 Good morning. Welcome to CMC markets on Friday the 31st of July and the week ahead beginning the 3rd of August and it's been What I categorize I think is a bit of a bit of a mixed week because we've had a decent performance from US markets at the time of Recording this video But European markets on the other hand have significantly Underwhelmed And I think a large part of that I think is really down to the fact That there are rising concerns That the economic recovery that we've seen Starting to unfold in the past few weeks Could be on the cusp of running out of road. What we also have to remember in the overall scheme of things is the fact that US markets are being distorted quite significantly by the big tech stocks of Apple, Amazon, Facebook, Alphabet and The Microsoft's because they've posted some fairly decent earnings numbers over the course of the past few days And they make up around about 40% of the US market Particularly the S&P 500. So if we look at the S&P 500 in the case of this chart here We can see that we are still pretty much in the uptrend that we've been in over the course of the past few weeks or so Which obviously or by itself Helps to underpin The rebound and the rally that we're seeing in US markets more broadly If we say for example, look at the NASDAQ performance this week. That's also Quite well Born out in terms of the gains and we're still pretty much close to the all-time highs of The last month or so though. It's interesting to know that we actually haven't Broken above it yet But what we are seeing is a significant outperformance on the part of the big tech sector which is I Was I hesitate to say artificially Elevating the valuations of US stocks, but it's certainly not hindering them Particularly if you look at it in the context of the Russell 2000 Here that we have here we can see that the record highs That we've seen in that particular index. We haven't got anywhere near close to so I Think that gives us a better indication of where we are index wise and of course if we look at European stocks It's a completely different story altogether and we saw a really big sell-off yesterday On the Thursday the 30th of July, obviously we're coming to the end of the month now But ultimately the big gate the big losses that we saw for European markets. I Think is largely down to a concern over the effect The rising COVID-19 cases are likely to have not only in the economy Not only to the economies of southern Europe. I mean in particular Spain Given the quarantine rules that have been put in place by France, Norway and the United Kingdom But also the fact that we're starting to see an increase in cases Pretty much across the world in Australia in Japan in Hong Kong All the while we're seeing economic data thus far and hold up fairly well in Europe But the catalyst I think for the fall That we saw on Thursday was the fact that the continuing claims data in the US edged back higher for the first time Since middle since the middle of May We had a low we had a low around about 16 million and it's gone up by a 19 900,000 to just over 17 million I'll for the continuing claims data up to the 18th of July. I'm obviously concerned about lockdowns Relockdowns taking place in the US arguing over a stimulus plan Between the Republicans and the Democrats the increasingly unpredictable behavior of President Trump and the partisanship over a new stimulus bill between the Republicans and the Democrats Less than three months until a presidential election and you've also seen big big sell-off in the dollar Yields have come in a little bit there real yields have come in a little bit there And gold has been a key beneficiary of that over the course of the past few weeks But the dollar has really taken a tumble in the in the past few days trading at three year lows against the euro and Seeing big declines in our CMC markets dollar index as well. So This week has really been characterised by not only weakness in European markets a stronger euro a stronger bound and a weaker dollar, but we've also seen a big move high in Gold prices to new record highs So that really I think in the wake of the numbers that we've seen this week And it's really been more of a focus on earnings numbers Really really decent outperformance in terms of expectations for the big tech stocks, but we've seen Really poor earnings announcements from the likes of the UK banks We have the last of the UK banks reporting this coming week beginning the 3rd of August with the latest numbers from HSBC and I Will cover them in this in this little summary we've also Seen some poor numbers from the likes of European car makers Vox wagon posted a big loss Santander obviously going back to banks briefly put Santander took an 11 billion euro right down Royal Dutch Shell Posted some disappointing numbers. We're not so much disappointing. They were slightly better than expected But I think a large for a part of the reason for the Royal Dutch Shell outperformance a little bit was the fact that they cut the dividend And we'll be looking ahead to BP's numbers As well in the context of whether or not we can expect to see a dividend cut there So looking at BP's first half numbers, they're due out on the fourth. We've got HSBC on the third We have we may have if we've got time have a look at City World and Walt Disney or Disney As they are they are also true out in this upcoming week, but the main focus in terms of the macro data given what we've seen unfold this week in terms of Concerns about a stalling of the economic recovery is the latest Manufacturing and services PMIs for July Now if there is evident any evidence of a slowing of economic activity this is probably the first place that we're likely to see it and In that context, I think in terms of services The services sector in particularly Spain and Italy will be most closely scrutinized in terms of the effect that Some of the travel quarantines that have been put in will have had an economic activity in in Spain in particular Before we get started on that, let's have a quick look at euro dollar because we've seen a massive breakout in euro dollar this week We've seen a break above the sixty one point eight Fibonacci retracement level of the down move from the peaks in 2018 to the lows in Earlier this year Well, we stay above one eighteen twenty five. There's a decent possibility that we could go and retest or test this trend line from these alert from these peaks all the way back in 2008 so we are approaching a very key inflection point in terms of euro dollar So I've got this I've got this resistance level It's slightly slightly dubious in terms of this chart around about 120 But I think as long as we hold above one eighteen twenty five More one eighteen one seventeen eighty there are there about I think there's a decent chance That can we move we can move as high as one twenty But I think overall that should be there should be the limit of any further Euro dollar upward move and we have come an awful long way in a short space of time You know on the basis of the fundamentals. It doesn't really support it But at the moment the dollar is having a little bit of a crisis of confidence And that's why we're seeing the big gains that was not just seeing in the euro, but also in the pound as well So if we look at the pound, we've seen a similar breakout above that one twenty seven sixty area, which I wish I've been Banging on about for quite some time now in in terms of its importance and now I think really the next level On this move higher this series of highs through here Between February and March around about 132 132 20 so at some point that was of course the next few days I would expect That we might see a little bit of profit-taking in and around that 132 area What has surprised me a little bit is the Underperformance in euro sterling and we do appear to have found a little bit of a short-term peak at around about 91 80 We are starting to trade sideways a little bit So I would keep close attention on the 90 20 the 90 area here as well as the 50-day moving average if we are going to break a lower Out of this slightly sloping upward trend Then I would expect The price action to cross below the 50-day because we it's acted as a nice area of support all the way up here So I think a break below 90 could trigger a little bit of stop-loss selling and For a trigger down to around about the 89 20 area over the course of the next few days very technically driven as euro sterling So I think a break of the 50-day moving average would give us calls for optimism that we could see further sterling gains and and Euro losses Okay, so let's have a look at the Overall Calendar for next week and I think another reason why I think the sterling upside the pound upside is likely to be a little bit limited To towards 132 is For a very good reason and that's we got Bank of England meeting. We've got Bank of England right meeting on Thursday and I think it's important in that context to give you a little bit of a little bit of preamble around the Bank of England because I Think if we look at it in the round, there's been an awful lot of chit chat From various Bank of England policy makers in recent weeks about the likelihood of further rate cuts Ahead of this meeting probably Probably in September if we are going to get any move on policy, but it will be very much data dependent obviously we've heard reports in the media of isolated lockdowns in the north of England and While I doubt the efficacy of Cutting rates further, you've only got a look at the numbers that we saw from the UK banks This month the net interest margin has declined in every single case eroding their ability to generate profits and also eroding their ability to Offset any potential for an increase in non-performing loans So the Bank of England will be hobbling UK banks ability to generate future profits To try and offset any further deterioration in their balance sheet So it would seem a remarkably stupid thing to do for the Bank of England to cut rates into negative territory But some experiences taught me never to underestimate the stupidity of central bankers so I Do not expect any change in policy at this meeting Given the fact that even if the Bank of England were to ease It's unlikely that consumers will be inclined to spend as It is over the past four months consumer credit has seen a Repayment of 16 billion pounds in the past three to four months. That's more than the entire amount Consumers borrowed in 2019 which was around about 12 billion pounds. So there's no appetite to spend money There's no appetite to borrow money. So really the level of interest rates is neither here nor there Moving on to PMIs for July. We've got PMIs from Germany France the UK Europe Asia in the US So I think what I'm going to be looking for here is Any evidence that the really big moves higher that we saw in June are sustained into July Particularly around the tourism sector in Spain and Italy It relies so much on that sector for revenues and economic activity And I think the quarantines bear out the risk to the July PMIs Particularly in holiday destinations and the fact that some of the measures being introduced by the UK government are going to deter Foreign travel so that will by implication affect destinations as well as Rising cases in in in those particular in those particular holiday centers So services PMIs It is hoped will improve Spain and Italy from the fifty point two and forty six point four numbers that we saw in June But more and more important than that Germany France in the UK Shows some really decent improvements in June to fifty six point seven fifty two and fifty six point six so he won those mid fifties to hold for The big three To have any confidence that the European economy certainly in terms of the big three will remain fairly resilient Manufacturing again There should be improvements from the levels in June Particularly given the recent flash PMIs from the US UK and Germany Which were by and large fairly positive so Those are the PMIs Covered the Bank of England rate meeting Let's finish off the macro with the US employment report because I think that's really the headline Number of the week in light of the fact that we've seen a weaker dollar and also by virtue of the fact that we've seen an increasing continuing claims to 17 million after a drop to 16 million in the first part of July so Quick recap we've seen 20.7 million jobs lost in April We've since then we've seen a rebound due to furloughed worker furloughed workers returning to the workforce and The unemployment rate is around about eleven point one percent and seven and a half million jobs have come back in May and June This month's July payrolls report is expected to see Something in the region of a million to two million New workers returned to the labor force now an important caveat to that is this July payrolls report It's only up to and including the 14th of July so It may give a slightly false impression of where the US labor market is because most of the relockdowns and what have you and the bulk of the restrictions that some US states have imposed have come post 14th of July So we have we did start to see a rise in infections in the beginning of July But that trend has accelerated to the back end of July So it may not give us a truly accurate figure of what the US labor market is doing Nonetheless we still expect the unemployment rate to come down to ten and a half percent and The big question then will be Whether the jobs rebound that we saw in May and June and hopefully July Will be able to continue into August and when I only know that when the September when when I do the September Webinar To analyze the the August payrolls report So I'll be hosting a non-farm payrolls webinar are 115 on Friday the 7th of August. Please feel free to join me. You can basically find you can subscribe Sign up to the webinar on the CMC markets website I think it'll be a fairly interesting number And a big question will be as well the dollar Fallen further in the time from when I've recorded this to the time when I'm sitting there talking to you About the numbers that are due to be released We also have an RBA rate meeting and I think that will be instructive given what's happening in Victoria Right now on the mess lockdowns being implemented there Despite the weakness that we're seeing in the Australian economy. We've seen a big rebound in the Aussie dollar Coming up to the 200 week moving average now That's likely to be a fairly decent Resistance level and one of the reasons why the Aussies been Rallying as strongly as it has is it tends to has a tendency to act as a bit of a proxy to gold and Gold has been posting some fairly decent gains over the past a few days trading at new record highs and Really, I think the next target is the $2,000 an ounce level and I think unless the economic data Starts to show signs of picking up or the infection rates start to decline over the course of the next few days and weeks Then really it's only a matter of time before we hit that $2,000 level as long as we hold above This here at this level here around about $1,900 an ounce. So keep an eye on $1,900 an ounce that could be a key support for a move towards 2000 and through 2000 Okay, so let's move on to BP in light of Royal Dutch Shells numbers that we saw In in in July a couple of days ago as it happens Now in June like Shell BP took a Significant asset right down 15 billion dollars worth on top of the 10,000 job losses it announced As it looks to restructure the business bolster its balance sheets But balance sheet against the sharp side in our prices now the one thing the BP did not do That Shell did was cut its dividend. Okay BP hasn't done that yet now. I Think the big test I think for BP's numbers will be It has been trying to Sell off assets. It's hit its target of 15 billion dollars of disposals by year-end It's just raised another five billion dollars by selling its petrochemicals business to INEOS for five billion dollars But I don't think that's going to cut it its debt levels are still very very high It's dividend yield is still well above 10% and as Shell showed last week The cut in the dividend actually helped the company retain some extra cash and actually turn a profit In its second quarter or its first half so BP would be well advised to do the same It's not going to be popular cutting the dividend never is but They don't have to scrap it. They just have to reduce it. It's about it's about balance sheet preservation capital Optimization and I think really it would be very unwise if the BP continued to pay it evident That isn't really supported by its cash flow. So decent support in and around 280p Momentum doesn't look great on this particular chart and there is a risk that we could see further losses unless BPC I burned a loony convinces that he has a long-term strategy for turning the business around Early on Monday HSBC Complets the list of UK banks Latest earnings numbers and they've not been pretty if I'm honest with you There's been an awful lot of money set aside in terms of provisions Barclays RBS or in that west as it's known now Loids to set aside billions of pounds Around about three billion pounds each three to four billion pounds each with an expectation Around about five billion pounds each by the year end and HSBC is already set aside 2.4 billion pounds in respect of non-performing loans in Q1 They said that this could rise as high as seven billion pounds over the rest of the year So be interested to see whether or not They revised that number how much they set aside in Q2 more importantly HSBC is a little bit unique in the context of that. It's in the eye of the storm Over the new Hong Kong national security law as well as Huawei. It's put put them in the middle between China and the US So It'll be very interesting to see how they navigate that particular Obstacle and there has been some talk that the bank might look at selling its US business To try and raise a little bit of extra cash, but also try and lance Lance the boil of that particular business as it as it becomes a pressure point for the Trump administration So first off numbers for HSBC HSBC on the 3rd of August and as we can see here from this chart It doesn't look a pretty picture the trend is very much down. We've seen the share price break lower and We are now at the lowest levels since 2009 or at 10 year lows So we've seen some significant underperformance on the part of HSBC with the risk that we could well go Lower we've also got the latest numbers from Cineworld and again They've deferred the opening of their cinema businesses in the UK as well as the US so it means they're continuing to burn cash at a rate of knots and They've also Had to cope with the fact that Disney Delayed the release of the latest Star Wars and Avatar films So that's not going to help but having said that if the cinemas are open on open There's not really much they can do about that because then people aren't going to be able to see them anyway but still above still above the March lows hoping to see some progress on this front on Cineworld and Disney 200 day moving average is acting as a decent resistance level Be interested to see how well Disney Plus has done whether or not they've been able to cement the market share that they gained in Q1 and Q2 rather and Whether or not they've seen similar sorts of subscription boosts in the manner that Netflix Have seen and what their outlook is going forward in terms of theme park revenues as well as Subscription revenues So that's it for this week Just quickly just quickly remind you all again of next week's non-farm payrolls webinar starts at 1 15 on the 7th of August and I will be talking you all through the latest payrolls data as well as obviously giving you a heads up or The week ahead as well. So that's it for this week. Thank you very much for listening This is Michael Houston talking to you from CMC markets