been notable and in sharp contrast to what we've seen here in Europe is the weak rebound that we've seen in Japanese economic activity relative to Q2. The economy contracted 7.9% in Q2 in Japan. And household spending was the largest part of that contraction. And if you look at all the PMIs out of Japan since then, they haven't moved above 50. And that suggests to me a fairly weak rebound in Q3. Now, obviously, the Bank of Japan has a policy. It's a very easy monetary policy. They've had it for the last 30 years. They've got a $1 trillion loan program straight out of the Federal Reserve Playbook. It's unlikely that we're going to see a significant change in policy at this particular meeting, particularly since the new loan program is set to last until March next year. So the economic recovery in Japan continues to remain weak. That's not really going to affect dolly end that much, which tends to be driven by the risk of risk on trade more than anything else. We've got some US personal spending data out for September on the Friday, the 30th, seen a strong rebound in US retail sales. So I would expect to see a similarly strong rebound in US personal spending going forward. And we've also got some UK lending data, mortgage approvals, net consumer credit out on the 29th of October. The economic calendar for next week is very, very heavily geared towards the back end of the week. So just quickly look at the S&P 500. Obviously, we're going to see an awful lot more jibba-jabba about the any potential US stimulus deal. But one of the things that I have noted about this particular move in the S&P 500 is how the peaks are getting lower. Yeah, we've seen a bit of a rebound today, and we could see a little bit of a short squeeze. But certainly I think as we head up to the presidential election, we could see a similar, we could see a similar sort of thing play out that we saw in 2016 where US markets declined into the vote. And then the day before the vote, we started to see a little bit of a rebound. And I think we could see a similar sort of pattern play out with respect to the US election, which this year, this time is November the 3rd, as opposed to being November the 8th and 9th in 2016. But certainly I think most people, 40, at least a third of all Americans have now voted. I lost count of the number of times I've heard that on Bloomberg TV this morning. So yeah, it's around about 35, 40 percent, 35, 40 million US voters have already voted for their presidents. So remains to be seen. But as to who will finally get the vote, but certainly Joe Biden is pretty much the favorite. So it would be a major surprise if Donald Trump upends the odds for the second election in a row. Anyway, so let's move on to what else I'm looking at over the course of the next few days. And we've got big announcements in terms of earnings. We've seen Barclays results come out earlier this morning. And they were uniformly very, very positive. They went down a similar route to the US banks. They cut back their loan loss provisions, which was encouraging, extremely encouraging, but also begs the question as to whether or not they're being a little bit too optimistic about the outlook going forward when it comes to rising unemployment and the effect that they will have on their number of defaults. We've got the latest numbers from HSBC, Lloyd's Banking Group and that West Group. So let's start with HSBC because that's a biggie. We've seen the shares hit 25 year lows. I'm not only in Asia, but also here in London, a marginal new low in early September. And I think the key thing to watch out for here is whether or not we see a significant improvement in the numbers that we saw at the end of the first half. Let's not forget HSBC is in the middle of a significant cost cutting program. They're looking to offload at least another 31,000 positions in the weeks and months ahead. At its last update, the banks cited concerns about the outlook not only in Hong Kong, but also in the UK due to the geopolitical uncertainties. The shares have seen a little bit of an uplift because one of their largest shareholders, Ping An, raised their stake from 7.95% to 8%. Now the bank was very bearish at the end of Q2 about this provision for credit losses to the end of the year. They reckon they could see up to $13 billion in loan losses over the course of the rest of the financial year. Now that is quite significant and that would appear to suggest that they expect an awful lot more pain in the short to medium term. So I think it would be very positive if they didn't change that number and certainly based on the way the US banks have performed over the course of the past quarter and Barclays as well, I will be expecting a significant improvement in their investment bank operation to offset any domestic weaknesses in their Hong Kong, Chinese and UK markets. So we do appear to have broken to the upside today. I think that's largely predicated on the fairly decent Barclays numbers that we saw this morning. So hopefully that's not going to be a false break when HSBC report their numbers early next week on the 27th of October on Tuesday, but they're up 4% today. So hopefully that will continue with the upward trend. We've also got the numbers from Lloyd's banking group on the 29th, 3rd quarter and that West Group. This is a slightly different story for those two, but even here we've seen some fairly decent gains today, a nice move higher. So the big level for me I think is 30p. Again, the question that I'm going to be looking at paying particular attention to is loan loss provisions. Lloyd's Bank also pushed up its estimate in Q2 of total losses for the year. It was to a much more modest 5.5 billion pounds. The bank set aside £2.4 billion and it posted a statutory first half loss of £602 million with most of that coming in Q2. So net interest margins are going to be particularly interesting. In Barclays case, we saw a fairly flat net interest margin. Obviously all this talk of negative rates is certainly going to weigh on banks profitability, particularly domestic banks like Lloyd's and that West Group. Lloyd's is probably in the best shape of all the UK banks when it comes to their net interest margin, though it did fall sharply in Q2 from 2.79% to 2.4%. So you really don't want to see their margins eroded any further because obviously that will impact their ability to make any money. So that West Group's numbers also painted a fairly similar picture in Q2. As I say, the net West Group, the old RBS, their net interest margin is a fairly skinny 1.67% well below the 2.4% that Lloyd's is at. So net West Group's is really much the ugly duckling when it comes to UK banks, certainly in terms of the big four. So the level on Lloyd's banking group, 30p, there's a high there, there's a low there, so that's a big, big level psychologically. I really want to see a move above that to get any indication of a significant move towards the upside. If we quickly look at net West Group, we can see again, it's a similar sort of play here. I think I really want to see a really, I want to see a test of this 200-day moving average. As I say, in the first half of this year, net West posted a pre-tax loss of 770 million pounds, and on most of the comparatives, the numbers weren't particularly great. So I really want to see a significant improvement here. You can change the name, but you can change the name, respray the car, but if it's the same old banger underneath, it's not really going to make that much difference. So certainly looking for a significant improvement in net West Group going forward. We've also got BP. Now BP is a big one. The share price has been in decline, despite the fact that Bernard Looney, the new CEO, really bit the bullet on the dividend at the last quarterly update, at the last year update. It's in the process of selling off a whole host of assets. If you look at my weekly note, I outline in slightly more detail all of the points that I've gone through with respect to these earnings announcements. And BP has committed to embark on a 10-fold increase in low carbon investment by 2030. Now, that is commendable, really is commendable, but it's still small beer when you consider the amount of money that BHBP spent on BHP's child assets of $10 billion, which subsequently is taking an absolute bath on. So one of the things I think saved BP was its trading division and that helped bring down the Q2 loss. Again, the Q2 loss was $6.7 billion. So I think, despite the fact that we've seen continued declines in the wake of those numbers, I think the time is coming now where we really need to start to see a bottom in the BP share price, as well as Royal Dutch Shell. You can't really separate the two when it comes to restructuring the business against the backdrop of slowing demand and a shift towards renewable energy. BP needs to make cross strides in this regard. It is difficult. It's like turning around a super tanker. BP is a huge company smaller than it was 10 years ago and Deepwater Horizon. So it should be able to adapt, but at the moment investors don't seem that convinced. But there does appear to be some evidence that maybe we're starting to see a short-term base and we could start to see a move higher going forward. To sum it all off, we've also got the latest numbers from Amazon. They kindly moved them from last week to this week. So that made me look a little bit daft, but hey-ho. And we've also got Apple's Q4 numbers coming up as well. And I'm not expecting big things from Apple in terms of these numbers. If anything, I want to see a continued performance improvement in services. As far as iPhones are concerned, iPads, product, hardware, I'm not expecting a significant increase in sales simply because we've had two events in the past four or five weeks where Apple has outlined some new products. So I can't imagine people are going to rush out and buy new iPhones, new iPads, new iMacs if they know there's new products coming out over the course of the next three months. So Q1, this coming quarter and the pre-Christmas period and Thanksgiving, it's going to be a big quarter for Apple in terms of its new iPhone, its new iPads, its new watch and all of its other new product packages, including Apple One. So low expectations for Q4, looking to Q1 to see whether or not there's a strong appetite for the new products that Apple announced in September and October. So I think really, I've gone on for long enough. I think that's pretty much it for this week. Once again, I'd like to thank you all for your time and your patience and your forbearance and listening to me ram along for what must seem actually quite a long time. But once again, I hope you find these informative. Thank you very much for listening. Have a great weekend. Don't forget it's Daylight Saving Ends this weekend. So we get an extra hour in bed and I think we'll all be grateful for that. So that's it. Thanks very much for listening. This is Michael Houston talking to you from CMC Markets.