 Good morning. Welcome to CMC Markets on Friday the 16th of September, also the 30th anniversary of Black Wednesday when the pound fell out of the exchange rate mechanism. Coincidentally, the pound is once again in focus this week. I'm going to be looking ahead to obviously the week beginning the 19th of September. Obviously it's going to be a sad week as we commemorate Queen Elizabeth II. Certainly I think this week has been a rather strange week in that the performance of the pound I think has probably matched the national mood. We've today hit the lowest levels against the dollar for the pound since 1985 as we dropped below 114 in the wake of today's retail sales numbers for August which fell by 1.6%. Once again, it's really about obviously consumer confidence. It's about high levels of inflation and markets are under pressure this week. We had a significant change in sentiment on Wednesday in the aftermath of the publication of those US CPI numbers, sorry Tuesday, and the publication of those US CPI numbers. So sentiment's pretty, it's been pretty fragile anyway in the wake of the rebound off the lows of back in June and now we're starting to roll over. But before I get to that, I just want to say a couple of words about obviously the performance of the pound, the UK economy. Obviously the pound has been in focus this week because we've had a plethora of economic data coming out this week. Very little of which has been particularly positive and obviously the pound has come under pressure against a once again resurgent dollar. Obviously the UK is undergoing a period of national mourning this week. The Queen Elizabeth II, the sovereign who's been part of the fabric of UK society over the past 70 years and I think it's very, you know, you can't underplay that. Not only has she let a deep and indelible mark on our national life but also on our identity over the course of a reign while navigating a period of seismic change both in the UK but globally as well. So she's been an anchor of stability and a symbol above all else of service and duty. So there were some who will look at the economic impacts of this week of 10 days of national mourning at a time when the UK and the whole of Europe is battling with an economic crisis, arguing perhaps that is something the UK can ill afford and certainly when you look at the economic data that's come out this week they would be right but I would argue that completely misses the point in the same way as the criticism of the two-day bank holiday in June completely misses the point. I think sometimes life just isn't just about numbers. It's not about numbers on a spreadsheet. It's not as if the economy can't rebound in the same way as it always has done in previous instances when we've had additional bank holidays and ultimately given the challenges facing not only us here in the UK but also across Europe these problems are still going to be there and ultimately whether we take a bank holiday or not take a bank holiday these are problems that can be dealt with after the fact. I think it's quite right that we're having a bank holiday on Monday to commemorate someone who's committed 70 years of service and duty. I mean a lot of people don't even live that long and she was working right up to two days before she passed away. So anyway back to the markets we are looking at a number of central bank meetings this week obviously the Bank of England meeting was pushed back from Thursday the 15th to the 22nd of September and recent events haven't made Andrew Bailey and his cohorts job any easier. The big question is whether the Bank of England should go by 50 basis points or 75 or whether they should even be raising rates at all. Well when you look at the value of the pound I think they're in a very very difficult position because I think ultimately while the Fed is likely to go by 75 basis points in the next few days there is some talk that they could actually go by 100 basis points on the basis of that inflation data that we saw earlier this week whichever way you look at it the dollar is sweeping all before it and it's causing damage all by itself not only to the currencies of a pound of a euro but pretty much across the board we've had the Bank of Japan verbally intervene this week because of the fact that Dolly N has continued to push higher the difference with Dolly N is that the Bank of Japan is actively by way of its monetary policy seeking to weaken its currency that cannot be said for the euro and it can certainly cannot be said for the pound because both the ECB and the Bank of England are raising rates and certainly I think some of the chatter out this week with respect to the ECB suggests that certainly making a lot more hawkish noises in spite of the fact that the European economy faces similar challenges to those here in the UK so for the here and now we've broken below 114 on cable that really does open up now move towards 110 and those 1985 lows of around about 103 105 110 now is the immediate target now that we've broken below 114 the momentum is now certainly very sterling negative and that can also be borne out by the fact that we've got a breakout in euro sterling as well we've broken above that 87 30 area this series of highs through here and now we potentially could see further sterling losses towards 88 and 88 20 so on a technical basis we've seen a significant sterling breakout towards the downside and that has to be worrying particularly for a currency that imports an awful lot of inflation by way of its imports euro dollar is managing to continue to hold up fairly well but once again this week we failed at the trend line from the highs this year that keeps the owners very much towards the downside while we're below this downtrend line and ultimately I think given the fact that we've got the Bank of England Federal Reserve Bank of Japan coming up this week you're probably going to find that anything that the ECB says any narrative that's coming from the ECB is likely to be sidelined by those big three central bank decisions that are due later this week we've also got a UK mini budget on Friday the 23rd of September and that's going to be crucial I think in the context of the current period of pound weakness because new chancellor the exchequer quasi-quating is set to deliver a small mini budget in the wake of the recent decision to impose a price cap on gas and electricity prices for consumers over the next two years now obviously the questions are being raised about the cost of this program this week's event should give us an indication of perhaps how much this will cost but I also think it's going to be very difficult to quantify the cost given the fact we really don't know what natural gas prices are going to be doing over the course of the next six months what is encouraging is they are they have actually come off their recent highs of this year and have actually halved from their peaks back in august so that potentially is encouraging so hopefully the direction of travel there suggests further natural gas price weakness and hopefully that freezing prices won't be as expensive as perhaps an awful lot of people in the markets are concerned about I think the biggest concern is businesses the support package for businesses only lasts around six months and the bigger question there is what else can the government do to help ameliorate some of the rising costs for businesses in the terms of tax reform tax changes will we see a reversal of the rather misguided increase in national insurance in april will the increase in corporation tax which is due to kick in next year be reversed I think these should be easy wins because ultimately the corporation tax rate is a tax increase that won't be imposed so you can argue you can't you can't really argue that it's a tax cut because tax the tax hasn't gone up yet the bigger question is whether the the chancellor goes further and what more importantly what measures he takes to protect businesses from those price rises you know does he cut VAT in the same way that he did during the pandemic does he cut business rates or suspend business rates in the same way that he did during the the pandemic the big question here is you know a failure to act decisively here could prompt a tsunami of unemployment in the coming months so the stakes are high particularly when you've got unemployment which earlier this week hit its lowest levels near record lows of 90 you know 974 that's 3.6 percent so you know unemployment is low inflation does appear to be showing signs of softening but it is becoming stickier and that's the big problem that the Bank of England needs to address it's not so much now about trying to stop inflation rising they also need to drive it lower and that's likely to be an awful lot harder the current market pricing is tilted slightly towards 75 more than 50 however if the Fed does go by 100 which I'm not sure about I think the Fed will do 75 the night before the bank is due to reach its decision then that could well help keep the value of the pound above the 110 level but it's really about the Fed let's look at the various indices and the S&P this is concerning we've broken out of that downtrend line from the lows in June we've also broken below the September lows for the S&P 500 and a lot of a lot of the weakness that we're now starting to see in US markets is a direct consequence of the likelihood is we could see 70 well we will see 75 next week the bigger question is what comes after that do we see 100 next week or do we see 75 in October do we see 75 in September and potentially 75 in November at the moment the market before this week's CPI it was between 50 and 75 now it's between 75 and 100 and then what comes after September do we get 50 in November and 50 in December do we get 50 in 25 so it's really about now what comes after next week I think 100 basis points by the Fed next week would smack a panic and that could actually exacerbate any market weakness and it would certainly send the dollar surging this is what the dollar in this is what the this is what the US two-year yield currently looks like on on a two-year yield chart so we're approaching 4% on the US two-year yield look at where we were just just under a year ago we're 0.5% and a year ago we're all the way back down at 0.2% so we've gone from 0.2% so within touching distance of 4% in the last 12 months dollar index again retesting the highs obviously we haven't retested the highs back in September because euro-dollar hasn't dropped below its previous lows but the direction of travel there is fairly clear and that is significant in the context of what equity markets are likely to do had FedEx issue a profits warning numbers released late last night that's feeding in to the negative sentiment around US markets and it's going to make it very very difficult I think to not see a retest of those June lows opinion is still currently split on whether or not we take out those June lows but certainly what these markets are telling me is that the direction of travel still remains one of sell into strength sell the rally on European and US markets. FTSE 100 is doing what it's done for the last 12 months it's trading sideways in a fairly choppy range so looking at this there's not really much to see here trade the range on the FTSE 100 it's going to underperform on the way up and outperform on the way down so euro-dollar quickly go back to that I think we've already we've already covered that pretty much with respect to the direction of travel there still very much in a downtrend still see that very much trending towards the downside on euro-dollar let's look at dollar yen because I think dollar yen is important in the context of this week's verbal rate checking by the Bank of Japan so that's that that decision is due out early on the 22nd and this is really this is really a direct consequence of the monetary policy of the Bank of Japan being very much a global outlier when it comes to the bank's willingness to follow the Fed follow the ECB and follow the Bank of England in raising rates its central rate is minus 0.1% so it's not really surprising that the yen has been in decline now the intervention this week was a significant escalation to recent statements that were accessing recent currency moves raising the question as to what might be coming next now headline inflation levels in Japan are still well below the level seen in Europe and the US although they are now above 2% and nearer to 3% so I think if the Bank of Japan wants to stop the yen declining then it needs to signal some form of pivot or change to monetary policy otherwise what you've seen this week is likely to continue we haven't seen any physical intervention from the Bank of Japan in terms of selling dollars and buying yen and we haven't seen anything like that since 1998 and ultimately I think that will be a significantly higher bar than the rate checking that we saw earlier this week so while I would argue that the verbal intervention by the Bank of Japan is an escalation all it's going to do is slow down the decline in the yen and maybe that's all they want to see they don't want to see outsize moves lower but when your currency is down when your when your currency is the worst performer against the US dollar this year you know it's difficult to argue anything else and they don't seem to be that concerned by it so I'll be paying particular attention to whether or not they change their policy of your curve control if they don't then I think we're likely to see the end decline further towards $150 yen over the course of the next few weeks in terms of earnings numbers FedEx was supposed to report this week but they they brought forward their results early and they weren't a pretty picture and that's why you're seeing the current weakness that you're seeing today in terms of numbers we've got Cineworld, JD Sports and King Fisher Cineworld obviously filed for Chapter 11 bankruptcy in the US that chart really sort of speaks for itself I think it's highly unlikely that we'll see any significant progress on that I think we'll really see some asset sales I've got debt of $8 billion any administration will need to deal with that JD Sports are reporting they're reporting their latest numbers it's not been a great year for JD Sports share price wise and certainly if we look at this move lower here the potential for further gains is likely to be fairly limited if you look at that chart and the oscillator and the fact that it's overbought let's do some quick technical analysis on it we've got decent trend line resistance coming up there and we can probably draw a line through these lows here I mean the big question I think with respect to JD Sports is what can we expect to see in the latest trading statement in July they said that current trading for the first five months of the year saw total sales of up by 5% on the last 12 months they do appear to be finding a bit of a base the shares around about 100p so the rest the recent energy fiscal package announced by the UK government could help put a floor under under the sector they are reporting on the 22nd for the first half numbers the day before the mini budget so the mini budget could be consequential for the retail sector in the wider scheme of things so keep an eye on the numbers for JD Sports but also keep an eye out for the mini budget and for any support that might be forthcoming when it comes to this particular sector Kingfisher owner of being Q also got some got some important numbers first half numbers out as well traded pretty much sideways over the course of the past three to six months I think that will probably continue to be the case as we head into the rest of this year on a pre-pandemic basis sales are still significantly above the levels seen over the over the last two years the rise of 16.2% four-year guidance was unchanged adjusted profits expected to be in the region of 770 million pounds so fairly light calendar on the earnings front but certainly I think the direction of travel with respect to stock markets does appear to be does appear to suggest that we could be in for quite a few rocky days and weeks and potentially in terms of US markets the potential is very much there to look for a retest of those June lows and also for the dollar to continue to test the upside so that's it for this week thank you very much for listening it's Michael Houston talking to you from CMC markets