 Good morning. Welcome to CMC Markets on Friday the 20th of October and this quick look at the week ahead with me, Michael Houston. It's been a negative week for equity markets, not altogether surprising, but unlike last week when we saw gains in the US, we've also seen losses for US markets while European markets have continued to come under pressure over the course of the past few days. Basically carrying on a series of weekly declines that's been going on for quite some time. So essentially the big question is where do we go from here? Well, ultimately what the charts are telling me, it's not a particularly positive picture. Sentiment continues to remain fragile and while the geopolitical noise from the Middle East wasn't as apparent in yesterday's trading, it's still very much there. There still remains a clear and present danger for nervous investors as concerns continue to increase over third party involvement. And I think that is the biggest concern going forward, that the conflict in the Middle East widens once and if a US, not US, an Israeli ground invasion of Gaza gets underway. Some of the events of this week we've seen headlines coming out, the fog of war, misattribution of strikes on targets in Gaza, obviously fermenting very anti-Israeli sentiment pretty much across the Arab world and certainly in parts of Europe and the US as well. So it's a very febrile environment for investors and then on the flip side of that, away from the geopolitical concerns, we've also got the continuation of rising interest rates. Here's the US 10-year yield within touching distance of 5%, retreating a little bit over the course of the last 12 hours, but we heard from Fed Chair Jay Powell yesterday where he outlined the fact that at the moment financial conditions probably aren't as tight as perhaps the Federal Reserve would like. We've seen economic data out of the US this week, which continues to paint a very mixed picture of the US economy. Weekly jobless claims dropped 198,000 lowest figures since January, while at the same time existing home sales dropped to the lowest level since 2010 at 13 yellow. So that I suppose is not altogether surprising when you've got US mortgage rates at 8%. Yes, that's right, you heard me correctly. 8% US mortgage rates, certainly well above the levels that they are here in the UK, but I have to add an important caveat to that statement in that the US generally don't have the same type of mortgage market that we do. There's much less prevalence for fixed rate short-term mortgages in the US. They're very much a case of 25-30 year terms. The US consumer doesn't have the flexibility that we have here in the UK for two or five year fixed rates, which obviously are much lower, but having said that, because of that you are very much more exposed to the risk of short-term interest rate fluctuations and all of those two and five year fixed rates that were taken out two or five years ago and now starting to come up for renegotiation and consequently you're seeing that effect. Consumer sentiment here in the UK earlier this morning, GFK consumer confidence for October fell from minus 21 to minus 30, the biggest deterioration that we've seen since the COVID pandemic and it's not really hard to see why consumer confidence deteriorated in the first few weeks of this month. As I say, you've got the lagging effect of higher mortgage rates, you've got rising petrol prices at the pump and obviously you've got the events that took place on the 7th of October in Israel and I think all of that has prompted a significant deterioration in consumer confidence and UK retail sales also were poor in September sliding by minus 0.9%. So it's not a particularly good picture. The inversion in the US yield curve is continuing to unwind. That largely is a result of the big rise that we're seeing in long-term yields relative to short-term yields. So obviously that is a concern because that is essentially pricing in higher rates for longer. It is tightening financial conditions and while we're not likely to see the third raise rates on November the 1st as we head into the blackout period we've had a whole host of Fed speakers this week talking about the prospect of higher for longer and obviously that's placing significant upward pressure on US rates and consequently it's also exerting downward pressure on stock markets. Let's have a quick look at what we've got on the technical analysis front when it comes to these markets. The FTSE 100 still very much range trading, still well above the lows that we saw in March, July and August but it has fallen very sharply over the course of the past couple of days. It has a habit of doing that. It did this back here in July, it did it back here in August as long as we're able to hold above the initial 7375 support from these lows here but also these lows here then I would expect the FTSE 100 to continue to chop. FTSE 250 here is lowest levels in over a year. Obviously concerns about the UK economy are weighing much more on the 250 benchmark than they are on the 100. If we look at the DAX very much continuing to drift lower we've broken below the October lows over the course of the past 24 hours and that's bringing us back potentially to this 14,700 area. As I've stated in previous instances of these videos we are still very much in a downtrend when it comes, short-term downtrend when it comes to what European markets are currently doing. We're getting lower highs, we're getting lower lows and we look to be heading back towards the March lows when it comes to the DAX. Yes we are higher than we were this time last year but the direction of travel does appear to be fairly clear. Any rebounds are likely to find some form of resistance at the trend line resistance there. US markets obviously has been a much more negative tone this week. Earning season is very much underway. It's been a bit of a mixed bag. We saw some blowout numbers from Netflix earlier this week. Fairly decent numbers, big significant subscriber growth, beat expectations, 8.8 million new subscribers. But what was particularly notable about that was that while we've seen subscriber growth continue to go from strength to strength, revenue per stream or per user was slightly lower. But a large part of the reason for that was because of a sharp decline in revenue per user in Asia which saw a decline of 9% in Latin America. It was up 3%. In EMEA it was modestly higher as well around about 1% and it was flat in the US. Netflix still very much number one. I think the big test will be later in earning season is whether or not we see the same level of subscriber growth from the likes of Disney, Paramount and Amazon Prime. One other thing in Netflix's favor is Netflix generally tends to come bundled in Sky and Virgin Media subscriptions the others don't. It has slightly more stickability when it comes to cancellations. It's certainly not first on the list. So as far as the S&P is concerned we're coming back to test this 200-day moving average. Also pay attention to the October lows. It is holding up very well but the last two days have seen some very significant declines away from the 50-day moving average and obviously this downtrend line here. And a large part of the reason for that is obviously concerns about a slowdown in the US economy but also higher yields there as well. Similar sort of story on the NASDAQ again similar sort of story when it comes to the key support areas. Keep an eye on those October lows. We get a retest of them. That will be a key component as to whether or not the weakness that we've seen or are starting to see bleed into the market as we approach earning season continues. Tesla saw a big decline yesterday of around about 10 percent. So there are concerns that certain areas of the market which have driven an awful lot of the rebound higher in the NASDAQ and the S&P could be vulnerable to an outsized correction which brings me neatly on to what we're going to be looking forward to this week. It's a big week for the euro. We've got the ECB rate decision on Thursday and we've got flash PMIs for October for France, Germany, UK and the US. The US is likely to continue to remain resilient. We're going to be paying particular attention to France and Germany because we've seen significant weaknesses in services PMIs for the services sector for October rather. So France slipped to 43.9 from 46th in September despite hosting the Rugby World Cup. You would have thought that hosting the Rugby World Cup was a significant pickup in services. That hasn't been the case. Germany did see a modest pickup from 47.3 to 49.8. So it will be interesting to see whether or not that sustained in October and UK also slowed in September as well. So it'll be interesting to see whether or not that is sustained. It slowed to 47.2 from 49.5. Manufacturing still remains very much in the doldrums. Germany is still sub 40. So that gives you an indication of how weak the German manufacturing sector is and I'm not expecting to see a significant improvement there given what's happening with respect to energy prices. So let's have a quick look at energy prices particularly crude oil and well I mean that says it all really. We're still not back at the levels that we saw in September but we are not that far away from them as I speak and certainly you know additional flare-ups in the Middle East and we could well see a retest of those highs in fairly short order. One of the really standout moves over the course of the past week or so has been gold. I mean look at this we've broken the downtrend line we're above the 200-day moving average and it looks quite likely we're going to retest the $2,000 an ounce level and potentially retest the highs that we saw back in May of around about 2040. We could see a little bit of resistance around $2,000 an ounce but the speed of this breakout suggests to me that people are rushing to havens when it comes to current events and it's a similar sort of story if you look at the Swiss franc this week. It's gone pretty much remarkably unnoticed the Swiss franc but if we look at Euro-Swiss in particular we can see that it's heading back towards the levels that we saw back in September Euro-Swiss but also could well be heading back towards the levels that we saw back in 2015 when we hit record lows for Euro-Swiss when the SNB relaxed the peg. So the Swiss franc is slowly coming up on the rails as a little bit of a haven play when it comes to recent events. It's certainly the best performing currency this week overtaking the US dollar so certainly worth keeping an eye on the advance there but bringing me back to the ECB. Is the European Central Bank done hiking rates? I think that's the key question. I think you're going to hear an awful lot of conflicting narrative from I would suggest the more northern policymakers of Germany, Austria and even the Netherlands. The decision to hike rates back in September to record high of four and a half percent was a little bit of a surprise to me. I was of the opinion that the ECB was probably done. I was mistaken. It happens very occasionally. It happens to the best of us. It happens to the worst of us but the Euro hasn't really reacted to that and I think the reason the Euro hasn't really reacted to the fact that they hiked rates was simply because the market think that it was a mistake and I certainly think it was a mistake. I certainly think they are done. If you look at the data, the last thing that the ECB needs to be doing is hiking rates because the hike in the rise in energy prices is tightening the economy for them. In comments made a week after the decision to raise rates in September, Bank of Latvia Governor Martin's Kazakhs argued that the September increase was appropriate and that future increases couldn't be ruled out given the upside risk posed by higher energy costs and real income growth. Give me a break. Basically, why would you hike rates in the face of rising energy prices? You're basically compounding the problem. It really doesn't make sense to me. Nonetheless, I think the tone of the September press conference was one of possible way to see approach and given the downgrade to growth forecasts which saw 2023 moved down to 0.7 from 0.9 and in 2024 from 1.5 to 1% given that outlook and given the fact that they could also face a downgrade in the coming weeks and months, I really don't see how the ECB can do anything else other than pause. So that's the ECB. It would be interesting to gauge the tone of Christine Lagarde because she sort of indicated a number of previous meetings that the ECB has done and then of course they hiked in September. So that was a little bit of a surprise but to be quite honest, I'll be very surprised if they go much higher. What we've also got this coming week is US third quarter GDP and these numbers and the core PCE numbers are likely to be points to a very resilient US economy. In the first quarter of this year, the US economy grew by 2.2%. It's followed by 2.1% in Q2 and the final revision in Q2 saw personal consumption revised substantially lower to 0.8 from 1.7%. Q3 personal consumption is likely to be magnitudes of scale better than it was in Q2. Some of the growth estimates I've seen for Q3 GDP for the US of 4.5%, that's double, over double what it was in Q2. So you get a really strong GDP number that is going to potentially exert further upward pressure on the long end in terms of yields. US 30 year yields are already back at levels that they were a pre-financial crisis. So strong numbers in this coming week are likely to be a tailwind for yields going forward. So those numbers are due out on the 26th same day as the ECB press conference. So the dollar is likely to remain well supported on a data side of things as well as obviously the haven side of things if things continue to escalate. Now Eurodollar, we're finding a little bit of a top in and around these series of peaks through here, 106.20, 106.40, here are the hereabouts. If we do get a break higher then we could see an overspilt of 107.40 but I still can't bring myself to say that Eurodollar is going higher. Yes, we have broken above or tried to break above this trend line here so I'm not overly convinced of how strong this line is going to be but we do appear to be compressing prices. So we've got these lows here which are likely to act as resistance through here from those peaks there. We are starting to see a little bit of a potential short-term base forming but an explosive breakout higher, it doesn't look like it to me. The pound looks even worse when it comes to potential move to the upside. We've got the previous lows back down here at around about 120.30 but the direction of travel here looks for potentially a move below 120 towards this area of support from March here. So you're certainly talking around about 118.35 and those series of lows through here at the start of the year, around January, February and March. So that I think is the key risk going forward for cable. We need to break out this downward cycle and this resistance level around about 123 which is currently capping the upside. What we've also seen is a break higher in euro sterling which is particularly unwelcome and which would appear to suggest that we could be heading back to 87.90 on euro sterling having broken back above the 200-day moving average but also these peaks through here. So momentum is starting to turn positive on euro sterling and the outlook for the pound is starting to look increasingly negative which I suppose does have an upside in the context of the fact that it could be supportive of the FTSE 100 but I'm clutching it straws a little bit there. As far as the UK economy is concerned it's a big week for UK banks. We've got numbers out from Barclays, Lloyds and Nat West and here we've seen significant underperformance in fact banking has really struggled since the banking crisis back in March. If we look at Lloyds share price it's finding support in and around 141p, a little bit of a spike lower there in early September. We've managed to rebound off that but the direction of travel here does appear to suggest that we could see a continuation. I will be surprised to see it drop much below 40p. That has proved to be a base. The bank is doing reasonably well. I mean in H1 first half of this year profits were up to £3.87 billion on revenues of £9.5 billion. So on the underlying business though customer deposits were lower they fell by £5.5 billion. Over the quarter which is an improvement on the £8 billion fall in Q1 but certainly I think there is evidence that consumers are spending their savings to stay afloat and obviously that will I think be a key concern when it comes to net interest, income net interest margin. In a sign that loan demand is also slowing customers lending to customers fell by £1.6 billion in Q2 which was down by £4.2 billion a year ago. So this will be another key area given recent weakness in mortgage approvals so lending is likely to remain weak. I think the key thing for me for Lloyds and Nat West particularly will be how much more they set aside in terms of impairments. Yeah certainly loan impairments. Barclays slightly different obviously they also have a obviously big UK bank but they do have an investment banking arm and a lot of the investment banking numbers out of the US. We have actually seen some pockets of weakness but generally equities trading has been strong as has fixed income so perhaps Barclays could find a little bit of a silver lining from its fixed income numbers even as its domestic banking division remains weak but again here you know we've got fairly key support in and around 141.40 it's ranging and I would expect that to continue so keep an eye out for the provisions for non-performing loans. Nat West first quarter without Alison Rose as CEO but again it's a similar sort of story. Fairly decent areas to support but look at what's happening with the highs. The highs are getting lower so there's certainly scope for further weakness for Nat West but just be cognizant of the fact that we are above the lows of October last year and that is likely to be a key support but it certainly does appear to be turning into turbulent times for the UK economy going forward not surprising when you consider the geopolitical backdrop but also the fact that inflation still remains very very high. Relative it's slowing but food price inflation is still in double digits and wage growth is starting to overtake CPI but that's that that particular deficit is going to take some time to unwind. Big week also for US tech meta platforms one of the best performers in the US market this year seen some significant gains there and actually has been one of the few US companies that I was actually able to take out its July lows it's an awful lot higher and when we look at the move that we've seen from November a year ago the share price has more than doubled. The big question is whether that move higher is justified personally I don't think it is but having said that US stocks this year have been defying gravity for quite some time now and it'll be interesting to see whether or not that continues to be the case. I'll be particularly interested in Amazon's numbers more from the consumer side of things I think than anything else simply on the basis of the fact that when they reported in Q2 profit is comfortably being expectations revenues came in at 134.38 billion dollars an increase of 11% and the outperformance there came from the online store side of the business but what we also saw Amazon web services did very well in the second quarter 12% increase in sales 22.14 billion dollars and it also saw decent gains in its online subscription services rising to 9.89 billion dollars from 8.7 billion dollars with shows like Citadel and the film Air helping to boost traction in this particular area of the business Amazon has been adding content at a rate of knots sporting events what have you so they may see they may see a tailwind from that given the fact that obviously it's bundled in the prime video is bundled in with all of its other services now it's Q3 guidance for sales I think it's going to be important anywhere between 138 billion dollars and 143 billion dollars investors will be looking for revenue growth in both online stores as well as Amazon web services Amazon web services expect to see revenues increase to 23.2 billion dollars so seen a big bounce back from Amazon from the losses of 2022 looking ahead to Q4 Amazon is likely to face challenges from a consumer slowdown has been cut in costs which is good but I think it'll be interesting to see what Amazon has to say about guidance the Q4 looking ahead given the fact that as we head into Thanksgiving and Christmas that generally tends to be one of its better periods keep an eye on these lows here could this be in some form of double top formation starting to form we certainly got or a very irregular head and shoulders you've got a left shoulder here a double head and a right shoulder here be interested to see how this particular pattern starts to play out decent support 122 they're all they're about we've also got numbers from Microsoft quickly have a look at the Microsoft chart that's not particularly exciting but that does appear to be some area of support in and around these September and August lows but we've also got a little bit we've got a series of peaks all the way through here so not expecting anything particularly interesting from Microsoft but it'll be interesting to see whether or not we are able to break out of those ranges and we've got alphabet as well Google so again interesting we've got four of the magnificent seven so how the markets react to those particular numbers could have a great bearing on where the S&P and the NASDAQ go over the course of the next week or so so let's say that's pretty much it for this week a lot to get through obviously geopolitical concerns aside it's going to be another big week for equity markets hope you all have a great weekend thank you very much for listening so Michael Houston talking to you from CMC Markets