 Good morning. Welcome to CMC markets on Friday, the 29th of September and to the weekly market update with me, Michael Houston. It's been a couple of weeks since I've done one of these, obviously been on vacation, and a fair bit has happened in the two weeks that I've been away. Obviously, we've seen rate hikes from the ECB, or rate hike, our rate hike from the ECB. We've seen a pause from the Federal Reserve, not unexpected. Rate hike from the ECB was, I think, a little bit surprising, though not entirely unexpected. And we saw a pause from the Bank of England. So sort of begging the question as to whether or not we're pretty much done when it comes to the rate hiking cycle. And certainly, I think, looking back over the course of the past few weeks, we're coming to the end of the week, the end of the month and the end of Q3. And I think you'd be forgiven for thinking that not much has really happened over the course of the last three months. We've been trading in a broad range. Certainly, you can see that when it comes to the actual DAX July to August to September. But in the last few days, we've now started to see a little bit of or a few tentative signs that we could be actually starting to roll over when it comes to equity markets. I mean, when you think about the first half of this year, we had record highs for the FTSE 100 in mid-February. The DAX made new record highs in June and the CAC Caront in April. But I think the main question we're asking ourselves now is whether or not the rebound that we've seen since the October lows last year was a sustainable phenomenon, or whether or not it was simply a rebound before we get another test lower. And the jury, I think the jury is still out on that. What's been particularly notable in my absence over the course of the past couple of weeks has been this really sharp move higher. In bond yields, particularly US 10 year treasuries, even the US two years pop tie UK guilt yields have popped higher. And that's sort of raising the question as to what's caused this sudden shift from potentially calling a high in yields to suddenly. Well, actually, we may not have seen the peak, certainly in terms of the US 10 year. When we look at the previous highs back in August, we're now back at levels last seen in 2007. And as far as the US two year is concerned, back at levels last seen in 2006. Now, when you look at the rising yields relative to what we've seen in stock markets over the last couple of weeks, you've got to say that actually stock markets have held up quite well. And of course, that then begs the question as to whether or not perhaps we will see more rate hikes, not only from the Federal Reserve, but also from the Bank of England. I think for too long this year, Mark has been working on the baseline assumption that once we hit the terminal rate for rates, we'd start to see significant rate cuts in 2024. Well, the narrative has changed somewhat since then. And I think you can probably bookmark it as from when the Federal Reserve revised up its Fed funds guidance for 2024 from 4.6% to 5.1. That I think that was a shoe dropping moment in terms of market sentiment. Suddenly investors realized that actually rates weren't going to be coming down quickly. And that they really needed to reassess the outlook for 2024 and 2025 is the rise in oil prices that we've seen over the course of the past few months. Going to come back to this DAX chart in a minute, but let's look at what oil prices have done over the course of the past few weeks. You know, we're up nearly over 20% since the lows in June. And the bigger question now is whether or not we're going to see $100 a barrel or potentially even higher. And obviously that that is I think that is that is a real concern going forward that if oil prices remain high, that's going to make it much more difficult to get inflation back to target. That being said, I think that there is a little bit of divergence now starting taking starting to take place with respect to what might happen as we head into the last quarter of this year. We've had a negative quarter for stock markets. It's the first one since Q3 of last year. And it's begging the question was whether or not we can actually see a return to the highs that we've seen so far this year on the basis of what I've been seeing in the charts. I'm a little bit skeptical. That we can revisit the highs of the past of the past few months. I could be wrong, but at the moment, momentum, the momentum that we're seeing when it comes to stock markets does support a hypothesis of a rebound in stock markets. Obviously we've got concerns over the Chinese economy. They haven't gone away. So obviously that is a headwind. You know, woe betide if Chinese demand rebounds strongly in the fourth quarter of this year. What that does to oil prices. So again, higher oil prices there a headwind. The lagging effects of monetary policy rate hikes over the course of the past few months are also likely to feed in to consumer spending and incomes and what have you. So again, that's another headwind. I think what we can say with some degree of certainty is that the economic data that we've seen over the last few months does appear to suggest that the rate hikes that we've seen over the course of the past 15 months are now starting to take effect. You look at the recent PMI numbers from the manufacturing and services sector, which is in contraction territory pretty much for UK, Germany and France. We're seeing a little bit of a rebound in the US, but is that a dead cap bounce? Certainly some of the retail data that we're seeing out of the US to suggest that there is a slowdown there. And you've obviously got the fact that $100 oil prices are exerting upward pressure on pump prices domestically as well. So while it's quite likely that the Bank of England and the ECB are done when it comes to their rate hiking cycle. I don't think the same can be said for the Federal Reserve, where officials have been insistent that a further rate hike to 5.5, 5.75 is coming November 1st. And we've also had JP Morgan Chase CEO Jamie Diamond suggesting that a move to 7% might not be out of the question. Now that seems on the face of it faintly ridiculous notion. But let's look at the numbers for the US economy. The labor market still remains very resilient. Weekly jobless claims around about the 200,000, the low 200,000. And obviously we've got the upcoming non-farm payrolls report next week. That is of course assuming that we avoid a US government shutdown this weekend. So, you know, and that will be significant because if we don't get the payrolls report next week, that's a key bit of data for the Federal Reserve on the 1st of November. Rate decision, you know, will they hike rates in November if they don't have visibility over key payrolls data. But also, CPI data for September, because that is also due in October and will be a key determinant as to whether or not the Fed feels that it can either decide on pausing rates or decide to push forward with another 25 basis point rate hike. So the next few weeks could actually be fairly instructive. But of course, if the government shutdown takes place, which is looking increasingly likely that it will, then I would suggest that that will mean that the Fed doesn't hike in November, because that will cause a government shutdown will cause a certain degree of pain to what is so far a fairly resilient US economy. So we've got non-farm payrolls coming up next week, expecting another slowdown to around about 157 from 187. What we've also seen in recent payrolls numbers is the fact that we have seen downward revisions to previous months. That being said, the participation rate has been going up and wage growth has continued to remain fairly resilient. So that is essentially where we are when it comes to the US economy. When we look at US stock markets, we have seen these come under pressure. And the S&P 500 is very, very interesting, certainly in the context of where we are right now. We've tested that trend line support from the October lows last year. We're also coming into within touching distance of the 200 day moving average. That is interesting in the context of what might happen next. At the moment, we are still very much in an uptrend. And I think that for me is the most important consideration. But what we haven't done as yet has managed to get back above 4,320. So I would like to see a move back above 4,320 for a retest of 50 day moving average. But we are still very much in a short term downtrend from the July highs. So we could well get a squeeze all the way back to this trend line resistance all the way back here, as well as the 50 day moving average. In the event we get a little bit of a rebound as we head in to October. It's a similar sort of story for the NASDAQ 100. Here we go again here. We've got what could actually potentially be a little bit of a head and shoulders here. Left shoulder, head, right shoulder. It's very irregular. I think for me, the most important line in the sand for the NASDAQ is this 14,340 area or this series of lows through here. That I think could be a key determinant as to whether or not we see further weakness there. It's also worth keeping an eye on obviously the US bond market. A further spike in yields could have negative effects on the NASDAQ 100. And consequently exert further down the pressure on that the performance of the dollar also this particular quarter has been very strong. Alongside strong yields, which suggests that ultimately investors are taking a slightly longer term view when it comes to what is the strongest currency. If you really think that the Fed has got another hike coming, then maybe it makes sense to rotate into the dollar. Because if you look at the Bank of England and you look at the Bank of England and look at the ECB, Bank of England has paused the ECB is hiked, but it was a dovish hike. Markets will start to price in the prospect of rate cuts at some point along before they do for the Federal Reserve, given that the US economy is in much better shape. And I use that term very advisedly is it much better shape than the UK economy and the European economy, just based on the job numbers, the labour market data, but also PMIs as well. So I think as we head into Q4, I think the key focus will be when will markets start to think about the possibility that the ECB and the Bank of England might look at potentially starting to ease monetary policy sometime next year. We're not there yet. I would say that we're not there yet. In fact, markets are looking to price in another rate hike from the Bank of England between now and the end of the year, which seems a rather strange thing to do. But given the closeness of the vote in September, you know, maybe there's some element to that. But for me, I think the Bank of England is done. I think the ECB is done. And I think there's an outside chance that the Federal Reserve is done. And if the Federal Reserve doesn't hike in November, then you could see the dollar unwind quite sharply. That's certainly, I think, borne out by what we're seeing currently in Eurodollar, which has seen a fairly decent rebound off the 10480-90 area earlier this week. You know, could we argue that this is a little bit of a bullish reversal? It's not a bullish engulfing pattern, but it could conceivably be a piercing pattern. So we could get a squeeze back to around about 107.10 from those lows. But we are still very much in a downtrend when it comes to Eurodollar. And for me, I think it's very difficult to get overly enthusiastically bullish about Eurodollar, but we could certainly get a squeeze all the way back to about 107.30 or 107.40 over the course of the next few sessions. Similarly, we could will get a fairly decent squeeze in cable as well after we appear to have found a little bit of a bottom around about 121.10. But again, you know, it's a similar story with cable. What's the trend? The trend is very much down. We could squeeze all the way back to 124.20.30. What's also interesting is we have crossed below both the 50 and the 200-day moving average. So, you know, momentum in cable is very negative and it's going to take quite something to reverse that similarly for Eurodollar. Dolly Yen continues to defy expectations heading back towards 150. Big question is when do we get intervention? The Bank of Japan has thus far, much to my surprise, declined to be in any way hawkish. And, you know, many regular listeners will know that as far as my Dolly Yen call, I've been massively wrong. You know, and ultimately you have to take that on the chin. There's been no evidence so far that the Bank of Japan is in any way inclined to shift on monetary policy even with core inflation at 4%. So, I think the only way that I think Dolly Yen can come lower is if we get a sustained period of dollar weakness. Now, that could come as a result of a repricing of further rate hikes as people start to try to start to price out the prospect of a November or December rate hike. Because at the moment, that is what is currently priced. So, if that starts to get priced out, we could see a little bit of a dollar. We could see a little bit of dollar weakness. Looking at the FTSE 100, we have actually seen a fairly decent performance this month on the FTSE 100. We've managed to rally higher. And while I am probably slightly less constructive on, say, for example, the S&P and the NASDAQ, I'm slightly more constructive on the FTSE 100. I mean, three times this year, we've tested 7,200 and three times this year, we've managed to hold above it. I did think that perhaps we were going to break higher here in the aftermath of the ECB decision, the Doverch ECB hike, which saw a big spike in equity markets more broadly and prompted the FTSE 100 to head back towards 7,750. Since then, we've trod a bit of water. We've held above the 50-day moving average. We're now starting to head higher again. I still think there's a distinct possibility that the FTSE 100 can head back towards 7,800, 7,900. Certainly, I'm more constructive on that. And if things do deteriorate, I think the downside for the FTSE 100 is probably more limited than it is for other markets. So certainly from a more defensive posture, the FTSE 100 has probably got more value in it. And also, if the pound continues to weaken, that should be generally supportive of the FTSE as well. The DAX, on the other hand, we have seen a little bit of a rollover on the DAX. We can see that born out here with this break of this series of lows through a year at around about 15,480, 15,500. We've also got the 50. We're also below the 200-day moving average. And I've continued to push lower on the back of that. So we could see a rebound in the DAX back to the 200-day moving average, but momentum is definitely turning negative on the DAX. And while we could get a squeeze back towards 15,600, it'll be very interesting to see whether or not this break that we've seen here is sustained and we get a move back towards the March lows. So keeping an eye out on the DAX for that potential breakout there to see whether or not it follows through on the downside. We talked about Euro-dollar. We've also talked about cable. As I said, we could get a little bit of a rebound there. Euro-sterling, again, really big top at around about the 200-day moving average. We've seen a little bit of sterling weakness in the last couple of weeks. For me, I think there's a big, big barrier at around about this 87-20 level. We've seen it in terms of the 200-day moving average. We've drifted back down. It's currently finding support at around about 86-30. If we drop below 86-20, then we could will see a retest of these two moving averages here. We are still very much in a little bit of an uptrend on the Euro-sterling cross. We can see that with that line there. So we could see a little bit of a drift back down over the course of the past, over the course of the next few sessions. But for me, the big level on Euro-sterling is 87-20 in the 200-day. As long as we stay below that, the momentum should continue to favor the downside. What we've also got next week, we've got the JOLTS report and the ADP report. The JOLTS report for August and the ADP report for September. These are usually served up as an appetizer for the main jobs report at the end of the week. These two reports have been showing signs of slowing in the last few months, but are still reasonably resilient. ADP saw 177,000 jobs added in August, falling slightly short forecast of 195,000. Slightly off saying that was a sizeable upward revision from 324 to 371, but overall the main gains have been in services and vacancies. JOLTS have also been slowing in the US, dropping from 9,165,000 to 8.8 million in July. So it'll be interesting to see whether or not that trend continues. That July number was the lowest level since March 2021. What's important to note, however, with the JOLTS report, the vacancies, is they are still well above the pre-pandemic levels that they were 7.5 million. So there's still more vacancies in the US economy than there were prior to the COVID lockdowns. So while the US labor market does appear to be slowing, the economy still has some way to go before we can expect to see a significant move higher in the unemployment rate, and that's why the Federal Reserve adjusted higher its end of year forecast for unemployment. We've also got services PMIs and manufacturing PMIs for September. We've already seen the flash numbers from Europe and the US and the UK. They've been weak, not expecting any significant differences from those PMIs. And on the earnings front, we've got first-half numbers from UK's biggest supermarket Tescos. I'm looking at that chart there. We've seen a little bit of a consolidation since the May peaks traded in a broad range. Probably going to expect that to continue. Supermarkets are being faced with a squeeze from rising costs along with its suppliers. The sector has come under some criticism from politicians keen to deflect the blame for their own failings on anyone else but themselves. Supermarkets are by no means perfect, but competition from the likes of Aldi, Lidl serves to keep the grocery market reasonably honest, I would suggest. In Q1, Tesco announced a 9% increase in lighter-like sales in UK stores to 10.8 billion pounds. The retail revenues increased by 8.2% to 14.83 billion pounds. And its book of business has also continued to perform well. It'll be interesting to see whether or not that has continued in the second quarter because the book of business also tends to deliver to private functions and what have you. And obviously if there's a big demand for private functions, that would suggest that the UK economy has continued to hold up reasonably well. In September Tesco announced it was freezing out to 1,000 items until next year as it looks to maintain the gap to its rivals. Supermarkets are also having to contend with the shrinkage epidemic. We've heard that phrase a lot, particularly from US retailers. What is shrinkage? Shrinkage is shoplifting. It's basically goods that basically get stolen and essentially supermarkets have to write off against. So it'll be very interesting to see whether or not we're seeing a similar shrinkage epidemic to the one that we're seeing in the US. And to be clear, we're not talking shrinkflation. There's also an element of that going on when it comes to certain goods. But we're talking about shrinkage or basically losses incurred from shoplifting. So for H1, UK revenues for Tescos are expected to increase from last year to £25.4 billion. We're also getting full-year numbers from JD Weatherspoon. The recent trading update that we've heard from JD Weatherspoon has been reasonably positive. Certainly the business appears to be in much better shape than it was two years ago. But again, as we can see from this chart here, we've been pretty much trading sideways for the past five months. So I would expect that to continue. We've also got Boohoo Group, Fast Fashion Retailer Boohoo. We got some numbers earlier this week from ASOS, one of its closest competitors. It's been interesting that given the sell-off that we've seen, and we can see that in this particular chart here, from the post-pandemic highs or the pandemic highs all the way back in 2020, we've fallen quite sharply. And that's given the opportunity for Fraser's Group, Mike Ashley's firm, to raise stakes not only in Boohoo but in ASOS as well. So the performance of sector peer ASOS hasn't been encouraging in this regard, but we have seen a fairly decent rebound this week in a slightly more upbeat trading update in terms of its profitability. So it'll be interesting to see whether Boohoo has also put its past problems behind it with its suppliers and whether or not things are looking slightly more uplifting than perhaps they were earlier this year. Okay, so I think that's pretty much it for this week. Next week obviously we've got the Non-Farm Payrolls webinar. Now whether or not we have the numbers released, I will probably still hold the webinar and just use it as an opportunity for a little bit of Q&A, talking about the markets in general, talking about my expectations for what might be coming in Q4. So whether we get the payrolls report or not, I will probably hold the event just so that I can answer any questions that you clients might have with respect to general market topics. Otherwise, thank you very much for listening. This is Michael Houston talking to you from CMC Markets. Have a great weekend.