 Good morning. Welcome to CMC markets on Friday the 23rd of September and this look at the week ahead beginning the 26th of September with me, Michael Houston. And it's been another busy and volatile week for equity markets over the past few days, but it's also been a busy week for central banks. Great decisions with multiple rate hikes across the board from the likes of the Norwich Bank, the Swiss National Bank, Bank of England, and more importantly, the Federal Reserve, who hiked interest rates by 75 basis points on Wednesday night. But that really wasn't the surprise. What was more of a surprise was the fact that they doubled down on their hiking narrative, indicating that at least another 125 basis points were coming down the pipe by the end of the year. The Fed dot plots were projecting a Fed funds rate in the region of around about 4.5% by year end and 4.6% by the end of 2024 and then coming down to 3.9 in 2025. So, certainly I think the rather hawkish take from Jay Powell that we can expect to see 75 basis points in November, another 50 in December, wasn't really what markets wanted to hear. One of the other keynote stories for this week has involved Dolly N. Generally tends to be a fairly unexciting currency, but as we can see from the price action on Thursday, we saw quite a bit of intraday volatility. That's going to be seen from this chart here. And that came in the aftermath of the Bank of Japan's decision to keep interest rates unchanged, as well as doubling down on their monetary policy settings, yield curve control, and what have you. And the reluctance to tweak their policy settings to try and mitigate some of the weakness that we've been seeing in the end. And ultimately that would have been the ideal time to do it at around about the same time as the Fed went hawkish and much more hawkish than markets had been expecting. It was only to be expected that Dolly N would look to continue to move higher towards 150 and potentially even higher than that. The only reason that we didn't get move towards 150 was intervention on the bank on the part of Japanese authorities, which drove Dolly N down quite sharply towards the 140 level. What was significant, however, was that we didn't break below the 140 level. And that in itself is potentially fairly instructive. I think one of the things that we can take away from the intervention on the part of the Bank of Japan is it does seem rather keen to defend that 145, 146 level. How do I say that? Because that was around about the same level that the Bank of Japan conducted the rate check the previous week. So there does appear to be a short term cap on Dolly N, which Japanese authorities seem keen to defend. For this intervention to stick, and ultimately it needs to, given the fact that monetary policy settings on the part of the Bank of Japan and the Federal Reserve are going in completely opposite directions, then there will probably need to do further intervention to try and push Dolly N below 140. So if we get a move below 140, then there is potential for a much steeper correction towards 138. And certainly I think if the Bank of Japan is serious about trying to keep a flaw under the declines in the end this year, then that's something that they are going to have to do again if they want to prevent a move up towards 150. So that's obviously the Dolly N. Key support in and around the 140 area also coincides with this series of peaks through here, but ultimately it does appear to be the case that we're probably going to have another go at that level, just to see how many stops below that key round number. In terms of equity markets this week, been a bit of a bloodbath, big declines in the S&P, the NASDAQ, broken below that trend line last week, and ticking back towards the lows seen back in June. And that will be the next key test for US equity markets against the backdrop of surging yields, not only US Treasuries, but also UK Guilts, German bonds as well. We've also been hearing an awful lot more hawkish language from the likes of the ECB. So the key takeaway is that central banks are doubling down on their determination to crack down on inflation and hang the consequences, and that's potentially a fairly dangerous place to be in. But ultimately, they're behind the curve, central banks are behind the curve. If you think about the Federal Reserve, they were still easing monetary policy back in March, and now we've got a Fed funds rate well above 3%, and likely to be well over 4% by the end of this year. And I think that's what has got markets spooked at the moment, despite the fact that there does appear to be compelling evidence that we have seen the peak for headline CPI. Certainly seeing it in the US, we're certainly seeing evidence of that in the US, probably not so much in Europe, and probably not so much in the UK yet, but certainly core prices are much stickier than perhaps central bankers would like. So while we're starting to see weakness in energy prices, we can see that in natural gas, UK natural gas, and crude oil. And largely on demand concerns more than anything else. Nothing to do with more supply. It's really about global recession, China's zero COVID policy, heading into winter consumer confidence on the floor. We're sort of heading towards a perfect storm, if you like, of tightening central bankers, or tightening central banks, and cratering consumer confidence. So that's not a particularly great cocktail. And while governments are introducing fiscal stimulus we've seen the energy price package are from the UK government for consumers as well as businesses. It's going to be or has all the makings of being a potentially tough winter or a tough Q4 for equity markets more broadly. So much will depend on how markets react around these key lows the DAX not surprisingly is looking fairly soft, but crucially though, still above that key 12,400 level from March this year, but also July this year. So this is a big, big level for the DAX, how we react around this level could determine where we go to next but if we look below that, the next key low is the October 2020 lows. So there's a very much a line in the sand, but certainly the direction to travel when it comes to the highs isn't encouraging. And if we do break below 12,400 we could we'll see further weakness nest at 100 similar story, when it comes to the break of the uptrend line from the June lows. So again, we're potentially approaching a fairly key tipping point when it comes to US equity markets particularly given the fact that you're seeing massive increases in US borrowing costs at the short end the two year yield for example. It's back at levels last seen in 2007 and we can sort of highlight that for you here, this is the US two year yield. Look at where it was at the beginning of this year, 0.71%. It's now 4.1%. And that is that is a significant move in the space of less than nine months. Now, if we go back, say for example, 20 years on a monthly, we can see that we're back at levels last seen in 2007, pre financial crisis. So that gives you an indication of the why equity markets, particularly the NASDAQ is so weak when you look at US two years of yielding 4%. I mean, you know, that that yields really speaks for itself. Bonds are becoming an awful lot more attractive, even accounting for the fact that they are looking like they could be starting to enter your bear market. So, certainly worth keeping an eye out for you do sort of have to question of course whether or not this move hiring yields is becoming slightly overextended but the way the way the bond market is going with respect to yours. I think it's not just. It's not just the US. It's just not just the US trend, it's a trend pretty much across the board if we look at UK Guilts we've got a similar move there to your guilt 3.53% over a 15 year period. We're sort of back at levels in 2008 and what's more compelling with respect to the borrowing costs here is that the UK two year is almost the same and actually probably higher than the UK 10 year yield, which is 3. Just below 3.5% as we can see from there so that's the 10 year. That's the two year. So two years are actually higher than 10 years which generally tends to be an indicator of recession which the UK is probably already in which brings me neatly towards the numbers or the items that I've got my eye out for this week it's a fairly it's a fairly low key week data wise. We've got a final GDP for the UK second quarter GDP, and we've got final second quarter GDP for the US. Again, these numbers backward looking they're not really going to tell us anything that we don't already know the UK economy contracted minus 0.1% in the second quarter, which was down from a 0.8% expansion in Q1. But obviously, since those numbers came out, we've seen some really rotten numbers for June, when it comes to manufacturing production, industrial production and other such data which suggests that it's unlikely that we are going to see a significant up revision to that. And the numbers that we've seen so far in Q3 would appear to suggest that we'll probably see a contraction in Q3 if those retail sales numbers for August or any guy minus 1.6 Well, you know when you get 1.6% decline in August retail sales. It's unlikely that September is going to be much better when consumer confidence for September hit a record low minus 49. So I think the UK economy is probably flatlining. If not, in a technical recession, the US economy is already in a technical recession, albeit at fairly with fairly low unemployment as is here in the UK. And of course comes about with respect to weak consumer spending, which, as far as the US is concerned, is probably not as prevalent or doesn't look as prevalent as it does here in the UK. And a large part of the reason for that is because we've seen gasoline prices or petrol prices in the US decline steadily from those peaks in July. And that's likely to be reflected or could well be reflected in personal spending numbers and personal income numbers which you are on the 30th. We've also got the US PCE called deflator, which is the Fed's preferred measure of measuring inflation that once again is going to be crucial in the context of whether or not the Fed continues to play on the narrative of a 75 basis like in November. We've only got two more meetings this year from the Fed. So these particular inflation readings are going to be very important in the context of whether or not the Fed starts to maybe tone down its hawkish rhetoric as the US economy starts to feel the squeeze from tighter monetary policy. Maybe the housing market is already feeling the effects of much higher rates. One other thing to have a look at is EU CPI. We've got the flash numbers for September. That's likely to paint a particularly positive picture. We saw August CPI push up to 9.1% for August with core prices, edging up as high as 4.3%. So given that we saw German PPI for August rise to a staggering 45.8% in August, the bigger question is whether or not we've had peaks CPI in Europe and whether we now start to roll over because an awful lot of that big jump in PPI was as a consequence of higher gas prices. As Germany and the rest of Europe basically sought to build up their storage capacity for the winter months and that storage capacity is now sitting at around 90%. So flash CPI for the EU 30th of September. Will we see a further rise from the current levels of 9.1% euro still looking weak. The ECB continues to talk a hawkish narrative. You have to question the wisdom of that given where yields are at the moment and the fact that Italian yields are now well above 4% on the 10 year. And we are likely to have a new government in Italy sworn in over the course of the next few days. There are elections on Sunday and the relationship between this new Italian government and Brussels could well be key when it comes to what happens with respect to the euro. More importantly with respect to fiscal and monetary policy going forward but certainly the downside remains the line of least resistance for euro dollar made another 20 year low earlier this week. And the likelihood is we are probably going to continue to trend towards my medium term target of around about 96 20. So that still remains a target in the short to medium term, taking a look at this weekly chart, which I've sort of been talking about pretty much for the last three or four months 96 20 on your dollar cable cable looks ugly. Another 37 year low broke below that one 1410 area, which potentially now opens up a move towards 110. That is not a particularly positive sign for cable. And consequently the record lows of 1985 or 105 round about 105 20 there are there about. But certainly I think 110 is going to be the next key support level now that we've broken below that one 1410 area going forward. So keep an eye for further sterling weakness further euro weakness as regards euro sterling. Finding a little bit of support around about 86 70 87 figure is a potential for us to start coming lower. I would certainly argue that the ECB has less scope to raise rates than perhaps the Bank of England. And that might weigh in the pounds favor, but I really want to see a concerted move below 87 10 to really call the top in euro sterling at the moment. And the fact that we're unable to really push much below 87 is a bit worrying and could suggest that we might see a further move higher through 88 towards 88 68 60. So at the moment euro sterling is looking bid while above 87 20. So keep an eye on that. I've already talked about dolly and 140 the key level there. In terms of Brent crude oil. We still remain very much in a downtrend on that as well. And again, it's a demand story not a supply story. We've turned lower on the moving averages as well. And that would suggest that the trend for crude oil is for lower prices, despite the fact that we're heading into winter, which I think is slightly counterintuitive, but ultimately the price action doesn't lie. We are finding quite a bit of resistance at around about these 93 50 area 93 25 area, which also coincided that it was the previous lows. So, keeping an eye on that level there, but also the fact that we're below moving averages, the 200 day and the 50 day, and we could well start to drift back towards $85 on Brent, $80 on WTI. I don't think we're going to drop much below $80 on WTI given that story, given that story earlier this month about the US government looking to replenish the SPR. If prices drop below $80 effectively putting in what I would call a Biden put under crude oil prices at around about $80 a barrel on WTI. Gold prices very much in a downtrend, not really surprising when you consider what yields are doing. That's likely to continue to remain the trend of choice. If we draw in trend line through here, we can see where the downtrend line is on crude oil terms burnings. Next week, not much to really talk about. Cine world was due to report this week, but decided around about two days before they were going to defer their numbers to the 30th of September this week. Once again, they're in chapter 11 in the US very much a penny share now. When you consider where the price was going back pre COVID, the fall from grace has been spectacular in the extreme. So certainly be keeping an eye out for further details of any restructuring plans that Cine world have. We've also got earnings updates from UK clothing retailers boohoo and next first half numbers on the 28th of boohoo on the 29th for next. Certainly both of these have not been doing particularly well this year despite the fact that next has actually been posting some fairly decent numbers. But I think what's happening here is that investors are pricing in a pretty diabolical. Q for pre Christmas period so decent support and then around 5590 on next. If the numbers disappoint or if next downgrades its profit forecasts, then you could well see further weakness there as for boohoo. Well, I mean that tells its own story over the course of the past 12 months line of least resistance at the moment. So, six year lows, they reported an 8% decline in Q1 revenues to 445.7 million pound back in June, with the main drag coming from its US and European businesses which saw declines of 28, 9%, 28% at 9% respectively in revenues. So, no sign that it's been able to consolidate its market share gains. Increased costs outbound courage costs or rise in inbound shipping costs have impacted EBIT data the tune of 60 million pounds in the first quarter, and the retailers also paying out 261.5 million in capex as it looks to expand an automated distribution network with a new center expected to open in the US in Q4. So, then Nike Nike shares, they've taken a bit of a tumble over the course of the past few days over concerns that its China business could take an even bigger hit than the hit it took at the end of Q4, the end of Q4 sales numbers, or its revenue numbers in China saw a fall of 19%. And there is a concern that Q1 of the current quarter could see an even bigger fall in revenues out of China and that's reflected in the decline in the share price that we've seen over the course of the past few days. So, that pretty much sums up this quick look, say quick, this look at the week ahead the last week of the month and the last week of the quarter. Probably won't, my famous last words, hopefully it's not going to be as volatile or as choppy as this week's events have been but at least we don't have any central bank announcements to contend with. Of course, on the downside to that, we do have now, we are now at the quiet period when it comes to the Federal Reserve so we can probably expect to hear more jaw boning on the part of FOMC members with respect to the hawkish message that we heard from pal over the course of the last couple of days. Anyway, that's it for this week. Thank you very much for listening. This is Michael Houston talking to you from CMC markets.