 Good morning or good afternoon and welcome to CMC markets on Monday the 16th of October and This quick look at the week beginning Well looking looking ahead to the key events this week and that there's quite a few we're certainly coming back off record breaking week for equity markets First before I get started and talk about them. Let's let's make a make a start with the risk warnings which are obligatory for compliance purposes So, you know, we'll look at we'll look at the record highs that we've seen Inequity markets over the course of the past few days and look at look to the possibility that we're probably going to see Further gains all be it on a fairly incremental basis. I certainly don't think that we're going to be aggressively aggressively pushing To the top side with with any degree of force, but what I think we will be seeing is in You know with the lack of any significant Drivers it's it's hard to really sort of make a case for a sharp decline in equity markets I got asked this question last week ultimately Given what we've seen over the past few weeks given the rallies that we've seen in equity markets and despite All of these concerns about north korea a whole host of other factors that could undermine The move higher in equity markets. They've removed they've proved to be remarkably resilient And last week's fed minutes do appear to suggest You know with last week's fed minutes do appear to suggest that ultimately The us central bank while it still remains on course to raise rates In december, I don't think there's any clear degree of certainty as to why They would increase rates by More than say two or three times in 2018. And I think one of the key reasons for that is uncertainty about The makeup of the fed board And the fomc at the beginning of next year. Let's not forget that there's no guarantee janet yellen Will be remaining in post beyond January 2018 stanley fischer, but the fed vice chair is already gone so Or is on his way out So he won't have any won't have any input Towards fed policy going forward and there are four or five vacancies on the fed board Heading into 2018 and so until we get some sort of clarity about What that fed board will look like in terms of hawkishness or dovishness I think it's going to be very difficult to establish with any degree of certainty Or us monetary policy will be In 2018 yes, the likelihood is we probably will get another rate rise in december And certainly I think the bomb markets are reflecting that uncertainty But if you look at the overall direction of the dollar and this is something I talked about the payroll's webinar Earlier this month. I talked about this inverse head and shoulders on the dollar index And at the moment it does appear that the US dollar does appear to be carving out What I would call a little bit of a base But certainly in the context of where we are here on the dollar index If we look at say for example This left shoulder here And then we've got a potential right shoulder here and we've got the head here and a neckline here around about 94 20 If we look at that neckline at 94 20 it roughly equates to euro dollar Of around about 116 70 and I talked about this when we talked about non-farm payrolls earlier this month There was a big big support around about 116 70 on euro dollar and a 94 20 resistance on the dollar index And I think when we're looking at euro dollar you have to absolutely have to look at dollar index Because 57 percent of euro dollar is dollar index. So there is a significant Balancing effect taking place with respect to that Now if we look at the left shoulder on the dollar index it currently comes in around about 92 92 and a half that sort of area which roughly I think when you work it through euro dollar Probably comes in just below 119 And that's pretty much where euro dollar topped out at the end of last week and And it's probably near near near the highs around about this week. So it's around about 118 70 So I think for a move on euro dollar and the u.s. Dollar overall We need to be looking at these two levels the 94 20 on the top side A break of which would signal further dollar upside and further euro downside or The right shoulder around about 92 92 14 92 30 random there or there abouts on the dollar index Which will sing signal further gains in euro dollar back to the eyes at 120 so let's look at it from a euro dollar point of view There's been a number of factors that have contrived to put downward pressure on euro dollar and we've we've seen some of them over the weekend the loss The the regional election loss of Angela Merkel's cdu party to the spd It's going to make it much more problematic for Angela Merkel to form a brand new government In a fairly speedy manner. I think the earliest we can expect some form of Jamaica coalition if you'd like it's probably january 2018 And that means that ultimately any german government is likely to be a fairly weak one And ultimately they're not going to be they're not going to be able to be particularly flexible when it comes to further euro zone integration There's been an awful lot of chatter out of France as a result of that And I think what that means is that we're going to continue to get the muddle through In terms of euro zone politics that we've seen over the course of the next over the course of the last five years We've obviously also got spanish constitutional crisis as well so spanish constitutional crisis um and the catalonian The catalonian standoff there I think basically the the catalan president carls pujdemont Is doing his best vicki polard impersonation in terms of he doesn't want to make a decision He's going. Yeah, but no, but yeah, but I haven't called independence But I might have called independence But I don't want to make a final decision Because you might we might come and arrest me and if if I do declare independence. That's probably what will happen Um, it'll please my own side, but ultimately it will it will result. I think ultimately In the fall of the catalonian government new elections And really then it's a question of how those get implemented Do they get instigated at the at the behest of the catalans or do they get implemented at the behest of the central government in Madrid, so I think further I think Further deadlock there. We've obviously got the brexit deadlock as well Theresa may flying to brussels to have dinner with Jean-Claude yonka What I'd love to be a fly on the wall for that particular meeting I would imagine that's going to be very very interesting indeed, but ultimately I think in the wake of Jean Sorry, I'm getting me frenchman mixed up in in the wake of michel barnier's Admission last week that um The brexit talks are deadlocked Ultimately, I think it was always unlikely that we get any progress at the october EU summit, which is due later this week But ultimately, I think we could get some movement on the subject of trade because ultimately irrespective of what the EU say about trade and the divorce When it comes to the Irish border the two are interlinked And I think that's important if the EU don't move on that then it's to suggest to me that they're not serious about arriving at a deal Because ultimately the type of bill that is paid with respect to the Irish border Will be directly correlated with the type of trade relationship that you get um You know if you have a completely closed border then ultimately it's going to be that much different to Maintaining an open border Maintaining single market access and maintaining the status quo with respect to the customs union the work the bill The final bill will be different and the EU really do have to acknowledge that if these trade talks And these divorce talks are going to move forward because money and trade Ultimately, there is a distinct cause and effect correlation there, which the EU really would be You know a little a little will be wise wise to sort of bend on so with respect to euro dollar We've got a nice top here around about a nice resistance here around about 1910 and again What we've got here is a potential head and shoulders reversal. We've got the left shoulder here We've got the head here and we've got what looks like the beginning of a potential right shoulder forming here now We could easily break higher towards 119 up through 119 10 towards 120 It's not something the ECB is certainly would welcome But ultimately it's something that could well happen But ultimately what this chart is telling me is completely different To what the interest rate correlation is telling me with respect to the spreads between say for example European two-year bonds and us two-year bonds and it's the same sort of thing as it is for example The for for us treasuries. I've just showed you the wrong chart there. I'm trying to find the right chart here Let's look at this one here. So we're going to look at the spread differentials between us 10 year us two year even us two year treasuries. We're going to find them And this will give you an indication as to why I think euro dollars too high Because at the moment what we've got is us two-year yields And at the moment they're around about 1.5 percent Now if we compare them With german two-year yields, they usually has a decent correlation in terms of the exchange rate movement between two but what we've got here is The correlation has broken down Because this is where euro dollar was In february march. It was around about 103 104 When the correlation between the two-year us treasury and the two-year german bond Was at its highest level for quite some time That correlation has completely broken down. We've got euro dollar at 120 or generous dammit 120 And we've got two-year yields in the dollar's favor of around about 2.238 So there's something not right. There's something really significantly undermining the us dollar And it's not really hard to figure out what when you actually look at this state of politics in the us And at the moment the dollar is lower because ultimately the us administration wants it lower They don't want a strong dollar and a weak dollar is what's helping push obviously us equity markets higher as well Hopefully you're following me at the moment So in terms of where we go to next it's a little bit undecided with respect to where the dollar's going at the moment We're range bound until such times As we break with respect to the dollar index either up or down or We break out of the euro dollar range that we're currently in It's going to be very very difficult to establish where the dollar goes to next But what I would suggest is it's unlikely in the short term for it to strengthen quite considerably and that is why Dolly Yen has found it very very difficult to rally with any significant With any significant Aggression because ultimately we are still in a range now I've just been asked why what the correlation is between dolly yen and the dollar index And honestly there really isn't that great a correlation because the yen only makes up around about Five between five and ten percent of the overall dollar index is a very very small amount And as such the correlation is fairly weak now There is a better correlation between the dolly yen and the nikkei 225 And the weak a weak yen is obviously fairly good for japanese stocks And obviously that is why when the yen has weakened since september and gone from 108 to 113 We've seen the nikkei hit its highest levels in 21 years. So whenever you get a weak yen You usually get a strong nikkei and vice versa So ultimately I think there's a better correlation between the dolly and the nikkei Then there is between the dolly yen and the dollar index Simply because the yen is a much smaller component of the dollar index Having said that when you do get bouts of dollar strength They do tend to generally get manifested in the dolly yen More than say for example any other currency, but for the time being We're in a range in dolly yen The top of that range is anywhere above 113 20 113 30 We're probably looking as if we could drift lower on dolly yen And that would that would sort tie in with a slightly weaker dollar scenario over the course of the next few days Where the yen also suffers is when equity markets go risk off so essentially You will have a risk sorry When when you have risk off the yen strengthens and the dollar and the dollar weakens is what I meant to say So ultimately the yen becomes a bit of a safe haven play in episodes when you have risk off And as a result dolly yen generally tends to drift low. So while equity markets are going higher Generally the dollar tends to strengthen against the yen And we certainly see we certainly see we've seen that in the past couple of weeks with the dolly yen rallying from the Loads of 108 But at the moment to try and pick a direction on dolly yen is very very difficult to do because we've been stuck in a range for so long now That the sensible trade with respect to that is to just play the overall range At the moment what we're looking at I think for the dolly yen is for it to drift back down Probably to around about 111 111 30 Because that's pretty much been the way of it for most of this year And at the moment I really don't see any evidence that that is going to change certainly in the context of central bank policy going forward. So Hopefully that will answer your question moving on To the pound Because the pound despite all the concerns about a brexit deadlock. That's particularly against the dollar More than anything else has held up fairly well. We can see that with respect to The price action so far this year if we go back to january the pound is up against the dollar I'm about 7.7 percent. So For me that tells me that the trend overall for sterling is up Irrespective of the political headlines and all the political shenanigans that are going on at the moment the shambles that is the brexit negotiations Ultimately If you're a trader you trade with the trend you don't trade the politics The politics for me are largely irrelevant in terms of the price action until such times as I see some evidence Of a price breakout. What this is telling me Ultimately is the trend for the pound is up against the dollar. So that suggests to me a slightly weaker dollar That sort of does bear in that does that is supported By the way the spread between the two-year UK guilt and the two-year US treasury is going interest rate differentials at the moment are pointing to A fairly decent decent rise rise in sorry. That's the that's the UK That's the q that is the uk eu I'm not paying attention to what i'm looking at. It's the uk german spread So uk uk Two-year guilds are outperforming quite considerably german bonds and that should be broadly supportive of the pound particularly against the euro over the course of the Next few sessions and I think that's probably why we started to see a little bit of sterling strength Euro weakness always helps if I actually look at the Actual graph to see what i'm actually looking at. So i apologize for that That I was looking at the spread differential between uk guilds and german bonds two-year bonds. So uk two-year guilds and uk and and german bonds and that really sort Supports this particular move that we saw at the end of last week And have seen since we saw the peaks in euro sterling in late august We've been trending lower. We rebounded just above the 200 day moving average But what we've seen here is actually quite significant. We tried to break back through the two Through the 50 day moving average This resistance level through here But what was more important and this was something that I paid particular attention to I made a note of in my morning note Was this key reversal day? Right here This really big negative down camel here. So what we've done is we've gone. We've traded higher From the lows that we saw in september We pushed higher here made a brand new high weren't able to consolidate it and closed Below the lows of the previous day. So that's a key reversal. It's a key day reversal A bearish engulfing day whatever you want to call it It's a very negative sign because he's tried to make new highs wasn't able to consolidate them and closed Below the low not only of the previous day, but of the day before as well Which suggests to me that ultimately the current upward move in euro sterling has probably run its course And we and we could well start to drift back down as long as We stay below this resistance line here. So at the moment that line comes in around about 89 Around about 89, which is basically equivalent to this peak here and here Now I would build in a little bit of fat to that. So I'd say the resistance level is around about 89 10 89 20 so while we're below 89 10 Then I think the downward move that we've seen from the middle of Last week is likely to continue and we could well head back towards the 88 20 level. So for me This little move here has changed the game a little bit in terms of the rally off the lows And we could well be set for a move back down now if it goes back about 89 20 then stop out And reassess it but ultimately given what we've seen here The way that I would trade this would be to sell into strength With a stop loss above the previous highs So going quickly going back to the sterling theme again And it's important that with respect to the pound What we've got to look out for this week because we've got a big week of data Notwithstanding obviously the political risks and everything else. We've got a big week of data Which starts tomorrow We've got uk cpi Now uk cpi the bank of england has been very concerned that inflationary pressures are starting to become Much more entrenched and we can look on the market calendar for that here These are the numbers that we're looking out for uk cpi Looking for an increase to 3% now the bank of england does not want that to go to 3% mark carney Governor of the bank of england does not want to write a letter to philip hammond Basically saying sorry chance. Well, you know that rate cut I did last year. Well, it's actually pushed inflation back above 3% How stupid do I look? He doesn't want to do that He doesn't want to do that But I have a feeling that he may well do and if that number does come in at 3% Then I think it makes it that much more certain That the bank of england will push rates up Interest rates up base rates up From the current 0.25 to 0.5 in other words reversing last week's last week's last year's Rate cut now Will that be negative for the pound or will that Be a mistake on the part of the bank of england. Well, depending on who you talk to I don't think Putting rates back to where they were Just after the june referendum the june 2016 referendum is the end of the world if you look at where UK government bond prices are they're pretty much back where they were When base rates were 0.5 so moving the base rate back to where it was Prior to last year's august rate cut to my mind won't make any difference whatsoever All it's doing is correcting a mistake that was made 14 months ago so And ultimately has has helped actually drive inflation to a higher level than it would have been if they'd done nothing Because I think it's debatable as to whether or not the pound would have actually gone as low as 1 1980 At the end of last year In the wake and earlier this year in the wake of last last year's rate rate rate cut so Looking for cpi, but more importantly We've also got cpi out of the EU But also we've got wages data out of the uk And this particular item is something that I will be particularly keeping an eye on Economists are estim estimating that inflation wages wages pressures will probably decline Um, I'm not convinced. I think there's potential that wage wage pressures could actually start to increase um, certainly the The forecast is for a decline from 2.1 to 2 percent We shall see I'm not totally convinced about the accuracy of onus data at the best of time. So I certainly think there are wage pressures starting to build in the economy And ultimately I think what we won't want to see is wage pressure starting to decrease because that would appear to suggest that maybe the bank of england is making a mistake, but We shall see we saw wage pressures Coming at 1.7 in may this year They have now jumped to 2.1 percent and I still think there's potential for us to go even higher from there So the wages data will be important the cpi data will be important But what will also be important tomorrow Is testimony from the two new policy makers on the bank of england monetary policy committee david ramston And sylvanar ten reiro They are the two they will basically be voting for the second time Um on the monetary policy committee, but more importantly we'll get to hear from them about their views on the uk economy. We haven't heard from either of them Um As to how hawkish or dovish they are likely to be when it comes to monetary policy We'll also get to hear from mark carney as well. So You know the big question I think the big thing that i'll be looking for mr Carney is to whether or not the bank has co gone cold on the idea of pushing rates up between now and the end of the year Obviously the november we've got the inflation report as well So the favorite of the moment is for rates to go up in november It will be a significant. I think surprise And be bad for the bank of england's credibility if they do not move on rates By the end of this year and if they are going to do them the best time to do them will probably be in november when they publish the inflation report So it's a big week for the pound We've also got uk retail sales on thursday and we've also got public sector borrowing So in terms of the pound it's going to be a big week looking at this particular chart here There's a significant resistance area on the pound around about 133 20 133 30 But decent support around about the 50 day About around about the 100 day moving average at 130 20, which was the non-farm payrolls day low But overall I still remain structurally bullish on the pound against the euro And against the us dollar Moving on Looking going to be looking At the german dex now quickly look at that because ultimately we've all broke. We've broken to the top side On pretty much all the major indices And ultimately I think while we remain above this key support level here Which was a which was the area of recent highs Then ultimately the the outlook continues to remain positive But we can still drop fall all the way back to 12 900 But while above that I think it's very much a case of by the dip. It's pretty much the same for the s and p 500 We can see that too there The term the outlook continues to remain positive. So looking at here Round about 25 40 We can see that it looks fairly positive there Um got asked about canada yen. I will quick. I will look at that right at the very end Just make a quick note of that Canada yen I'm being asked about platinum Um is platinum closely correlated with gold The thing with platinum is that it's an industrial metal as well as a precious metal So you're going to get a little bit of crossover between the two What I would say with platinum at the moment. We've seen this decent bounce But ultimately I'm not convinced as to how much more it's got to go When it turns when it comes to the next resistance level if we look at this if we look at this level here I'm slightly misdrawn that But if we look at this low here It also Coincides with the 200 day moving average. So the moment with respect to platinum We're moving into a very significant Resistance level and the same is as true for platinum as it is for gold We can we can see a similar sort of move unfold here And this is obviously correlated with dollar weakness But if we look at what gold prices have been doing since the beginning of the year They have been trending higher. So ultimately with respect to gold prices. We've got decent resistance around about 13 10 And that's likely to be the case So in terms of looking at gold prices, I would be looking to again Buy weakness as opposed to buying strength because if you're buying strength You could actually be buying the top of the rally and it could actually start to drift back Is there a correlation between them? Absolutely there is But you've got to be very very careful because the drivers of gold And the drivers of platinum in the same way the drivers of palladium. They are different. They are precious metals But an awful lot of say for example platinum And palladium have industrial use that say for example gold gold doesn't have to the same extent and one of the reasons that We've been seeing I think a rebound in prices in terms of commodity prices. There's been a rebound in Palladium prices a rebound in copper prices and a key and a bit of a rebound In oil prices and that is fueling inflation repression now jannett yellon over the weekend The head of the fed suggested that she was concerned About why inflation continued or was continuing to look fairly benign when it comes to say for example the us economy Not so much here in the uk, but there are exchange rate effects to take into account there But also in the european union But one thing I have noticed I think with respect to inflation Is that last week us ppi numbers were much stronger than expected this morning Chinese ppi numbers were much stronger than expected and they tend to be leading indicators of future inflation repression And if you look at oil prices If you look at copper prices And this is this is a key case in point here. We've got a strengthening oil price here. It's broken to the top side It's still below the peaks that we saw In september But ultimately since june we've been in a fairly decent uptrend If you look at the bloomberg commodity index if you look at the thompson reuters crb index They've all rebounded strongly from the lows that we saw in june So there is inflation starting to build up in the system and that suggests to me that Ultimately while central banks are puzzled about the weak inflation re outlook Ultimately it's probably coming and it's probably coming as we Get into 2018 the big question is is how much can producers absorb that inflation? And as opposed to passing it on to consumers because at the moment consumers I think remain very price sensitive And as a result you may find that if To say producers raise prices you may find that that actually chokes off demand for consumer products. So You know, that's that's the catch 22 situation, but certainly with respect to Brent. We are moving higher And that's likely to manifest itself into a similar sort of move with respect to west texas And we did see a decline in the rig counts In the us at the end of last week, but we are approaching a very key resistance line In in wti in the same way that we are with Brent closing on the september highs So keep an eye out for a test of the september highs and if we get a multiple break there We could actually move quite a bit higher. We're also seeing that played out in copper prices highest level since 2014 So there is from what we can see here A definite move or a definite a definite demand for commodities And I think that is driving some of the gains that we're seeing in equity markets at the same time Investors are pricing in the prospect of higher demand Pushing prices high obviously the weaker dollars not helping and that's helping push equity markets higher as well Over optimism about the global growth outlook going forward now. I said I'd look at Canada yen I will look at Canada yen. Let's see if I can find it And we can try and establish why Canada is declining against the yen when oil prices are Pushing higher. Well looking at that. I don't think it's too hard to understand why it's broken out We've broken below those lows that we saw in a 9 62 It's been in a range for quite some time. So we've probably seen a little bit of stop loss selling going on here 947 89 62 So that's around about It's just around about 100 points So we look as we're probably going to head back down to around about 88 62 on the basis of this move lower in the overall scheme of things it's probably Going to take us back to around about This series of lows through here as for a fundamental driver I it's hard to say what would be driving that Canada yen move lower Let's look at the dollar CAD to see if we can derive any clues from that And again with the dollar CAD the Canada is slightly weaker the dollar's stronger Probably going to head back towards this trend line resistance from the May peaks That we saw all the way back at around about 138 So this looks to me a little bit of a technical move in Canada yen more than anything else The triggering of stops and I'll break out of that range that we've been in For the past few weeks. I can't really think of any other reason as to why the Canada yen would have dropped Apart from the fact that we've had a bit of a technical breakout of the recent range Okay, what else have we got to keep an eye out for this week? We've got we've got some more China data coming out on where's the third quarter GDP? That's likely to come in around about 6.8 percent We've obviously also got the chinese communist party congress And we could get some indications as to whether or not President Xi will look to continue his crackdown on corruption And what his five-year plan is for the chinese economy going forward Certainly what we've seen thus far From the chinese economy is a much better economic performance than it had previously been penciled in for 2017 And I think that's helping I think boost boost risk assets going forward industrial production and retail sales Are another a couple of other key indicators that could well Put lighter fire under commodity prices going forward As we as we look ahead to the rest of the week. Here we are chinese GDP expecting 6.8 percent industrial production 6.2 percent retail sales 10.2 if you want to set alerts for them just basically Select this option here And just before the alert comes out It will allow you You can make it a single alert or you can make it a recurring alert. It's entirely up to you And obviously it'll only generate that alert when the platform is open. It'll pop up on the screen obviously that's three o'clock in the morning and You'll probably be asleep if you're anything like me When that number comes out, but certainly with respect to any of the other numbers It's always a very good idea to just select that So that 15 minutes before the numbers are due to come out you're getting an alert to warn you that they're due to come out and It will give you the option of whether or not you want to basically square up your position Or or anything else like that So that's um, I think I think that's pretty much it for this week. Does anyone else have any questions before I wrap this up? um If anything occurs during to the meantime always drop me a line on twitter m hueson underscore cmc at m hueson underscore cmc um Otherwise, um, we'll wrap it up there. Um, I think I'll answer that question offline that you just put to me I think it's slightly more complex um With respect to the chinese zixing ping put As soon as congress over I think I think markets generally are always a little bit concerned about um Unexpected outcomes from these sorts of things. I think in terms of the politics is nothing much changes Then ultimately I think it's going to be business as usual for the chinese economy Going forward. This is really I think a question of president g Um reinforcing his power base than anything else rather than changing policy to a any greater or lesser extent um So I think that for me is the key takeaway that I'll take away from the chinese communist party congress. It'll be President Xi reinforcing his power base by bringing in his own people Um, I mean most of the people that he's got there are his own people But it'll be reinforcing that power base so that he can be a little bit more Radical and implementing any further reforms Um Anything else ladies and gents otherwise. Thanks very much for listening and um, have a good week and um We'll speak to you all the same time same place next week