 Good morning and welcome to CMC markets and Friday the 12th of November and this quick look ahead at the beginning the week beginning the 15th of November with me Michael Houston It's been another week of record highs for the likes of the Dow the DAX Stock 600 the cat Caron's has also joined the party while the FTSE 100 has moved to within touching distance of 2400 in fact earlier today it actually achieved that milestone marking another 20-month high thus reaching my target for The end of this year. However, we sort of retreated a little bit back from that In the last hour or so, but none that nonetheless the line of lease resistance for stock markets continues to Be towards the upside Though there are some early signs of anxiety That the recent moves that we're seeing higher are Starting to look a little bit stretched and how often have I said that? Over the course of the past few weeks and months, but I think One of the things that we've taken away from this week. Obviously, we've had a fairly decent payrolls report Last Friday that was fairly positive Fairly golden locks scenario there and sort of supported. I think the Federal Reserve's Caution in terms of the timeline to taper We saw at the beginning of the week It's a fairly decent China trade numbers and when I say fairly decent I mean in terms of the export numbers a rise of twenty eight point one percent in October which suggests that the global economy Despite despite the various supply chain constraints It's still there's still decent demand Out there within the global economy as we head Towards the Christmas period and obviously US Thanksgiving as well exports for those particular regions the US the EU and the UK Were fairly strong even if imports were a little bit on the weak side and as we look ahead to This week's data this coming week's data. We've got Chinese retail sales and industrial production So that should give us an additional insight into how the Chinese economy is doing currently as we head into the fourth quarter we've also got US and UK retail sales This week as well and certainly I think as far as the UK economy is concerned We'll be looking for a little bit of a rebound after some pretty poor numbers Since those bumper numbers that we saw back in April back in April May Since then we've only seen one positive month of expansion for retail sales and even that Was a fairly negligible not point one not point two percent all the way back in June. So we're certainly I think overdue a Little bit of a rebound in UK retail sales if only For the very reasons that UK consumers and consumers more broadly, I think are likely to bring forward Some of their Christmas spend to ensure that they gain delivery of their products Before the Christmas period simply because of the Before mentioned supply chain constraints that I mentioned earlier. We've also got US retail sales as I said 16th of November They've certainly been a lot more resilient than they have here in the UK So in terms of this week Certainly in terms of retail sales. We've got China the US and the UK to keep an eye out on I think this week's key event or the week just gone has been that bumper reading in US CPI a 31 year high 6.2 percent I just think about that for a minute 6.2 percent. It's a huge jump Let's not forget the Fed's target rate for inflation albeit on the PC image was 2% So even excluding food and energy We're still in the mid-fives for US core CPI and People you know PPI is even higher than that. So that would suggest that even without I mean a potential increase in food and energy prices as we head into the winter period We're already at 6.2 percent and there is a fear That the worst is yet to come And I think you know one of the reasons why we've seen this big move behind the dollar, but also in yields The dollar has surged this week on the basis that the Federal Reserve It's going to find it very very difficult to ignore the fact the CPI is at its current levels, you know, you can talk about transitory all you like Transitory the phrase for transitory is almost meaningless now It means different things to different people, but I can assure you if you're a consumer going to the supermarket or Going to fill up your car. It doesn't feel very transitory to you And I think that's that's the main concern obviously central banks can't do anything about supply chain constraints and anything else Like that, but they need to get rates off zero They need to get rates higher because the market's already pricing it in so, you know, they need to at least move In line with market expectations. They don't have to play catch up by any stretch of the imagination and It I think it could well be a similar picture for us here in the United Kingdom We've got CPI numbers out later this week as well as some unemployment numbers as well And I think one thing that we we can gain a little bit of encouragement from is the fact the unemployment rate is so low and Vacancy rates are still very very high so I think it's unlikely that we're going to see a big jump in unemployment even with the ending of furlough in September and it's and it rather beggars belief why the Bank of England held off Raising interest rates at the November meeting, but you know, I pretty much said my fill on that You know, there are a bunch of um Well, I say you don't need to know what I think of a Bank of England NPC members and a bunch of charlatans Having said that there's there's a there is a distinct possibility. We could see them go in December But I'm certainly not putting any money on it Simply because they're just so unreliable You know, if Mark Carney was the unreliable boyfriend Andrew Bailey's the cheating husband anyway Digressing ever so slightly one thing that the big jump in US CPI has brought about is a big jump in the value of the US dollar and we've seen that no better illustrated not only in the dollar index Which is which has pushed up to a 15 month high But also in the CMC dollar index and it's interesting that we could well see Further move higher through here over the course of the next few sessions certainly if you look at the difference between The US two-year yield and the German two-year yield You have to really wonder why euro dollar isn't an awful lot lower than it is now The US two-year yield basically trades a hundred and twenty five basis points above The German two-year yield which is deeply negative to 72 basis points This is the orange line for the German two-year yield minus point seven two percent US two-year yield plus naught point five three. I mean your dollar should be a parity Yeah, it absolutely amazes me that it is where it is It's way too high nonetheless Based on that graph Based on this chart here The trend is still very much intact for euro dollar. We've broken below 115 And now we're opening up one 14 12 which coincides with these peaks through here But ultimately I do expect euro dollar to continue to track lower On the basis of this trend line here, so we could get rebounds in euro dollar We always generally tend to do and we tend to get a little bit of short squeezes But it's highly unlikely That the ECB Will be raising rates to any extent Any time soon now they may talk about Changing their asset purchase program and that's that then the pet program is due to end in March But they've also got a bond buying program running alongside the asset purchase program where they're buying 20 billion euros a month as well so You know, they've got two asset purchase programs running at the moment as well as Interest rates that are deeply negative So that would suggest to me that we're likely to fall quite a bit more in terms of euro dollar But I should also push euro sterling lower and that obviously hasn't happened this week We've seen the pound continue to trend lower We've broken below this series of lows through here Broken below 134 that really now brings us close to this level here Which is 131 60 They're all there abouts. So I think it's quite likely now in the absence of any move back towards 134 135 the regrettably I'm gonna have to throw in the towel on my bullish sterling scenario and Argue that we're probably going to trend back towards 130 With a lid around about 135 in the short to medium term when the facts change when when the price action doesn't support a Particular narrative then as a trader and as an analyst you have to change your view No matter how particularly wedded you are to an idea if the evidence in front of you on the graph Doesn't support your theory anymore You change your theory when the facts change you change your mind And I think that's one of the key lessons that I've learned over the course of the past 30 years Don't get tied to a particular trade I was beginning to have doubts about the sterling trade and you can see from my various chart forum posts I've been having doubts about it over the course of the past few days and ultimately you have to change your view Don't get wedded to it. It's not a pride thing. It's not a hubris thing It's just changing. It's just changing your view according to the changes in the price action Euro sterling Again here We've seen a little bit of a rebound over the course of past few days. This is important We're still below the 200 day moving average and while I'm below the 200 day moving average I'm still bearish euro sterling So for me as long as we stay below this 200 day moving average in 86 Then ultimately I think what'll happen here is similar to what happened here will trade Lower back to walls 85 back to walls 84 Simply on the basis that the Bank of England will you have to hike rates either in December or in February? If they run through to form they'll bottle it and go in February But I've still got an inkling that they might decide to go in December And yeah, we'll get all the headlines about Scrooge McDuck Bank of England and all of that sort of nonsense But a 0.15 percent rise in interest rates is neither here nor there it goes from 0.1 to 0.25 And that's just a media clickbait headline more than anything else It won't in the wider scheme of things amount to too much At some point the Bank of England will have to buy the bullet and a nudge rates a little bit higher Okay, so in terms of Unemployment not really expecting too much in the way of any significant changes this week 4.5% was the number at the last meeting of someone of the last meeting the last reading In August expecting that to remain unchanged at around about 4.5% There's already over a million vacancies in the UK economy. So even with Even with the end of furlough and potential redundancies there With a little bit of retraining an awful lot of these people should I say should be able to Get new roles and one of the plus points of course over the course of the past Few weeks is the resumption of transatlantic travel on the 8th of November Which should open up Some of the travel and leisure sector and reduce the number of people Potentially made redundant there as well. Yes, it's not a full service quite yet But the fact that transatlantic travel has restarted Would suggest that we're going to get a partial respite As a travel and leisure sector even if the share prices of ia g and what have you don't really support that at the moment UK cpi This is going to be I think the key number for this week for me If the us cpi number is in any way A leading indicator and generally they do tend to move In line with each other, even if they don't match each other. I mean, you know, UK cpi is much much lower But it did jump from 2 in july to 3.2 in august And there had been a concern that we might see a surge to 4 in fairly short order now in september We slipped back To 3.1 for the headline number and the core number slipped back from 3.1 to 2.9 This is likely to be temporary We are not going to see Another decline in UK cpi. We are going to see potentially Another big jump really the big question is by how much Are we going to see a jump? We're at 3.2 now Headline cpi is expected to rise from 3.2 to 3.9 And core prices to 3.7 now. It's not inconceivable We could see four or certainly see four by the end of the year and the bank of england is rejecting We could well see five percent five percent cpi the last time we were there was back in 2011 And what did the bank of england do when that happened? Absolutely nothing albeit interest rates base rates were slightly higher then But a big rise in this week's october numbers will merely serve To shift the focus back on the bank of england and and essentially say to them. What are you thinking? When it comes to interest rates, what were you thinking? What are you thinking? You know, if this doesn't cause you to push rates start to lift rates back to 0.25 to 0.5 What will I think the unemployment numbers and the cpi numbers are going to be core to Expectations as to what the bank of england might do next month So we'll need to and the key thing about that is is that we'll not only get this month's or the october report We'll also have the november report because the bank of england doesn't report until mid december So they'll have two Employment reports to work through and work off and then I'll also have two Inflation reports to work off and on friday. We've got uk retail sales. I talked about that a little bit earlier the fuel crisis did provide an uplift to fuel sales But it but it was offset by a big fall in discretionary spend Home home goods in september retail sales saw a big decline That's something that I Certainly didn't factor in and I thought you know, even if you're queuing up for petrol you could always order stuff online but apparently not so We saw a bit of a decline in uk retail sales of 0.2 percent in september so When are we going to see a rise in uk retail sales? Well, I suppose october is as good a month as any so as november We certainly haven't seen much of a Rebounding consumer spending since then largely. I think because of the fact that Most people have been more interested in experiences going on holidays going to cinemas eating out None of which are included in uk retail sales numbers. So it's not surprising perhaps that With people being outdoors. They haven't been shopping online for blue rays videos dvds And clothes and what have you they've been out and about Enjoying outdoor events. So certainly be an interesting Dynamic when it comes to the uk retail sales. I've got us retail sales as well Not really going to go into too much detail about them What I will say is though in addition to The key macro numbers this week. We also have got some fairly important earnings announcements To took one from royal mail one from vote a phone one from more one from invidia going back to the retail sales numbers and Some of the recent earnings numbers that we've seen out of retailers like marx and spencers Next, you know, they some really decent numbers associate bridge foods prime arc They've all of those brands have posted really decent Quarterly Sales numbers these for some reason are not being reflected in the uk retail sales numbers and you've got to ask yourself. Why not? It seems utterly strange to me That you've got uk retailers posting some fairly decent numbers And yet the official ons numbers aren't reflecting These improvements in the finances of these big uk retailers. What is going on? So I'm starting to get a little bit skeptical about how useful uk retail sales numbers are nonetheless looking at the way companies are performing It does suggest that we're probably not doing as badly as perhaps the official numbers suggest. Anyway, I'm digressing slightly In terms of earnings numbers this week, we've got royal mail Um, they've been in a slow decline pretty much Since the economy started to reopen All the way back in may last year and I suppose that's not too surprising I think once people can go out more they start to order less online And certainly I think that is reflected in royal mail share price Since since may but they're still in pretty good shape year to date so Certainly don't really want to start calling time on the rebound quite yet But nonetheless, I think if you look at the numbers Um group adjusted operating profit for the first half is still expected to come in between 395 million to 400 million pounds And the second half is expected to deliver a better performance on profits and margins for the simple reason Is that royal mail tends to do more business as we head towards the Christmas period? As more and more people order stuff online having said that their costs also go up as they hire and recruit extra staff to cope with the Christmas rush nonetheless As long as we hold above 400p The shares do look in fairly decent shape even if some of Some of what's happened over the course of the last six months might suggest We've seen a little bit of a slowdown in the wider business Vodafone Vodafone, we've got first half numbers for Vodafone Look at this nice little channel here. That's worked quite well so far We're starting to break up through the upper part of that channel and In terms of how the company performed in q1 revenues Revenues came in ahead of expectations The shares have struggled though, you know, and it's hard. It's difficult to really Understand why obviously the lack of cross-border travel has meant roaming revenues are down But they will have started to pick up in the course of the past Few weeks the company says it's on track to meet its full year EBITDA target between 15 billion and 15.4 billion euros With with half of that expected in the first half Total revenues for the first half of this year expected to come in around about 22.1 billion euros as I say keep an eye on this upper line here looking at some point For the shares to bottom out and start to hire again. Obviously they have higher costs in terms of their businesses in spain and italy But also in terms of the rollout of 5g But they have come a long way. They've fallen on a long way Um So far this year. So they're probably well overdue a little bit of a rebound going forward So it's also a big week for us retail Um, we've got war mark. We've got target. We've got home depot or home depot I always call it depot when in when in rome when i'm in when i'm in the usa Where's home depot not when it's home depot because people look at me as if i'm odd So we've got q3 numbers from three of The u.s. Is biggest retailers war mark obviously um is up there with amazon when it comes to Competition what's striking about this though is the shares have gone nowhere Pretty much over the course of the past Year or so and that's for any number of reasons obviously more and more people are out and about Which obviously means that given its e-commerce operation It's one of the few u.s. Retailers that was able to take the fight to amazon And has and has and has actually been able to complete on equal terms um, but um in terms of how it's done this year Um, I think the bigger question is obviously is having to cope with tougher comparatives From a year ago. So it's always very difficult to try and outdo Um a year when you've probably done record revenues and record profits And in terms of its q2 revenues They were 141 billion dollars, which isn't which is not too bad When you consider it, which was an increase on the q1 of 138.1 billion dollars companies also hiring More people over half a million people It's like in new highs over the course of the past 12 months So q3 could be the calm before the storm As we look to the challenges of q4 Obviously, you've got Thanksgiving Christmas coming up. I had president biden in the white house talking to the CEOs of wal-mart and Ups and all through the u.s. Supply chain um and asking them or Asking them what their plans were And how their logistics and the supply chains were holding up in the lead up to christmas Which suggests the biden administration is concerned About the rising costs that companies are having to face as well as consumers are having to face So the big question for me is how many more staff will wal-mart have to recruit to make demand More to the point how resilient are the supply chains to pre-thanksgiving and christmas demand Um still expected to see decent profits of around about $1.39 a share But it does look a little bit toppy all the way through here. So perhaps we're going to see further chop further um Further chop in the same way that we've been seeing for most of this year target This is the day after again similar concerns Supply chains how many more how much of those how much of their costs going to go up Has been doing slightly better than its sector peer Wal-mart if we look at say for example targets Share price we can see that From this one here. There we go Open that up get rid of that get rid of that and put that up there So year to date target shares have done slightly better, but again, they're near record highs. So how much of that juice is already priced in to targets share price So I think that's pretty much. Oh, yes invidia chip makers thought make it a little bit topical um I mean This I mean this this chart just looks off the scale We've seen some big gains in chip makers this year invidia has been one of those um One of the reasons for that is because of the fact that um They've just recent recently launched a new suite of chip products called the omniverse specifically to target the metaverse um Now the shares are currently up over 100% year to date It's so far away from its 200 day moving average. It's not funny Which suggests to me that perhaps just perhaps whisper it quietly An awful lot of the good news may already priced in ultimately That doesn't mean the share price can't continue to go higher But ultimately at some point the price will have to revert back to its mean and its 200 day moving average now Revenues I think in terms of invidia They're going to be the key component here um 6.6.5 billion dollars of revenues in q2 5.6 billion dollars in q1 So the big question is are they going to be able to beat the 6.5 One billion dollar revenue rise that we saw in q2 You know gaming drove pretty much almost half of that at three billion dollars data center revenue which In video is moving into 2.37 billion dollars And the company says it expects to see q3 revenue. This is the company's estimate 6.8 billion dollars Despite concerns over chip supply, but obviously chip prices are going up So it wouldn't surprise me to see them beat on revenues. The big question is Would it be enough to sustain the share price the current levels? So that's that's a big one that's due on the 17th of November so In terms of this week, that's pretty much it for this week's weekly video once again like to thank you very much for listening. I hope you all have a great Weekend and speak to you all same time same place Next week. Thank you very much for listening. This is Michael Houston talking to you from CMC markets