 Hello and welcome to CMC Markets on Friday the 1st of November and this quick look at the week ahead beginning the 4th of November and it's been another positive week for equity markets as well as a fairly positive October. Generally speaking risk appetite has been fairly positive despite the ongoing uncertainty around a US-China trade deal. There have been some concerns expressed over the course of the past few days about the sustainability of a possible phase 1 trade deal in the face of an unpredictable President Trump and these concerns on the part of the Chinese are certainly legitimate ones given the trigger happy nature of the President's interventions on social media but these are nothing new these have always been in the background of what markets have been having to contend with since President Trump took over and let's face it I think the Chinese are hardly blameless in this regard allegedly backtracking on a number of commitments themselves and previous discussions this year so I think much has been made of the distrust on the part of both parties but nonetheless it's still within the interests of both parties to arrive at some form of accommodation and let's not forget that tariffs are still higher today than they were six months ago despite the exemptions that have been granted over the course of the past month or so so let's look at some of the key chart points that we that I'm paying particular attention to over the course of the past week or so now we've made new record highs on the S&P 500 and we can see that we've broken above that 3025 area which coincided with the previous highs and thus far we've managed to stay above them and I think while we are able to stay above these particular peaks here which is this horizontal line that I've drawn on this daily chart here then the outlook for further gains is fairly positive but that comes with a bit of a caveat a bit of a warning if we look at this candle here that does appear to be a little bit of a reversal but what is interesting is even though we tried to push lower we weren't able to close below this level this tread line here this horizontal support resistance line here at 3025 I think more importantly if you believe in Dow theory as I do and the fact that the averages need to confirm each other you also need to see significant evidence of a breakout to the top side in other US indices as well and I think that remains in doubt because if we say for example we look at the US 30 the Dow Jones what we haven't seen here is a break above this trend line that I've drawn from the highs that we saw in the summer and if anything we've actually seen a sharp reversal we did try and have a little bit of a poke through that line but what we weren't able to do is break above the previous highs that we saw in September so I think there is still a little bit of suspicion around this break higher in the S&P 500 and if you look at the small caps the Russell 2000 again we can draw a trend line through these highs here once again we've fallen short of the previous highs so I think there is a concern that the US economy is slowing down we've seen that borne out in the GDP numbers for Q3 they were weaker than Q2 and Q2 was weaker than Q1 albeit they were better than expected coming in at 1.9% but an awful lot of that was driven by the US consumer personal consumption so in terms of what equity markets are doing we are still looking fairly positive we are still in an uptrend but we do need to be very very careful about being caught long at these elevated levels if we look at the Germany 30 as well the DAX again we've broken towards the upside we are very overbought but what we do appear to be struggling to get above is that 13,000 level on the DAX we've broken higher and we broke higher in October and we've posted some decent gains but the gains are very incremental so we do need to be careful that we continue to creep higher but as we can see from these downward thrusts in the candles there still is some fairly decent demand every time we get a dip so even though the oscillators are overbought it doesn't necessarily mean we're going to come crashing off a cliff so at the moment we're still very much in a buy the dip mentality when it comes to global equity markets now the FTSE 100 that's becoming much more difficult to call because at the moment what we're getting is a rebound in the pound and that's acting as an anchor on any gains in the FTSE 100 and I think the best way to play that is really just trade the range that we've been in since August July and August which is the top of the range is around about 7400 and the bottom end of the range is around about 7,050 7,100 there's no real direction in the FTSE 100 at this point in time and given the fact that now we've moved on having seen the Brexit deadline extended until the end of January 2020 the government has finally managed to persuade MPs that an election is needed to break through the on pass as we look to push the withdrawal agreement through now despite the prospect of an election the pound has had its probably its best month since the financial crisis a one month gain in the pound against the dollar of 5.2 percent it's just marginally outperformed the rally that we saw in January 2018 and again there is the prospect that we could be getting or building up a little bit of a flag on the daily chart we're getting a bit of a sideways consolidation at the moment the top of that flag is around about 130 20 the bottom of it is around about 127 80 128 so at the moment I think we're likely to continue to get considerable amounts of volatility as we head towards the election at the moment the opinion polls are looking good for the conservative government but that could well change as the debate continues to polarize over the course of the next few weeks as we head towards that December the 12th date with destiny and as we well know the opinion polls can change very very quickly we only have to go back to 2017 to understand how quickly the polls can change but certainly in the context of where we were and where we are the pound does look in much better shape than it did a month ago given the rally that we've seen over the course of the last four weeks similarly in euro sterling we've seen a significant thrust to the downside and once again a little bit of a flag flag or flag consolidation taking place or a channel consolidation the bottom of that flag is around about 85 80 so if we break below 85 80 then we could well get a very strong thrust lower sterling move higher and towards the lows that we saw earlier this year around about 84 50 84 60 or potentially even lower to the lows that we saw back in March April so at the moment the market is looking very short of sterling and the risk is that if the if the polls continue to move or stay in favor of the conservatives that we could well see a further short squeeze in any sterling shorts but again it's a very dangerous trade to make but certainly in the context of the long-term moving averages as far as euro sterling is concerned the averages are moving very strongly in the pounds favor and we do need to be aware of that in terms of a directional bias if we're looking at further indications as to the direction of euro sterling next week we've got the Bank of England rate meeting on the 7th of November now obviously the recent Brexit extension is going to not really present a particularly ideal scenario for the Bank of England because all it does is it prolongs the uncertainty at the end of January but assuming a fairly positive outcome on December the 12th the prospect of a quick passing of the withdrawal agreement the brexit fog as mr. Carney likes to call it could well clear very very quickly certainly the UK economy does appear to have recovered a touch from the contraction that we saw in Q2 but there are still early signs that being stuck in the brexit waiting room is starting to damage business and consumer confidence slight uptick and unemployment could be just the start wage growth still remains fairly resilient but markets are still pricing in the prospect of a possible rate cut sometime next year I think it's becoming apparent the debate about lower rates is starting to shift towards how damaging they can be in the longer term so I would expect the bank to paint a cautious outlook as we head towards 2020 we've also got European manufacturing PMIs on the 4th of August or 4th of August 4th of November what I'm thinking I'm still thinking it's the summer if only it were so looking at euro dollar we do appear to be slowly grinding higher on the euro dollar let's just remove that line there but once again if we look at the 200 day moving average that's going to be the key that's going to be a key barrier to further euro dollar gains that currently comes in just below the 112 area but in terms of manufacturing PMIs it's been a bit of a mixed picture we had a very poor Chicago PMI we've seen Chinese Kaishin manufacturing PMIs improve for the third month in a row and coming at the best level since 2015 and or 2017 but we haven't seen any evidence whatsoever that European PMIs are looking to pick up in terms of the flash PMIs German manufacturing activity still remains very near multi yellows it's likely to remain weak in the latest October numbers more worryingly there's been similar weakness across Europe so I think that's going to really keep the focus on the ECB now that Christine Lagarde has taken up the reins from Mario Draghi certainly I think investors will be looking for any indications as to the type of monetary policy she will be looking to implement going forward I can't imagine it will be any different to her predecessor but nonetheless I think tone will be important because I think it is apparent that there are significant divisions on the ECB governing council about future monetary policy moves we've also got services PMIs out on the 6th of November manufacturing is stuck in the doldrums there is a concern that services is being dragged down we are starting to see evidence of that so we'll be looking to see if there's been any further degradation in the services sector as a result another central bank meeting out over the course of the next week or so is the RBA now this Australian dollar is at a very very key resistance level if I look at this trend line from the highs in November last year we're right slap bang on it as I speak so certainly think in terms of a risk reward Aussie dollar does look a little bit overbought there is a good chance that we could well struggle to get much above that 6950 area and if that's the case we've then got the 200 day moving average above that so last month the RBA cut rates again for the third time in five months another record low I think it's unlikely that they will cut despite the Fed's move to cut rates again and what was I think significant about the Fed move this week was the fact that ahead of today's payrolls report and we don't have as we don't have sight of that as yet but I would certainly argue that it's unlikely that the RBA will cut again this year in the same way that the Fed have suggested they won't cut again this year of course that prediction from the FOMC may not survive first contact with today's payrolls report which is likely to come in significantly weaker than the previous months but we also have to bear in mind that the payrolls report that's due out to today could well be skewed quite significantly by the general motors strike which could which I think affected the Chicago PMI numbers which came at the lowest level since 2015 so what is an in doubt I would argue what is not in doubt at the moment is that the US economy is starting to slow down from where it was at the beginning of the year the ISM data has certainly been showing slow downs in the employment components in September we saw a reading of 46.5 in manufacturing it's quite likely that will come in weaker when that's reported later today and certainly in terms of the services PMI or ISM next week I will be also be paying particular attention to the employment component so I am expecting a weak non-farm payrolls number today the big question for me is whether that is sustained into November now that the general motors strike is over so we could get a one-off very weak number it doesn't necessarily mean that we will start to price in the prospect of a Fed rate cut in December that being said the markets have a 25 probability of that happening that could start to edge higher if US economic data continues to remain weak in terms of what else is due in the coming week we've got important retail numbers out from Marks and Spencer now that they're no longer in the FTSE 100 certainly I think a spell away from the limelight could do it some good looking at the charts there we are looking very close to a significant low point in the share price so you could argue there's an awful lot of downside already priced in but the lows of around about 160 could well see another retest if they post yet another disappointing update same applies to Sainsbury's very key support in and around that 200p area we've managed to get back above it big question is can we sustain and move back above it we've also got the latest numbers from Aston Martin and that's been a car crash in more ways than one from their IPA just over a year ago and we've also got uber uber technologies and once again not been a good start for uber not been a good start for Aston Martin the likelihood is that uber will once again disappoint continuing to hammerage cash even the 50 billion dollar valuation it currently has at the moment looks optimistic as the bubble starts to hiss out of the IPO market that we've seen thus far this year so that's it for this week thank you very much for listening this is Michael Hueson talking to you from CMC Markets