 Good morning. Welcome to CMC Markets on Friday the 28th of October and this look at the week ahead beginning the 31st of October with me Michael Houston and by and large It's been a fairly positive week for equity markets or certainly a positive first Three-quarters of the week. We are down currently on the day as I record this video But ultimately, I think one of the main reasons that we have seen Slightly more resilient tone to equity markets this week has been The fact that yields have come down they've come down Significantly despite the fact that we have seen fairly disappointing earnings numbers, you know, and I think that's That's the circle or I think some in markets are struggling To square because we've had earnings and guidance misses from the likes of alphabet Microsoft Facebook owner meta platforms face planted This week as its reality labs division continued to hemorrhage cash certainly giving Facebook CEO Mark Zuckerberg a reality check or his reality labs experiment Amazon concern as far as Amazon's concerned We look quite likely to open Significantly lower there the stock face planted after hours After guiding low on its pre Christmas Q4 numbers. It also missed expectations on Q3 net sales. So what we've seen this week is Fairly positive tone to the likes of the FTSE 100 the DAX, but the NASDAQ has really really Has has struggled quite a bit as we can see From this chart here, even though we did see a very positive first part of the week Yesterday, we saw a big big decline on the back of disappointment over some of those earnings numbers. So I think what's happening now is that the decline in yields and nowhere is that better illustrated Then in this UK guilt yields chart Which is seen a significant decline On the back of a slightly more benign Fiscal outlook for the UK economy the budget has been pushed back from This coming Monday the 31st of October to the 17th of November There was nary a murmur on guilt markets as a result of that certainly I think the fact that The Bank of England and the UK Treasury appeared to be singing from the same hymn sheet has appeared to settle things down And while it does slightly complicate the Bank of England's Deliberations as we look ahead to next week when it comes to a rate rise I think one thing has come out of it or what has come out of it this week has been a Perception perhaps and this this is just a perception that some central banks are becoming an awful lot more cautious about the growth outlook and Slowing down the pace of their rate rises earlier this month. We saw the RBA Go by a much lower than expected rate rise of 25 basis points And then on Wednesday the Bank of Canada followed suit Everyone was well most people were expecting a 75 basis point rate hike We got 50 and then we had the European Central Bank raise rates as expected by 75 basis points, but the decision was not unanimous and There was also the fact that the ECB didn't pre-commit to do another 75 basis points in December which suggests that Concerns about a slowing economy are now starting to get factored in To calculations when it comes to future rate rises sort brings me to the question as to why The US dollar has weakened this week and obviously that has helped overall risk appetite One of the reasons the dollar has weakened this week despite the fact that we are probably going to get a 75 basis point rate hike from the Federal Reserve on Wednesday is that there appears to be some discussion about slowing the pace of US rate rises now if you dial your mind back a little bit to September Fed chair J. Pearl indicated that the FOMC were Strongly committed to driving inflation lower while signaling that more rate rises were on the way Power went on to say there was no painless way to drive inflation lower With the prospect that we could we'll see Another hundred basis points by the end of this year at the bare minimum Now some of the data that we've seen come out of the US since that statement Suggested that we might get 75 basis points in November and potentially 75 basis points in December and that spoke the markets a little bit, but I think the discussion about 75 in December is starting to become slightly more nuanced even though As recently as last week Neil Kashkari of the Minneapolis Fed Said that he saw a little sign of the need for a pause or a pivot at this point Commenting back in October that the Fed would be in no position to slow down the pace of rate rises if inflation was still rising Well while that may be true on the core level on the headline level Inflation does appear to be showing signs of moderating There's also the fact that There was some chatter that some Fed officials will be coming uneasy at the pace of the current rate hiking cycle thus far Apart from Fed vice-chair Leo brain it there's been precious little articulation of that until last Friday When San Francisco Fed president Mary Daly Said that after November the time could be ripe for talk about stepping down the pace of rate hikes So that I think that comment last Friday from Mary Daly suggested The there could be an early discussion that while the Fed is not likely to pause or pivot rather than going for 75 in December they could go for a lower Rate hike and that's good and markets have latched on to that they've latched on to that on the basis that potentially maybe we could only see 25 or 50 in December or 50 in December and then potentially a pause in January of February The downside to that is there's precious little sign that the US economy is slowing even as Economic growth elsewhere shows significant signs of slowing So the Fed remains the elephant in the room to this current rebound in broader Equity markets NASDAQ notwithstanding and I think that's going to be key the next the next few days the tone of the Fed next week Obviously, we also have non-farm payrolls But obviously that comes after the Fed meeting So that's important in the context of what might come in December But certainly in the context of what the Fed decides on Wednesday. It's probably not as important so where are we in the context of The current pullback in the dollar. Well, let's look at the dollar index I mean the dollar index has fallen and looks like it's going to fall for the second week in a row So certainly I think there is a re-evaluation or a reassessment of this current bout of dollar strength We do appear to be getting a little bit of a pullback and if we do see a weekly decline It'll be the first time we've seen two successive weekly declines since July But that doesn't necessarily signal a trend change and I think that's important What's significantly important over the course of the last few days I think has been the fact that the euro dollar Has broken the downtrend line from the highs that we saw earlier this year And it's also broken the 50-day moving average So how we behave over the course of the next few days is It's expected to be fairly important in the overall context of Where the dollar goes to next at the moment We've slipped back off the highs here around about 90 Around about 1.0090 just shy of 101 We could slip back to the 50-day moving average and we could also slip all the way back to this trend line from here But overall the euro dollar doesn't appear to be finding a little bit of a base From just below that 96 area and 97 as well So we could see a little bit of dollar strength over the course of the next few days But there does appear to be some early semblance that perhaps the dollar may have topped similarly with cable We've tested Trend line resistance again from the highs this year. We've rebuffed we've come back and we could well Retest a the 50-day moving average, but also the trend line from the lows back in September So there's also some evidence that the pound may well have bottomed in the short to medium term Medium term certainly on the basis of these daily charts. So my bias towards the pound is slightly shifted We're still in the downtrend from the highs this year But the fact that we crossed above the 50-day moving average could be Could be a positive indicator Now, perhaps we could see a little bit more sterling strength over the course of the next few days Now, obviously we have been helped By the rebound in the pound by the sharp fall and guilt yields that we've seen over the course of the past few days But what's also been more encouraging has been the fact that natural gas prices UK natural gas prices have fallen quite sharply as well. So that is encouraging in terms of Good concerns about a slowdown in the UK economy So the big question is can the rebound that we've seen over the course of the past few days be sustained Well, that's a big question and if we look at the DAX, I think the DAX is probably going to be The key index that I'm keeping an eye out for for evidence of a potential turn around now at the moment We are still respecting the downtrend from the highs this year What's significant about this is for most of this year the DAX and the Euro dollar have correlated quite closely The difference here is the Euro dollars broken its downtrend But the DAX hasn't so that gives me a little bit of a pause when it comes to Where we head to next is the Euro dollar a leading indicator for a DAX rebound Or is the Euro dollar breakout a false positive when it comes to broader the recent broader strength in European equity markets So I'll be looking at these two over the course of the next few days to see whether or not we can get a break higher on the DAX With with the Euro obviously leading it higher certainly from the tone of the ECB earlier this week There's not really an awful lot to be Positive about when it comes to Interest rate policy for the ECB they do appear That there does appear to be increasing divisions on the governing council as to what's likely to come on the right front in December what we've also seen from Euro sterling is the pound really strongly rebound From the lows that we saw at the end of September what we're now seeing is a test of this key trend line support From the lows, but also the 100-day moving average, which is acting as support as well So we could be starting to see the beginnings of a recovery in the pound I think an awful lot of that could well be dictated by the politics On the top of the conservative party if there is political cohesion on the part of the conservatives then we could well see further sterling strength If on the other hand we revert to the type of the past Six to twelve months, then we could well see these sterling gains Quickly unravel. Certainly the Bank of England meeting later this week is going to be instructive I think in terms of the overall rebound in the pound Will the Bank of England go by 50 basis points or 75 basis points when they meet later this week? I think if you'd asked me that question Say a week or so ago a couple of weeks ago. I'd have said they were going to be going by 75 basis points Given the retreat or softening that we've seen from the RBA the Bank of Canada There is a prospect there is a possibility that we could only go by 50 Why do I say that because Australia has a housing market that's looking increasingly vulnerable? So is Canada the US actually has a housing market that's Been struggling over the course of the past of this year So could that be a factor in perhaps a slightly more softer pivot from the Fed this week Certainly, I think in the context of the wider discussion the UK housing market is struggling Not just on valuations, but also on the back of higher mortgage rates So could the Bank of England go by 50 basis points because they're worried about upending the UK housing market So we could get 50 basis points When the Bank of England meets on Thursday? So that's worth keeping an eye out for as I say 50 basis points is probably the least we can expect I Think the odds of a 75 basis points rate hike have receded somewhat even though inflation still remains stubbornly above 10% non-farm payrolls Probably going to see the lowest number this year on Friday of around about 200,000 we did see the unemployment rate drop in the previous numbers of 3.5% But so did the participation rate as well So there's not really much to see in there wage growth also remains fairly weak When I say fairly weak it fell to the lowest levels this year at 5% having said that headline inflation is Starting to come down in the US. So that's probably not a bigger problem I say for example as it is here in the UK So to summarize the big events for this coming week Federal Reserve on Wednesday Bank of England on Thursday non-farm payrolls on Friday The earnings picture been a bit of a mixed bag. I'm certainly on a tech on the tone of tech basis. They've been disappointing The headline numbers have been probably more positive than negative but guidance wise Most most of the numbers have been very disappointing and that's really why we've seen the weakness this week in the NASDAQ 100 in terms of What to expect for this coming week? We've got BP Shells numbers were very good another four billion dollar buyback BP share price has continued to hold up very well Hit another new highest level this year on the back of shells numbers Yesterday, but obviously the thorny issue of windfall taxes has once again raised its ugly head now It's important to remember with respect to BP It's coming from a completely different place to Shell It's still made a loss for it's still running at a loss for this year Even even accounting for the fact that underlying replacement cost profits of eight point four five billion dollars in Q2 Was a very very decent beat Profit attributed to shareholders was nine point three billion But that equated to a first half loss of eleven point one billion dollars due to the Rosneft impairment What are we expecting for the third quarter is unlikely to be anywhere near as good as the numbers in Q2 and What we can say what we can say is that BP has taken an eight hundred million dollar charge In this week's Q3 numbers in respect of the new windfall tax. So We know that you know the discussions around the windfall tax or discussions The the kicking and screaming around that windfall tax is largely political in nature In BP's case the fact that they've only set aside eight hundred million pounds eight hundred million dollars rather in respect of the higher rate Suggests that any money that the government makes from BP or the other oil majors is likely to be fairly small in nature and consequently with an effective tax rate of 65 percent on top of You know relative to other sectors the room for a Significant increase It's not likely to make it's not likely to raise an awful lot of money And that's I think probably reflected in the share price because ultimately it's based on the UK profits But hopefully the direction of travel in terms for the shareholders is likely to be positive and looking for a retest of the highs Back at the beginning of January 2020 so the share price for BP is still below pre-pandemic levels So that's BP's numbers likely to be fairly decent Obviously their cost base is a little bit higher because they have the deep water horizon legacy, which they are still paying for But overall I'm expecting a decent set of numbers there even though the shares are down today. We've also got Rolls Royce Their shares have had a really rough time of it recently Even accounting for the fact that air travel is now starting to return to normal And we and they and the company is now starting to see better revenues from if the civil aviation But since it's Q2 numbers the shares have been a steady decline that we do appear to be seeing signs of a bit of a base In and around just below the 70p area so That's the the Rolls Royce numbers hopefully should give the share price a decent uplift over the course of the next few days Retail is also fairly big this week. We've got next and Sainsbury's as you can see from this chart here The next share price has taken an absolute nosedive over the course of the past Well year to date even if we look at the year-to-date chart that gives you a better indication of how poorly share price has done even though Next has said that it still expects to make Profits of 840 million pounds Which you know by any stretch is a still a fairly decent number Next is saying it expects profits to improve significantly in the second half of this year relative to the first half I'm not convinced about that myself But with the shares already back close to levels seen just after the first lockdown Hopefully a lot of the bad news is already priced in and we could see a little bit of a rebound despite the weak economic outlook Sainsbury's This is this is an interesting one because earlier this month the share price in Sainsbury's hit a record low Let's try to record low. So lowest levels ever 1919 95 2000 We've had a record low for the Sainsbury's share price despite the fact that the supermarket chain still expects To make underlying profit before tax of between 630 million and 690 million pounds Which is pretty much unchanged from a year ago and yet to look at this to look at this share price You'd think the shares were in the last chance to loon, you know They're buying by no means anything, but nonetheless, we've seen a fairly decent rebound off the lows in October So hopefully that will continue and we're going to retest of the 50-day moving average always assuming of course That we don't get a downgrade to that headline profits number One item of particular interest given the fact that we've also got numbers out from Pfizer Uber Robin Hood is Paramount global Paramount global is the latest entrant to the streaming market. I think that chart really tells you all You need to know you can read all about My updates on the news and analysis section of the website You can also sign up to the non-farm payrolls webinar, which Starts at 115 on Friday, but certainly I think this this paramount global Shares gives you an indication of the challenges facing the streaming market The shares did get a brief uptick on the back of the Netflix numbers But it's not been a good call to share price wise for paramount My new streaming service Suspised a slide to two year lows back in October Company still increasing its revenue year-on-year Top gun Maverick Has done very well So should contribute to the film studios part of the business certainly TV and film production The numbers are expected to be good But on the streaming numbers paramount service paramount plus services forty three point three million subscribers Signed a deal with Walmart to help add numbers in Q3 But nonetheless losses from steaming streaming streaming are still expected to approach two billion dollars This year and are expected to increase in 2023 Now, you know, you can argue whether or not that's sustainable or not Certainly paramount global do have other revenue streams. I'm like Disney But their back catalogue is a lot lot smaller So it'll be interesting to see whether or not we get another disappointing update When paramount global release their third quarter numbers in the second Well on the second for the second for the third quarter on the second of November, so that's it for This week, let's say just as a reminder Non-farm payrolls webinar Join me as the numbers drop on the 4th of November 115 Otherwise, thanks very much for listening. Hope you all have a great weekend and speak to you all same time same place next week