 Good morning. Welcome to CMC Markets on Friday, the 11th of August and this quick look at the week ahead beginning the 14th of August with me, Michael Hewson. It's been an interesting week for equity markets. It's been quite choppy. I think there is a fair degree of uncertainty if I'm honest about the next move for equity markets. We're still trading in a fairly choppy range and consequently that's making it very, very difficult to really garner any sort of idea as to what the next move in equity markets is likely to be. I think the bigger question that appears to be dominating my thoughts is whether or not we've seen the highs or whether or not we can go for a little bit of an extra leg higher. I think if we're looking at it purely from a pricing point of view, particularly if we're looking at the S&P 500 for example, we can see particularly with this chart here that over the past few days we've traded sideways towards the 50 day moving average. We are looking fairly oversold on my slow stochastic indicator. If we look at a weekly candle however, we've got a bearish reversal. So that's a bit of a worry I think going forward because it does suggest that maybe we could be a little bit of a cut. Having said that, we've tried to rally this week above 4,500 failed to do so. So it means that it's highly uncertain from my point of view as to where we head to next. Certainly the economic data is not providing us too much in the way of clues. We've seen from China this week that the economy there is continuing to struggle a horrendous set of trade numbers in the early part of the week followed by inflation numbers that put China in deflation for the first time since the early part of 2020 when the economy was beginning its first COVID lockdown. So what does that mean for global inflation going forward when you've got the world's second biggest economy struggling for growth, had a fairly weak second quarter and according to the recent July numbers, the Q3 quarter has got off to a really poor start. We should get some further data on that later next week. Got China retail sales. One of the things that we took away from the trade data was how weak domestic demand was. Not only the fact was that export data was very, very weak, suggesting that global demand was weak, but import data was also weak as well. Oil prices are continuing to push higher on the basis that the Chinese economy will somehow rescue the global economy in the second half of this year. Now, that's still a fairly valid thesis, but certainly if we look at, say, for example, Brent crude prices, we do appear to be at the top end of the range that we've been in for pretty much all of this year. So if I draw a horizontal line across the top of these peaks here, like so, we can see that around about $89 a barrel is pretty much the high since the end of last year when we dropped below that level back in November 2022. So how the price reacts over the course of the next few days is likely very, very important in the overall scheme of things when it comes to the future direction of crude oil prices. Similarly for natural gas prices, which saw a big jump earlier this week on the back of concerns about strikes in Australia. Now, to my way of thinking, the rally that we saw this week does seem a little bit OTT. Certainly, I think, given the fact that ultimately, this is just on the basis of possible strikes. It's certainly not based on any likelihood that we will see strikes. So we've seen a little bit of a pick up there come back to 100 on UK natural gas. We've also seen a fairly decent jump in European natural gas prices as well. The bigger question is whether that's sustainable. Certainly, I think if you look at storage levels for the summer for Europe, there are still very elevated levels. So there's still plenty of opportunity for these prices to drift back and prices to stabilize going forward and come back down to around about 30 euros. So as we look ahead to this week, we've come off the back of what has been a very choppy week for equity markets. We look at the S&P 500. Again, we can see that here, down candle there and up one there, down down. Strong move higher yesterday on Thursday, as I record this video. We closed down near the lows of the day, despite the fact that US inflation still looks fairly subdued. Certainly the numbers that we saw coming out yesterday would appear to suggest that we are going to remain fairly weak over the course of the second half of the year. The big unknown, unfortunately, is what's going to happen to energy prices. And we've seen a big jump in oil prices over the course of the last few weeks, which would suggest that perhaps core prices are likely to be an awful lot stickier going forward. Nonetheless, the S&P got decent support, the 50-day moving average. If we look similarly at the DAX, we've seen a fairly similarly choppy week. Again, we found fairly decent support in and around this old trend line support that I drew in through here. We've been in pretty much since the beginning of April. Actually, there's fairly decent support around about 15,600 area, apart from a brief dip below it there. We've been pretty much range bound for most of the last few weeks. Even when we look at the weekly charts here again, we've got a bearish candle, but we also saw a bearish candle there, and it didn't really amount to too much. I think much will depend on what central banks are tempted to do when it comes to monetary policy. Certainly, the inflation numbers that we saw from the Fed earlier this week, we haven't as yet got sight of the PPI numbers for July, but I don't think they're going to spring any too much in the way of surprises. I think the sell-off that we saw late US trading last night was as a direct consequence of comments from Mary Daly, San Francisco Fed President, who said that the Fed is still on the mindset that they have more to do when it comes to rate hikes. That seems a rather outsized reaction to one particular comment from one particular Fed policymaker. It did see yields pop higher, but it's also important to remember, as we look ahead to the coming week and the latest Fed minutes, that Mary Daly is not a voting member on the FOMC, so why the outsized reaction? Ultimately, it's in her interest to basically keep the prospect of a rate hike on the table. That doesn't mean that they're going to be hiking rates in September. We've still got another payrolls number to look through. We've also got some more inflation numbers to look through. As we look ahead to the latest Fed minutes, the bar, I think, to another rate hike is very, very high. We do have significant evidence from various commentary from several FOMC policymakers that there are growing splits between those who think that a lengthy pause is appropriate now and those who want further tightening. Only this week, hawks like Fed Governor Michelle Bowman continues to push the line the Fed needs to do more. Now, she is a voting member. Then you've got Rafael Bostic, Atlanta Fed President, who think the Fed needs to pause. You're going to have that to and fro when it comes to policy. We've got Jackson Hole coming up at the end of this month. We've got more inflation data coming up. We've got another payrolls number. The likelihood is, and it still remains likelihood, that we will see the Fed pause in September. That could consequently mean that the ECB pauses in September. Bank of England, probably not so sure. The GDP numbers that we saw earlier today, here they are, came in better than expected for Q2. 0.2% quarter on quarter out from 0.1% in first quarter, helped by a really big jump in economic activity in June of 0.5% June GDP, which bounced back after a disappointing May of minus 0.1, where economic activity was dragged lower by the King's Coronation and the additional bank holiday that we saw there. What does that mean for the potential for further rate hikes from the Bank of England? Well, there is already, I think, concern that the Bank of England is overplaying its hand when it comes to further rate hikes. The base rate is 5.25%. The full effects of the 14 rate hikes that we've seen so far haven't yet been fully felt by the UK economy. Consequently, it's going to be a very difficult balancing act for the central bank when they come to look at the data that's coming up this week. UK inflation, CPI for July, UK wages and unemployment for June, for the three months to June. Now, I think this is at the core of the Bank of England's problem. We look at cable here. There does appear to be the signs of a potential head and shoulders reversal forming on the daily chart with the left shoulder here, the head here. Could this be the forms of a right shoulder? We need to really consolidate and move back above these previous peaks at around about 128.5 to signal the potential for further gains. The worry is we're getting lower highs here, which does appear to suggest that maybe the pound is running out of steam. Now, I think an awful lot of where we might go to next may be dictated by the CPI numbers that are due out on Wednesday of next week, but also on the wages numbers and the unemployment numbers. Since the end of last year, the UK unemployment rate has risen from 3.7% to 4% in the three months to May. More people are returning to the workforce, cost of living squeezes, pushing people out of retirement. More and more people are becoming available for work. It's also risen from the lows of 3.5% back in August. Now, wage growth has also risen quite sharply over the same period. It hit a record high of 7.3% of the most recent set of numbers. In this week's numbers, this coming week's numbers, it's set to stay there, 7.3%. Now, the Bank of England has consistently expressed concern at this sharp rise and almost 2% year-on-year rise since August last year, and obviously higher wages will make it much more difficult to rein in core inflation. But the Bank of England has only got itself to blame for that because they acted way too slowly when it came to the warnings that inflation wasn't transitory. They also need to play the same game that they played when it comes to further rate hikes. Now, there is a sense that inflation has peaked, and although still elevated, upward pressure on wages should start to slow, expecting to see wages come in for the three months of June at 7.3%. It's not likely to happen quickly. There's still outstanding industrial disputes to be settled, but they are being settled in and around the 6.5%, 7% level. In line with slowing inflation, I'm not going to say falling inflation because it's not falling, it's slowing, it's just going up less fast. The energy price cap falls out of the July CPI numbers. Now, that should mean that July CPI should fall from 7.9% in June, and it was 8.7% in May, and should come in at 6.7%, should have a six-handle in July, which will put it below wages. Core prices are also expected to slow ever so modestly at 6.8%. So when the July inflation numbers are released in the coming week, there's a very good chance that CPI will fall below wage growth. The wages will be rising faster than inflation. Now, that is good news, and hopefully that will continue over the course of the next few months. Now, of course, the problem with that is it could mean the Bank of England sees fit to tighten rates further. I think that would be a mistake. I think the Federal Reserve and the ECB will be able to help them in this regard if they pause in September. I think the idea the Bank of England needs to do more is extremely misguided, given the fact that ultimately we are already starting to see pockets of weakness in some of the more recent data. Inflation and wages and the slowing economy, higher taxes and what have you, should slow the UK economy or by itself, as all of those fixed rate mortgages roll off and get refinanced at higher rates. I've also got the fact that rail fares are probably going to be going up by quite a bit over the course of the next few months, as that the next fair increase gets calculated as a consequence of the June or July numbers. And let's not forget retail prices are an awful lot higher than consumer prices. So, keep an eye on PPI as well. There's a good chance that those numbers could stay negative. They were negative in June. Input prices went negative in June, minus 1.3 months a month, minus 2.7 year on year. If they continue to remain negative, then the deflation reimpulse that we've been seeing in PPI, not only here in the UK, but in the US and in Europe and in China, should start to play out in the headline numbers. So, the Bank of England hikes are still working their way through. And I don't think it's really wise for the Bank of England to double down on that when they haven't even considered the consequence of what they've already done, 14 rate hikes in a row. So, those are the key support levels on cable, which you see there from that trend line that I've drawn in there. Euro-dollar, again, same old, same old here. Fairly decent line through there. Still very much in an uptrend. I'm still of the opinion that the dollar has the potential to weaken. The bigger question is obviously how that happens. It's very, very choppy. We can see that in the way that these, this price action has played out, move up two days down, up, try to go up, close, pretty much where we opened, and now we're edging higher again on the back of those GDP numbers that we saw. I'm talking about cable there. So, yeah, forget I said that. But essentially, I think the idea is that the dollar should weaken and we could will start to edge back up towards 110, 111 on Euro-dollar. So, we've got Fed Minutes. We've got UK Wages and Employment for June. We've got UK CPI. I think the CPI numbers are actually later in the week. But nonetheless, we've also got China retail sales during the week. And we've also got UK retail sales for July on the Friday. So, it's going to be a fairly busy week for economic data, not only here in the UK, but also obviously we've got Fed Minutes and June retail sales out of China. So, in terms of where we go to next, I think it's going to be very difficult to really say with any degree of confidence what the next move for markets is. So, it's really just a question of continuing to play the range. As I explained in previous videos, this downtrend in the FTSE 100 continues to bother me a little bit. But ultimately, I still remain reasonably constructive on the FTSE 100. But we do really need to move back above this trend line here to suggest the short term basis in and we can try and ratchet higher. Now, what else have we got in terms of the earnings numbers? We've got some big numbers out of the US, Walmart and Target, which is always a fairly decent indicator of US consumer confidence. Walmart's been doing very, very well. If we look at this particular chart here, it's been one of the few retailers like next here in the UK that has managed to hold up reasonably well. It's made marginal new record highs, which is absolutely staggering when you consider the very difficult retail outlook, not only in the US, but probably more broadly. But that does appear to suggest that the good news on Walmart may well be priced in. So, what are we expecting on Walmart? Well, certainly I think for Q2, Walmart still remains reasonably positive in terms of its profits. It's expected to see an improvement in profits from the $1.47 a share that we saw in Q1 to $163 to $168. And it also raises full year guidance in its Q1 numbers for profits to $6.20 a share from $6.05 a share. Revenues in Q1 raised by 7.6%. And e-commerce, particularly in the US, saw really strong growth as did international sales, which was led by strong performances in Flipkart, which is in India, and obviously it's China markets as well. Contrast that with Target or Tajai, as the Americans like to call it. And the contrast couldn't be starker. Target has been suffering from what they call shrinkage. So what is shrinkage to you and me? We're shoplifting, basically. They've warned that theft has been running rampant in certain areas and that it could cost the business up to $1.1 billion over the course of the year. The company went on to say that the problem could prompt store closures in those areas that are causing particular problems. And that for the second quarter, Target said it expects to see profits slipped to between $1.30 and $1.70 a share, although it did keep its profit guidance 40 year unchanged. But with the shares trading very much at the lowest level since back in 2020, perhaps an awful lot of the bad news is already in the price. So that's certainly something to keep an eye out for next week. We've also got an insight into the UK construction sector in the form of Balfour BT. Their shares hit record highs earlier this year, back in May. This is a significant turnaround for this UK construction giant. We saw some fairly decent numbers out of the UK economy earlier today. Fairly decent support, Balfour BT around about $3.30. We've come off a little bit over the course of the past few weeks since those May record highs. But ultimately, they've come a long way from where they were back in 2016 when Leo Quinn took the company over and they were on the risk on the cusp of potentially going the same way as Carillion, which sort of followed them, almost followed them, well, Carillion and Digobust. They managed to turn a business realm there quite significantly. Anyway, looking at the rest of what's coming out, let's have a quick look at the Nikkei 225. Again, range trading here. Fairly decent support in and around just below $32,000. Still got these highs back in June, $34,000. Again, not really trading anywhere. So I think for the time being, it still continues to be very much a range trade as we head through August, keeping our eyes on obviously Jackson Hole at the end of this month, but also looking ahead to September when perhaps we may start to see much more clarity on the next move in equity markets going forward. So that's it for this week. Thanks again very much for listening. This is Michael Hueson talking to you from CMC Marcus and I hope you all have a great weekend. Thank you very much.