 Good morning. Welcome to CMC markets on Friday the 17th of September and this quick look at the week ahead with me Michael Houston. It's been a fairly difficult week. I think to determine a direction for markets in general I think on the whole while European markets and Investors in general are probably more positive than negative it's in becoming increasingly apparent The we're looking for a bit of a narrative Whether it would be positive or negative To drive the next move and ultimately what's happening is we're coming up a little bit Empty handed. There's certainly any number of things to be concerned about Obviously rising prices One of them debates about whether inflation is transitory or persistent Whether the global economy is slowing And whether central banks can look at tapering the bond buying programs without sending ripples through the wider market So I think in that context the next few days are going to be very very interesting because We've got the Fed meeting coming up We've got a Bank of England meeting Coming up. We've got Two general elections one in Canada One in Germany. I'm going to talk a little bit about the German election as well Even though I'll probably talk about it next week But I think in the context of the lead up. I think the narrative for next week Um, there'll be plenty of chatter About the German election. So I think it'll be rather omitted me If I didn't actually talk about it um Slightly more than a week out I think as we look back at the week just gone um, CPI out of the us and the uk CPI in the us this Appears to be showing signs of slowing coming in at 5.3 In the uk on the other hand, we saw a massive jump in CPI um in august from 2% to 3.2% With core price with core prices jumping just as significantly now a good part of that Can be put down To base effects as a consequence of eth out to help out This time last year when prices fell back But that doesn't necessarily mean that The price rises that we're going to be seeing Are going to be transitory Um, because there's certainly I think the potential For further significant price rises further down The line as we head towards the end of the year and the bank of england really does need to be aware of that And I think it was interesting to note um earlier this month when bank of england governor andrew bailey was talking to the lawmakers mps at at a select committee that Half of the mpc members appear much more confident about the uk economy than they were at the previous meeting The governor admitted that at least four mpc members felt the recent improvement In basic economic conditions could well be used as justify just as justification for right rise now that doesn't mean That we're going to see a right rise At the upcoming meeting it certainly doesn't mean that we're going to see a right rise this year But certainly market expectations are starting To align for a potential right rise sometime in 2023 Or even as early as the middle to the end of 2022 now Yeah, so, you know people talk about the rate rise our rate rises if it's if it's a policy mistake Let's not forget where rates are at the moment. They're a 0.1. So um, even if they raised rates by 0.15 Which was the equivalent of the cut that we saw Post-lockdown first lockdown last year. It was certainly put them to 0.25 percent. So merely reversing the emergency cut that we saw just over a year ago Would only really take it back to the levels that were at the beginning of 2020 um But I think one thing Can be said is that the current level of policy accommodation Can be reigned back in The central bank is currently Buying around about 3.4 billion pounds Of bonds a week There's certainly scope for them to cut back on that amount and that could come at the bank of england meeting On thursday this week on the 23rd There's also an awful lot of chit chatter about what the federal reserve might do On wednesday now just prior to the august payrolls report being released. There was a widespread expectation That this week this upcoming september meeting will be the opportunity for the u.s central bank to outline The timeline for a reduction and it's 120 billion dollar a month bond buying program Obviously the payrolls report of 235 000 in august is put paid to that Um, but it doesn't mean that it won't happen. Um, it just will mean that potentially it probably won't start until december um Which means we need to Look at the 8th of october payrolls report, which would be the payrolls report For september, but certainly the data that we've seen this week Doesn't take away the argument for a tapering of asset purchase on the part of the federal reserve And it's important that you look through the this the spin That somehow a tapering Is likely to tie in monetary conditions. It shouldn't do that And the reason being is the fed is still adding to the growth of its balance sheet Um on a monthly basis it will just be doing it At a much slower rate. So instead of 120 billion dollars. It may reduce the bond buying to 100 billion now There's little sign at the moment any of the so-called hawks in the fomc are starting to dial back their expect expectations of reduction despite the recent mixed messaging and I think there is a fear that the federal reserve is becoming too complacent About rising inflation risks, especially with consumer prices Still steady at around about 5.3 5.4 percent. And yes, I know that the fed doesn't target Core cpi they they target core pce But even then core pce is still double over double The fed's inflation target So with many of the fed members who are calling for a scaling back of bond purchases being voting members next year The timing of a taper for me still remains very much a matter of when And not if so in other words will probably get It in december with an announcement In november, but you could conceivably get an outward You could get an outline of a timetable Maybe this week's meeting what's muddying the waters a little bit I think in terms of a tapering of asset purchases is What's happening with energy prices right now? And I think that could be a potential Fly in the ointment because if you get an energy supply shock That could actually delay Any intervention on the part of central banks So the autumn is going to be a very very probably choppy time for equity markets in general Having looked at my charts Of time being we still remain very much in the uptrend for the footsie 100 We've held that nice little trend line That's been in place pretty much since the lows Back in january february And we've continued to respect there and we've respected it for quite nicely This week and certainly the oscillator is now starting To point to the upside So there's certainly reasons to be bullish equity markets just based on the price action You know, I think that's important. I think in terms of the price action There's nothing at the moment to be overly concerned about and you may hear an awful lot of narrative About that, you know stocks are overvalued and what have you And obviously what's going on in asia with respect to evergrand in china Is a concern You know with with with talk that You know evergrand is effectively bankrupt. Yes. I mean that could well be true But that doesn't necessarily mean chinese authorities Will allow it To go bust with all the inherent ripple out effect risks That bankruptcy would have for financial markets in general. I think Given that this week just gone was the 13th anniversary of leman I think those lessons have been well known and a managed Restructuring of the debt is probably the most likely outcome And even though the hang saying has dropped quite sharply What I think is significant about the fact of the declines that we've seen Over the course of the past few days If we look at the hang saying is that we haven't as yet on the weekly chart Really pushed much below those lows that we saw from back in august. So that's what that's a very very key support level That we've got on the hang saying Currently around about 24,500. So I'd be paying very close attention to that But if you actually look at the nick a 225 for example, that's actually Not really given up too much ground this week Although it has respected the previous peaks of earlier this year Of around about 30,700 So that again is a very key level to keep an eye out for so I think for me at the moment We've got obviously the nick a and the hang saying going in completely different directions Um, but nick a pushing against resistance. You've got the s and p 500 Looking to Hold above its 50 day moving average. You've got the uk the footsie 100 holding above trend line support And we've got the dax trading sideways Now the dax is due to go undergo a restructuring Over the course of the next few days It's going to be redenominated to 40 stocks instead of 30 stocks. So that could actually Perfect the flow In terms of the Money going in and out of that index But it doesn't you know, doesn't change the overall Theme that 16,000 is still a very key resistance level Overall So the dax will be particularly interesting in terms of the new companies that go in And the companies that come out Right, so that's um a brief look at the key indices. We've obviously looked at the Federal reserve and we've looked at the performance of the dollar The moment the dollar still looks fairly well supported Um, certainly on the on on the cmc dollar index Finding support around about This trend line through here. I really don't expect the dollar to come under any sort of Significant further pressure As a consequence Of the upcoming fed meeting The dollar is probably still likely to move higher rather than lower On the basis of the fact that a taper you know tapering of asset purchase purchases Is still coming and I think the octope the september payrolls report on october will probably be Or could well be The catalyst That crystallizes a timeline for that Weekly jobless claims have been still coming in Quite significantly around the low three hundred thousand three ten three twenty that suggests a fairly decent payrolls report for september and with the Economic stimulus measures expiring on the 6th of september You could well see a significant rebound in hiring I'll be surprised if you don't know that the schools have gone back in the us delta variant Case is notwithstanding in terms of the pound that's coming under a little bit of pressure Um and has been coming under a little bit of pressure But it's still towards the top end of its recent ranges and it is a little bit concerning to me overall that we've actually Started to break below this trend line here But I think for me the more important line is probably less about this line So if we remove that and it's more about This series of lows through here around about one thirty seven twenty I think if we break below one thirty seven twenty Then you could certainly make the case for further sterling declines Back to around one thirty six twenty One thirty six ten which was the lows back in august and that wouldn't be really as a consequence of sterling weakness per se But more dollar strength because I still think that on on the basis of it We could well get a tapering of asset purchases From the bank of england at the at the upcoming meeting coming on thursday given those comments earlier this month It would really be a get you know the bar For not acting this has changed quite significantly. I think in terms of What the bank of england can and will do about their bond buying program because if you've got four policy makers basically saying that um conditions have been met Basically, you know the the improvement in basic economic conditions could well be used as justification for a rate rise Why wouldn't you reduce the amount of bond buying that's currently going um into the economy so you could you could quite conceivably You know reduce it completely um to You know or or cut it so You know, I think I would be very very surprised if the bank of england wasn't Looking to outline a timeline Or reducing asset purchases As well as probably doing it at that very meeting so going to be an interesting week for central banks We've also got flash PMIs from germany france and the uk Certainly, there is Overwhelming evidence that we are seeing a little bit of a slowdown In economic activity and certainly the flash PMIs are likely to bear that out for September they're due On thursday just uh just before the bank of england meeting but just after the just after the fed meeting Um, but we've also got so as I say, I'm not really expecting too much From those PMIs other than to confirm the bias for a slightly slower pace of um economic expansion if we look at the euro dollar chart Pretty much same old same old It's in the middle of this range here between the dotted blue line and the lower blue line I'm still of the mindset That we'll probably drift back down As once we break below one seventeen fifty In most of my commentary over the course of the past week or so I've outlined that one seventeen fifty area In fairly, you know fairly major as a fairly major Or a significant support level Arrived at the one seventeen fifty level with potential further losses towards the august lows A one sixteen sixty on a break below it Why is that significant because it was also a very decent area of support All the way through here on one two three four five Six days during that particular week in july So it could well act as a decent support area From here on in resistance in and around one eighteen Fifty going forward. So that's why it's important to look at previous highs and lows For areas of support and resistance. They can actually be quite useful Let's go on to the um canadian election That could well have a significant impact on the lune or dollar canada um, that's still very much In an uptrend and The election is on the 20th now a few weeks ago Canadian prime minister trudeau rolled the dice on this um Hoping it would give him a renewed mandate to oversee the government's response to the pandemic Is a calculation. I think that the vaccine program Seem returned to power with a murky majority appears to have blown up in his face quite deservedly if you ask me And his polling numbers have slid quite sharply now It would appear that voters have decided that It was a piece of cynical opportunism and they'd be right You know, I think the last thing voters want is an unscheduled general election at a time when Governments or the government and public services are fighting a pandemic just seeing the final cpi number there For a ucpi coming in at 3% Big jump from 2.2. So we can see that in august. There was a big jump in not only european cpi bukcpi as well Let me just get rid of that um so I think big question is Will he be able to get any sort of majority? Or will he find that he's out on his ear? Certainly, I think if he does end up out on his ear I think it would be rather poetic justice um If you ask me because he appears to have been found out I think many People are thinking that his administration is more focused on style than substance and they probably be right So will it have an effect on the dollar cad? Unlikely it's you know, the cad's been largely driven by The oil price moves that we've been seeing over the course of the past few past few days Bit of canadian strength, but it's been pretty choppy Fairly decent support and around the 50 day moving average around about 125 80 but also you've got This support here around about 124 80 as well going forward. So I don't expect to see much in the way Of a reaction on the dollar cad Now you're a dollar on the other hand now that could be significant because obviously we have the german an election I've written a few thoughts on it On the website. You can find it here I'll also put a link to it this article because I wrote it on the 8th of september I'll also put a link to it in the week ahead so that You can navigate straight to it if you think the My thoughts are of any interest personally. I think it's it's a symbolic moment In german politics, I mean, whatever your thoughts are about Angela Merkel as german chancellor. The fact is she's been at the top of german politics for 16 years So she's going to leave a vacuum now whether or not you consider That she was a force for good it remains to be seen what a legacy will be Given that for the last 10 years the problem she's confronted Haven't really been dealt with they've just been Kicked down the road So depending I think on your political mindset. She's either a political colossus Who's kept germany as europe's most efficient economy economy easy for me to say comedy economy Or she's a political procrastinator Who while keeping the train on the tracks Has failed to address the enormous challenges facing not only germany But the eu as a whole so I think whichever side of the fence you sit One thing is certain the political void. She leaves Will make german politics as well as eu politics Much more complicated because at the moment we don't really know Who her replacement will be at the moment the current favorite looks like olaf schultz of the spd He's managed to pull that party around from polling numbers of 16 percent just over a year ago to 25 24 25 percent now Which suggests that they could well be in the box seat for creating a coalition But I think one thing is certain about german politics. It won't be an easy road to finding a new chancellor in 2017 it took six months For the cdu and the spd To arrive at a grand coalition Now there's no guarantee that that will happen this time the green party Has a much greater share of the vote the fdp the free democrats Tend to be much more fiscally conservative could well have a say In the balance of power And you could also have a potential Jamaica coalition between the cdu the green party and the fdp whatever happens the greens could well have a big say in Not only you in german economic policy, but also climate policy as well and those policy aims won't necessarily align um with the rest of the german political spectrum, so I think we get a status quo grand coalition that'll probably be negative for the euro I think anything That indicates that it's going to be difficult for a german government to be formed or probably be negative for the euro as well um, you know, it's a big question now, um german politics will be in stasis for the next six months at least um, the mathematics in 2017 Will not more much simpler then There are a lot more complicated now So I think that's certainly something to bear in mind Going forward So so what else to keep an eye out for next week? Well, you know, we've talked about We talked about the german election probably in slightly more detail than maybe I would have liked but The fact of the matter is I think in terms of the outlook It's probably going to have a much bigger influence on the direction of the euro And then anything the ecb says or does over the course of the next few weeks and months in terms of um, earnings announcements Um, there's a couple out there. We've got king fisher who own b and q Their share price has been doing very well in recent days And the likelihood is despite those disappointing retail sales numbers out of the uk Four months of declines Um, you know, generally they've they've been performing fairly well and the direction of travel looks fairly positive When the company reported in the first quarter Um, they upgraded their guidance for the first half of the year Um, the group as a whole saw first quarter sales rise 60 percent being q business saw an 82 rise In sales with screwfix contributing 42.5 percent online has been a much bigger proportion of their overall sales As more people stay at home do the gardens camping equipment and what have you said all of that sort of stuff um Although you might see a little bit of weakness in the french and spanish business their iberian business Which could be a drag but in terms of the u.s economy FedEx is always a decent bellwether And certainly expectations are high for first quarter numbers out of fedex Despite rising operating expenses one of the things that they did say in their last update was that They were finding it very very difficult To basically maintain delivery levels because of a shortage of drivers Having said that Shortages of workers Pandemic safety measures People are still ordering more and more stuff online. So it's really a balancing act between higher costs and and higher revenues Um, profits are expected to come in around about five dollars a share matching those of q4 Given the slowdown that we saw In august in the u.s. So there is a good chance that that might come in a little bit short And then of course we can finish off with nike um, whose share price has also been Doing fairly well up until the beginning of august and has started to roll over I think largely over concerns about its china business, which had been leading an awful lot of the gainers over the course of the Past few months, but has now been showing Early signs of rolling over hence the fact that we started to come back down After gapping higher on that massive beat when it reported all the way back in june at the end of q4 So certainly it's got an awful lot to live up to when it comes to the beat that we saw in The fourth quarter of last year Can it pick up some of the can it pick back up some of those big gains that we saw in the wake of those q four numbers Okay, so um, that's pretty much um It for this week's week ahead Once again, I'd like to thank you very much for listening ladies and gentlemen Wish you all a very nice week and nice weekend. Yeah, nice weekend and Speak to you all same time same place next week. Well, I'll probably go over a little bit Or give you an update on the german election, but I don't really think there'll be too much In terms of change with respect to that So that's it for this week. Have a great weekend and speak to you all same time same place next week. Thanks a lot