 Good morning. Welcome to CMC markets on Friday the 10th of December and this quick look at the week ahead beginning the 13th of December Before we look ahead to what is big week for central bank meetings. We've got the Federal Reserve We've got the European Central Bank and we've also got the Bank of England We have seen a fairly decent rebound in equity markets over the course of the past few days It's been a what I would argue. It's been a little bit a Week of two halves Certainly, I think given the uncertainty of the last two weeks post Thanksgiving the price action in the early part of this week There's been pretty much chalk and cheese with the foresee 100 Recovering all of its post Thanksgiving Omicron losses and closing at its highest levels since the 15th of November U.S. Markets have also undergone a fairly decent rebound In the early part of the week three days of gains Tempered a little bit by a little bit of weakness on Thursday, but nonetheless the S&P 500 closed at 4701 on on Wednesday night Which was pretty much the same level it closed at Prior to the U.S. Thanksgiving break the FTSE 100 closed at 7301 it's now back above that and Could well look to retest the highs of earlier this year just shy of 7400 so What's prompted this complete about turn when it comes to risk? and You know, I think I think a large part of it obviously has been the fact that Omicron as it's as it's become called while more transmissible, I think there is a Hope I think more than anything else that It's not as severe as Delta and certainly the data thus far Does appear to support that in terms of hospitalizations and deaths, but Governments are certainly spooked by it. We've certainly seen here in the UK the UK government go to plan B in inverted commas Reimposing working from home, but also masks in on public transport and in supermarkets and Shops and cinemas and generally out and about in the community Now you we can debate until the cows come home as to the reasons why the UK government decided to implement its plan B When they were insistent for the most part of this week that they weren't going to do that quite yet You know, and I've heard all manner of talk about dead cats and what have you but irrespective of the reasons for The Implementation of these new measures there will be a short-term economic hit and that will But I think feed into the narrative when it comes to this week's Bank of England Rate meeting notwithstanding the fact I think it was becoming vanished vanishingly unlikely The Bank of England were going to act this week anyway Given the recent comments from Michael Saunders About his concerns about the Omicron virus or variant, but I will come on to that When I come on to talk about the Bank of England later in this video But here and now let's look at the overall picture For equity markets and we can see obviously that's the Omicron sell-off there Friday the 26th of November And we are now pretty much back where we started so we've done a complete round robin when it comes to equity markets more broadly 7400 is the next key resistance level for the FTSE 100 I'm still of the opinion that we should as we head into 2022 head towards seven thousand head through seven thousand four hundred head towards seven thousand eight hundred and potentially go Even higher. I've seen nothing thus far to dissuade me from that Conviction as long as and it does come heavily caveated that we don't fall below the 7190 level here but more importantly The 50 day moving average and obviously this wider support that's been pretty much in place since May of this year. It's been a fairly decent year for the FTSE 100 the likelihood is that barring a black swan event and anything Significant in terms from central banks this week that we should continue to wedge Edge higher over the course of the next few days If we look at say for example the S&P 500, it's a similar sort of story We can look at that there again There's the Omicron sell-off all the way down to that previous peak there 4,480 we haven't as yet recessed the record highs But you've got to sort of think on some level The we could well do over the course barring obviously a Big inflation number Later today. We've got US CPI That's going to be I think the big event as we look towards the upcoming Federal Reserve Rate meeting. I think there is a widening View amongst economists that the Federal Reserve is potentially behind the curve Certainly the yield curve in the US the US yield curve is flattening out We can see that with respect to this 10-year graph here. This is the US 10-year yield Obviously, that's the peak back in March at around 177 40. We haven't come close to retesting the highs of even back in October or November in fact in terms of longer term yields The move in US treasuries has been fairly orderly But that's not where the movement's been happening the movement has been happening in the short end and that's no better born out By the two-year right here Because this is where we've seen the biggest breakout two-year yields are moving quite aggressively higher and have been doing so for the past Three months and the bigger question is, you know, how much higher can they go? Well, if we if we look at say for example a Two-year chart for the sake of argument, let's go back to pre pandemic And then we can see that on the wider scheme of things. We're still well below the levels we were trading at back in July 2020 which was Sorry February 2020. I'm looking at my dates from February 2020 And then obviously we had to sell off here all the way down through March and what have you Into into April May and the summer. So we've traded sideways for an awful long time until we broke out early September October So there is potential for us to go quite a bit higher depending on a how strong the US CPI numbers are and what the perception is amongst FOMC policymakers is of the risks of more persistent inflation repressions and I think in terms of the Fed meeting Let's I think talk about that more broadly because I certainly think that It's going to play into the narrative of how many Fed rate hikes we get in 2022 now, let's go back to Powell's sudden shift in Terms of his decision to retire the word transitory. It was symbolic. Yeah, absolutely And I also it's also noticeable that it means different things to different people and to be quite honest It's almost become meaningless in the wider scheme of things But ultimately I think what we have seen from the Federal Reserve over the course of the past few weeks is a much bigger concern About current levels of global inflation Particularly when it comes to supply chains because if you if you if you disregard CPI altogether and look at PPI And you look at country's example Like Spain, Italy, Germany and France It's trending in the mid to high teens and in some cases into the mid to high 20 percent tiles Which is huge and at some point Even half of that could well trigger down or trickle down Into CPI now CPI has been fairly Muted in terms of what PPI is doing and yes US CPI is At its highest levels since the mid 1980s when Ronald Reagan was president of the United States and The likelihood is if we get a number anywhere close To seven percent in the CPI numbers later today as I record this video then The timeline of a potential rate rise is likely to be brought forward from the back half of 2022 Potentially into the first half now. I hear you talk. Yeah, but the Fed is still tapering. Well, yes It is and we've heard an awful lot more calls from FOMC policymakers to taper faster And that I think is the big debate as we look ahead to the upcoming Federal Reserve rate meeting When you've got people like Mary Daly Of the San Francisco Fed saying she's open to accelerating the pace of the taper program In comments last month and she's tended to err towards dovish side Then I think really I think the messaging for The upcoming meeting is How much do the does the Fed taper its asset purchase program buy because at the moment It's $10 billion in US treasuries and $5 billion in mortgage-backed securities So the market's pricing at the moment around about a doubling of that So $20 billion in US treasuries and $10 billion in mortgage-backed securities if they go faster than that Then the taper could well be done by March Which essentially would mean that the first rate rise could come as soon as the second quarter of next year potentially Sort of putting in the putting in the frame three rate rises next year So it's important in terms of the acceleration of the taper it will give the Fed optionality When it comes to the raising of interest rates And it's not as if the Fed doesn't have previous in terms of acting aggressively Just before Christmas if they cast your mind back to Christmas 2015. They hiked rates December 2015 They hiked rates having guided they would do so in the weeks leading up to That decision So I think the bigger question more broadly is what that means for the dollar index Well, let's look at the dollar index and look where we are at the moment I mean, basically you're looking at a nice trend move higher. We have paused a little bit We've got decent support in and around 95 96 If we take it out a little bit further Yeah, the two years We're still well below the levels. We were back in the middle of March 2020 quite a bit lower. So there is certainly potential for the Fed to go quicker and A hot inflation number This week could basically feed into that wider narrative going forward What does that mean for currencies more broadly? Well, this first and foremost have a quick look at the DAX because the DAX actually hasn't played catch up in any way near the same way as say for example the s&p And the FTSE 100 So it needs to get back above 15,916 thousand for me But at the end of the day, we've still got fairly decent support all the way through here Around about 15,000. So again, the wider case for equity markets Is that while there are concerns about omicron the variant and other variants and there will always be other variants. Let's not Beat around the bush when it comes to that The the wider the wider scenario when it comes to markets Is that we still remain very much in by the dip mode when it comes to equity markets more broadly so Moving back to what I was originally going to talk about The dollar obviously the dollar is likely to remain the predominant Strong currency going forward. So what does that mean for the euro? Well, I mean when we look at this chart here It's clear to me that the downtrend It's going to take something significant to basically draw a line under this downtrend and Push the euro higher I'm very much geared towards a lower euro simply on the basis that Given the problems that we're already seeing in europe with the prevalence of the delta variant The last thing the continent needs now is the emergence of the omicron strain so They're already dealing with delta germany in particular Is struggling its health service is struggling You've got governments talking about mandated vaccination programs There's concern that any recovery is likely to be subdued against the backdrop rapidly rising prices Any ucpi in europe hit a record high Earlier this month coming in at 4.9 percent in november with core prices jumping from 2.6 percent from 2 percent so This is becoming a huge credibility issue for the ecb And christine lagarde has been insistent. There will be no rate hikes next year And it was still believed that current inflation levels are transitory. I mean, please I mean that sort of thinking seems completely odd as to what is happening in supply chains In spain italy in germany, which i talked about earlier when i was talking about the fed factory gate prices are rising at over 20 percent On an annualized basis Now the ecb is still expected to end its pet program at the end of march next year And i don't expect that to change but they'll probably call it something else or They will top up the asset purchase program, which is currently still trending at around about 20 billion euros a month And that is likely to continue. So I think as far as the ecb is concerned We're not expecting anything significant in the way of surprises They'll still have to raise their inflation forecast. That's a never we can't not do that But it probably will also have to tweak its 2021 gdb forecast down While potentially raising its 2022 gdb forecast now if we look at This chart here. We can see 113 85 Is acting as a decent area of resistance? Why? Well because it's this peak back here in june 2020 And it's also this peak here From the rally off the lows of 111 85. So I think while we're below 114 Then we're likely to head towards 110 Through a 111 60 which is obviously this low here june 2020 We fell slightly short of that but For me, I think euro dollars probably going to head towards 110 As long as we stay below this 114 area Through here ecb is not going to be hawkish anytime soon. That's likely to feed into broad euro weakness Euro sterling had a bit of a ball trap here When we broke above the 200 day moving average It's a bit of a tough one to call this but I think if we look at 86 here and here Then there is decent resistance through there my My immediate I think Got feeling with respect to euro sterling is it still remains more A sell the rally type play than anything else Unfortunately, it's probably going to be incremental in nature simply because of the because at the at the moment Between the euro and the pound it's a bit of an ugly contest because on the one side you've got obviously the ecb Which is unlikely to be hiking rates anytime soon And then you've got the bank of england and really the less said about them the better, but I'm going to talk about them because We have to into in the context of this week's rate meeting certainly I think the diminishing prospects of a rate hike this coming week have weighed on the pound We do appear to have found a little bit of a base around 131 60, but the lack of a rebound Does bother me ever so slightly So I think in terms of the outlook for the bank of england We won't see a move on rates this week Obviously the code the new restrictions the title restrictions the plan b I've pretty put the kibosh on any type of action, but even before that Michael saunders who voted for a hike in november went cold on the idea of acting in december until We get to see more data and it's a big week for uk data. We've got uk cpi. We've got uk retail sales We've got uk unemployment All three of these numbers are expected to support the case For a potential move higher in interest rates We've got cpi that is expected to move higher To 4.7 percent over the course Of november If we look At unemployment that is expected to fall further again from 4.3 percent To 4.2 potentially even 4.1 the actual single month figure for september was 3.9 percent uk unemployment, so we could see a big drop there Um, and obviously average average. We've got average average earnings as well. So that is likely to remain fairly robust, so I think this procrastination On the part of the bank of england is embarrassing And I think They missed the opportunity. They missed a golden opportunity to move in november the the argument that they wanted to see more data Yeah, it was a credible one, but you know, you do a little bit of forward thinking Um, you extrapolate further out and think well given the given the nature of what ppi is showing me Inflation if you've got concerns about inflation Unemployment has been on a downward trend You think in terms of trends you you can't you can't base a decision based on one month's data You base it on the direction of travel of data and the direction of travel for uk data For cpi is up for unemployment is down Consumer confidence is fragile. Yes, but we're likely to see a fairly decent retail sales number for november We saw one in october Why are we seeing a pickup in retail sales because people are buying early for christmas They want to make sure they get their christmas goods in early and as such That's why we should see a fairly decent number for november retail sales You can always find a reason Not to move but as the rbnz has shown us when they've hiked rates twice this year You can raise rates without causing ripples within the market And it's just a pity that the bank of england missed the opportunity to move in november When they could have done because I think a move this coming week would be a surprise Given the week gdp number we saw earlier today and again, you know 0.1 percent Still heading in the right direction But you can always find a reason not to act sometimes you have to take a bit of a leap of faith And just nudge rates higher at 0.15 percent Really is neither here nor there when rates are at 0.1 percent of the uk economy cannot withstand that sort of rate hike Then what are we what are we doing? I mean, it's just You know, it's It's mind-boggling that being said 130 160 That's the key level on the downside when it comes to the pound Why have I picked that because of that Fibonacci level there? But also that series of lows through here So I'm paying particular attention To this area of support because I think further dollar strength is obviously going to Act as a headwind for the pound And any I think uncertainty over the direction of travel when it comes to potential rate rise Is also likely to be a little bit of a headwind as well as obviously any concerns about the uk economy more broadly But pushing the politics to one side and my god, are they messy? You know things aren't anywhere near as bad as perhaps sometimes the noise levels Would suggest that they are So that's cable As I say very much trend is down 131 60 130 130 there or thereabouts is likely to be a fairly key support level going forward One notable mover this week was the Aussie dollar. We did see a big rebound Off that very key support level that I pointed out Last week, I can't remember whether it was in my weekly video or whether it was when I was doing the non-farm payrolls But that held really well and we've seen a fairly solid rebound in the australian dollar on a daily basis You know and that would that would have been a pretty nice move And as we can see on the weekly chart, it's a fairly decent rebound As well and as I say the rba has brought forward the prospect of a potential rate rise From 2023 2024 2023 to potentially this year. So That sort of brings us on to The data Or not the data the company earnings and they're starting to get a little bit thin on the ground As we head towards the christmas break. There's only there's only a couple two or three of no Okado They pushed their numbers back into the 14th of december again key support here in and around The october lows is the worst performer this year on the footsie 100. It's down 28 percent despite the fact That the business is likely to beat last year's total revenue number of 2.3 billion pounds It's adding additional capacity perfectly and over erith luten bista um And it's also been subject of some bid speculation with respect to its partnership with marx and spencers So, you know, perhaps there's an argument for suggesting that We may we may we may Maybe near a short-term base, but again that remains to be seen So there um their fourth quarter numbers that you out on the 14th of december So they might be worth keeping an eye out for for any potential significant moves there and i'm going to finish up With fedex now these logistics mail order come logistics companies Post companies are always decent bellweathers of the underlying economy And fedex in particular simply because it's been a key cog In the u.s. government's vaccination program as it ships doses of the vaccine Around the country now one of the bit one of the one of the problems that a lot of these companies have been wrestling with It's not so far not so much the fact that they're growing revenues revenue growth has been fairly decent um Yeah, this full year revenue is likely to be in excess of 90 billion dollars this year But its costs are going up and its costs um Are higher than they're there are 800 million dollars higher From a year ago. They've got worker shortages. They're having to pay staff extra for weekend shifts um, and that appears to be part parcel of the pressure on margins, so In q1 um profits were expected to come in to Well, they're expected to come in at five dollars a share They came in at four dollars 37 q2 were expected to see profits coming in at four dollars 24 a share So again, it's not so much the revenues numbers that we're interested in they're likely to be fairly decent um, it's really about the profits numbers and the rise in costs that explains why We've come off as far as we have over the course of the past few months So that'll be an interesting dynamic when it comes for evidence of wage inflation Operating costs for companies when it comes to paying their workers And that's why the average earnings data coming out of the uk next week will also be very important um, just finishing up with crude oil people like to Have a look at crude oil As we can see from this chart here. We've seen a nice little rebound In the price of Brent At the moment we're holding below that 50 retracement level From the the down move there. We look as if we're going to post the first positive week for Brent In seven weeks, it'll be the sick. We've had six weeks of declines The sweet spot. I think for oil prices is going to be in this little window here And I think that's likely to be the way of it over the course of the next few weeks and months Suits OPEC But it also gives an awful lot more certainty When it comes the prices for economies more broadly as well So I think that's that's probably going to be the sweet spot for OPEC As well as economies more broadly because at the moment consumers do appear to be able to to absorb The price increases that are being passed through there will come a time When that capacity to absorb diminishes, but at the moment We're not there yet So That's pretty much it for this week Ladies and gentlemen, once again, thank you very much for your time Hope you all have a great weekend And I'll speak to you same time same place next week, which will probably be my last video for 2021 Until then have a great weekend and speak to you all next week