 Good morning, welcome to CMC Markets on Friday the 4th of August and this quick look at the week ahead with me, Michael Houston and after a fairly decent July for equity markets, August was got off to a fairly lackluster beginning. We've seen significant declines across the board for markets, European markets underwent another negative session yesterday. The sell-off that started at the start of the week has started to gain a little bit of momentum. The Dax fell for the fourth day in a row yesterday, having hit record highs earlier this week and the C100 finished lower for the third straight session, although it was notable that we closed well off the lows of the day. What does it mean for markets going forward? Well, ultimately, I don't think really much has changed. What has been notable, I think, which has been slightly different with respect to the sell-off in equity markets that we've seen is how bond markets have performed over the course of the past few days and this has been notable in terms of the U.S. 10-year yield relative to the U.S. 2-year yield, U.S. 10-year yield, which is the white line here, has shot up quite significantly and moved above the highs of this year, whereas the 2-year has essentially stayed fairly benign, fairly flat. What we have seen is a bit of a steepening of the yield curve from the lows that we saw at the beginning of July, which might suggest that markets are pricing in a greater risk of recession. For me, I would suggest it just simply means that markets are pricing in the likelihood that rates are likely to stay higher for longer, as long-term rates start to move higher relative to short-term rates. Short-term rates really haven't moved that much relative to long-term rates, and that suggests to me that rate cuts are slowly being priced further and further out into 2024 and even perhaps into 2025. There's certainly been the narrative that we've heard from central bankers over the course of the past few days. Starting with the Federal Reserve and the ECB last week, the Bank of England yesterday, I think it was really notable that UK 2-year yields, which are here, 2-year yield, didn't really move that much. Yes, they did spike lower. If we change this to a candle chart, we can see that there. If we just turn that to a six-month chart, that'll give you a slightly better idea. But there is fairly decent support in and around these sorts of low points of around about 4.8%. I think one of the things that I have taken away from the central bank meetings over the course of the past few days is that we are very close to a pause and perhaps to a peak, not necessarily in that order. The Bank of England yesterday raised rates by 25 basis points. There was a three-way split, two people asking for 50. A 50 basis point hike, Jonathan Haskell and Catherine Mann. Swati Dingra, who's now the solitary dove on the NPC, voted for no change. From current levels, she's been in the no change camp since I think rates were around 3%. I think that really tells you something about the diversity of views on the NPC. A new NPC member, Megan Green, who replaced Sylvana Tynrero and voted for a 25-base point rate hike. Begging the question, was to whether or not we're at peak rate for the Bank of England. Certainly, I think the comments from Deputy Governor Ben Broadbent, if you've been listening to the press conference, would appear to suggest that we're probably at the top right now. Now, markets are pricing in the likelihood of another 25 basis points in September. Economists think that we'll probably see another 50 to 75 on top of the 5.25 that we have now. I remain deeply skeptical about that. We've got another two inflation reports to come between now and the September meeting, as well as two more jobs reports. I think there's plenty of evidence that inflation will continue to come down all by itself, particularly if you look at PPI measures pretty much across the globe. You look at European PPI, you look at China, Chinese PPI and CPI, which is coming up this coming week. That's going to be a very key bellwether for future inflation trends. Now, obviously, there are concerns that inflation pressures may start to reassert themselves. If you think about what we've got coming up this week, we've got China trade for July, we've got US CPI for July, we've got UK second quarter GDP. They're the three key macro announcements for the upcoming week. Obviously, that's what I'm going to be focusing on. Today, obviously, also looking at how markets have performed and as to whether or not we're going to see further declines from where we are now. What I would say is that on the DAX, we've seen a fairly decent reversal here off those new record highs, but we saw a similar type of reversal back in early late June, where we saw one, two, three or five successive down days, saw a little bit of a base, four here again, a little bit of a base. We've seen three today or three this week. We could see further declines, but overall, even though we've seen some significant negativity this week, we haven't really broken out of the ranges that we've been in pretty much for the best part of the last three months. I think until we break below the lows that we saw back in early July, I think we've pretty much got more of the same. Obviously, as I said in my previous comments about bond yields, particularly US 10-year, there is concern about bond issuance over supply that's driving the long end up. There's a bond auction next week in the US where we could get $103 billion of new issuance, and that is obviously, I think, driving prices down and pushing yields up. That is a concern and obviously, I think, a direct symptom of the aftermath of the debt ceiling agreement that we saw earlier in the quarter. Obviously, we've seen the Fitch ratings downgrade of the US from AAA to AA+, just as a reminder, S&P did that 13 years ago. Some of the some of the reasonings or the reasons by Fitch for downgrading the US while ultimately credible, and they make an awful lot of sense for about 13 years too late. Fiscal governance, concerns about the politics and what have you, they're not no. We've had debt ceiling discussions and then agreements coming out of our ears for the last 10 years. I don't really see much difference in terms of the problems facing the US, apart from the fact that the next president of the United States is likely to be an old-age pensioner. Neither of them are particularly good quality, but we are where we are with respect to that. In fact, the political situation, not just in the US, but in Europe and the UK as a whole, points to a very low caliber of political leadership with a preference for sound bites over substance, but so it's not just the problem unique to the US, but ultimately, if you do have concerns about the US, you've got to ask yourself, where else would you put your money? And to my mind, there aren't any standout candidates. So as someone once said, the US is the cleanest grubby shirt or dirty shirt, and that will continue to be the case. So for me, an awful lot of it is background noise. Looking at the markets at the moment, we haven't really seen that much of a change in the overall trend of the last few months. Similarly with the FTSE 100, at the beginning of July, we tested 7200, found a bit of a base, have rebounded since then, but we're still below this trend line from the peaks back in February this year. And obviously, that is a concern for me. I think of all the major indices, the fact that we've been trending lower on the FTSE 100, the concern is that's a leading indicator of wider potential declines in equity markets more broadly. We want to see a little bit of a move higher. This is a little bit encouraging because ultimately, while we did push lower quite significantly, we weren't able to sustain that downward momentum. And we're currently flat on the day around about 7500, but that does appear to suggest the length of that lower candle there, or that wick, that suggests that people still want to buy stocks, and they still don't want to be aggressively short as we head into the silly season of the summer lull here in August. If we look at the S&P 500, we're still very much in the uptrend that we've been in pretty much since March, the March lows, drawn a few lines on this. We've got the 50 day moving average as well as acting as a fairly decent support area. Got the lows here in July, so we're still above the July lows. And it's a similar sort of story for the NASDAQ 100. So I think when all is said and done, and all the negativity that we've seen this week, and the earnings out of the US, we've seen a mixed set of results from Apple and Amazon. Amazon posted some very strong numbers. Apple was weaker than expected, third quarterly decline in revenues, and the likelihood is we could see a fourth decline. There was some fairly downbeat guidance from Apple CFO Luka Mestri, who suggested Q4 was likely to be as challenging as the three previous quarters. And what was notable was that Apple reported a significant inventory buildup in its Q3 numbers, which probably isn't too much of a surprise given the fact that September tends to augur in a whole host of new product launches. So why would you buy a new iPhone if there's a new one coming out just around the corner? So you've got that, the NASDAQ 100, still in an uptrend. But there is a concern here that we are starting to form a little bit of a top. You've got this high here, and you've got this lower high here. You've got a little bit of a roll over starting to happen. Keep an eye on the 50-day moving average on the NASDAQ. Keep an eye on that July low there, 10th of July low, 14,900 as well. Because if that breaks, then we could see a little bit of a correction back to this trend line from the lows back at the start of the year. So those are the major indices. We've got non-farm payrolls coming up later. Not really expecting too much of volatility around those numbers. 200,000 is the expectation earlier this week. We saw another very strong ADP jobs report, 324,000 for July, following up the 497,000 that we saw in June. So we can see the US labor market remains reasonably tight. The ISM services report also pointed to a fairly strong services sector, also pointed to prices paid, edged higher in July. That could have consequences for next week's CPI report, which is due on the 10th of August. As I said in my comments a few minutes ago, we've fallen from a peak of 9.1% in June last year. We slowed to 3% in June last month, and it's been pretty much one-way traffic. Now we're starting to see services price inflation start to tick higher again. A large part of that could be as a consequence of the rise in oil prices that we've seen over the past few weeks. We're on course for the fifth successive weekly rise. Saudi Arabia has announced that it's going to extend its production cuts into September. So that could well underpin crude oil further. We can see that with respect to how prices have behaved in this chart here. Let me just pull Brent crude across from here. There we go. So Brent crude prices back towards the levels that we saw back in early April. I do not like that font. I don't know why the fonts have suddenly done that. So let me just change that to that. Actually, I might make that. I might make that bold thinking about it. The axis, there we go. And we can see that better. So we're finding we could find a little bit of a top around about $87 a barrel. And I think obviously further gains on crude oil prices could be dictated by the China trade numbers which are due out in the coming week. They are due on the 8th, Tuesday morning of the 8th of July. They've been fairly weak these past few months. The trade numbers we've seen exports declined by 12.4% from a year ago in June. They missed expectations by a large margin, biggest decline since 2020, while imports also declined more than expected by minus 6.8%. On the more positive side, expectations are stronger stimulus by Chinese authorities have been increasing over the past few days, but so far haven't come to an awful lot. And I think the big concern here is that all of these promises of future stimulus, unless they actually amount to something, we could see markets start to be concerned about the fact that maybe the room that Chinese authorities have for the stimulus could be more limited than they're letting on. Certainly, I think on the inflation numbers, inflation isn't a problem in China. In fact, in the CPI and PPI numbers out which are due out the next week, we could well be sliding into deflation in China for July when those numbers are released next week as well. Expecting a decline in headline CPI of 0.5%, while PPI is expected to slip even further into deflationary territory. It was already minus 5.4% in June, could well slip to minus 6.8% in July. And as everybody knows, or he's been a regular listener, Chinese deflation tends to get exported in the same way as its inflation problems do. We're already seeing it in Europe, significant deflation reimpulse in PPI, which at some point, well, it's already starting to manifest itself in the headline CPI numbers. And I think for that reason alone, I think that's why we could well be at or near to the peak when it comes to further rate hikes from central banks. They just can't admit it yet simply because they don't have visibility on the data. But if you twist my arm at the most, I think we'll get a pause from the Fed in September. We could get a pause from the ECB, they're certainly leaning in that direction. And for all the hawkishness or hawkish expectations around the Bank of England, I think we're pretty much at peak Bank of England as well, give or take 25 basis points. I don't think there's much left in the tank when it comes to Bank of England rate hikes thus far. Though I know many who will disagree with that summation, so it sort of makes it a little bit of an outlier view. But that's my instinct, that's my feeling. And it's generally served me fairly well over the course of the past 30 odd years. We've got second quarter GDP out of the UK due this week. And again, I think that's one other reason why I think that it's going to be very, very difficult for the Bank of England to hike rates further. Second quarter GDP numbers, which are due out on the 11th are likely to point to a continued lackluster stagnant UK economy. We eked out 0.1% growth in the first quarter of this year. This week's Q2 numbers ought to show some improvement, even if markets aren't pricing in an improvement in some of the expectations on my Bloomberg terminal. But I would expect to see something in the region 0.1 or 0.2. Economic activity has managed to hold up much better than expected despite inflation, which has weighed on demand, especially on more discretionary areas of the economy. PMIs have held up reasonably well. Retail sales have been positive every month during Q2, rising by 0.5, 0.1, and 0.7% respectively for April, May and June. Consumer spending has also been helped by lower fuel pump prices, and with unemployment levels still at relatively low levels and wage growth currently above 7%, I think the Q2 GDP numbers could be as good as it gets for a while because Q3 is likely to be much more challenging, particularly with rates now at the highest levels for over 15 years and more and more fixed-rate mortgages set to get refinanced in the coming weeks and months. On the earnings front, I don't know why I closed that window just then, here we go, we've got a little bit of a slowdown in the place of earnings. Obviously, I talked about Apple and Amazon and numbers earlier this week. We've got Disney coming out, we've got Rivian, Rivian's won a host of new orders over the course of the past few weeks, which has seen its share price rise quite significantly from those lows that we saw back in April, some big, big gains there. Their next quarterly numbers are likely to be very important in the context of whether or not they can signal further progress through $28 and back towards the levels they were at the end of last year. We've got Disney, Disney Plus subscriptions actually fell on the previous quarter. There is fairly decent support for Disney's share price in and around $84, so I think this week's Q3 numbers are going to be very consequential when it comes to whether or not they can see a pickup. They certainly brought out a number of new releases on the Disney Plus streaming platform, Avatar the Way of Water, Guardians of the Galaxy, Volume 3, which I watched the other night and which was, it was okay, wasn't great but it wasn't bad either. So I'd be interested to see whether or not they reverse the decline in subscriber growth that they've been seeing over the past few quarters. Got AMC, Cinema Chain, AMC Entertainment, obviously it's summer blockbuster season. We've seen a host of new releases come out over the course of the past few weeks, Indiana Jones and The Dial of Destiny, obviously Guardians of the Galaxy, Volume 3, we've seen Barbie, we've seen Oppenheimer all come out in the cinemas as well, so it'll be interesting to see whether or not AMC sees a significant pickup which helps to drive its share price back above $6. And obviously we've also got the numbers from UK delivery company Deliveroo, whether they can now they finally started to gain upward traction on the share price where they can continue to make the gains off those lows that we saw all the way back in February of this year. So and we've also got Paramount Global's Q2 numbers, obviously that's another streaming story, Paramount Plus and their subscriber numbers. We've seen good numbers from Netflix. Amazon posted as very decent prime video growth numbers as well in there. Their numbers are released earlier this week. So it's certainly an area of the economy which does rely on an awful lot of discretionary spend. They'll be interested to see whether or not that holds up over the course of the next few weeks and months. Okay, so I think that's it for this week, ladies and gentlemen. Once again, thank you very much for your company. Speak to you all again, same time, same place next week. In the meantime, hope you all have a great weekend and see you all later. Thanks for listening.