 Good morning. Welcome to CMC Markets on Friday the 2nd of October and this quick look at the week ahead beginning the 5th of October. Before we get underway, just to get the disclaimers done dusted, but it's certainly been an interesting last few days for equity markets in general. Obviously the US presidential election is really started in earnest with the with the first debate. I hesitate to use the word debate because if anything, it was anything but a debate. It was probably more a case of a fact free name calling contest. Nonetheless, it wasn't a particularly edifying spectacle. And this morning's news that President Trump has tested positive for COVID-19 is just yet another level of uncertainty for investors to ultimately get their head around. And October generally does tend to be a little bit of what I would call a volatile and turbulent month for equity markets in general. So after a fairly quiet 1st of October, the 2nd of October, I think has really put the cat amongst the pigeons. Certainly the health of US presidents has always been a hot button issue for markets. Casting my mind back to when Reagan got shot. When George Bush senior Phil ill at a dinner in Japan all those years ago and yes I know I'm aging myself slightly but I do remember both of those instances and this time the market reaction hasn't really been that much different. Nonetheless, if anything it's been probably slightly more subdued. Yes, we saw a knee jerk reaction lower as shown by the fact that this candle here has actually coming back from the lows of the day we can sort of we can see the initial news on the five minute chart for the first 100 broke this morning around about 545. 6am drop sharply lower but since then we've been slowly recovering the ground backwards and I think more than anything else, while this is obviously unexpected. I don't think if the polls are to be to be believed that it will make that much difference to the final outcome certainly the president of President Trump and the first lady on exhibiting any symptoms as yet. If it does do it blows a rather big hole in Trump's reelection campaign plans and also could complicate the next 30 days. If the president does does start to show symptoms and becomes ill and is unable to campaign let's not forget Boris Johnson also got coronavirus try to carry on working and ultimately did himself more harm than good. President Trump is in that cohort of being over 65 and slightly overweight so there could be the risk of complications if he doesn't take it easy and President Trump doesn't try to strike me as the type of person who's content to sit still and do nothing. So what does that mean for the debates going forward and certainly what does it mean for equity markets well. At this at this case in point I really so I don't see any reason why it should alter what equity markets are doing that much, whether or not you think that the Republicans are going to win or Biden is going to win. At some point we're going to get significant amount of fiscal stimulus or you would hope so. The economic data thus far coming out of the US has been by and large, fairly positive. We've got the latest September payrolls report later this afternoon obviously I don't have sight of those numbers. But at the moment, I think if the report is anywhere near in line with expectations the pressure to arrive at a new stimulus deal, where the window is already closing shut quite sharply, will continue to diminish because I think this payrolls report more than anything else could dictate whether or not Trump starts to make a comeback in the polls at the moment that does not look likely being diagnosed with COVID-19 sets that back as well because Trump for all of his thoughts and there are many is a very, very good campaigner, he's very good at dialing up the base when it comes to motivating his support and generating generating discussion, shall we say. So the next debate with Joe Biden which was due in two weeks on the 15th of October is now unlikely to happen which actually in some ways actually plays into the Democrats hands a little bit because it's how speaking Nancy Pelosi has already articulated that she didn't want Joe Biden to partake in the next two so the fact that the 15th of October debate is unlikely to take place is probably a mixed blessing one way or the other and we do have the vice presidential debate coming up in the week ahead between Kamala Harris and Mike Pence always assuming that neither of them develop any symptoms over the course of the next few days. But nonetheless, this is just another element of uncertainty to go in with all the other uncertainty that comes about as a result of the US presidential election. And if we look at the S&P 500, that is certainly being reflected in the pre market on this chart today there's the initial drop down here we've had a bit of a rebound and now we're heading back lower again. I think the likelihood is that we could well see an awful lot more volatility over the course of the next few days. And it's quite likely that that will continue the closer that we get to polling day in the United States for what it doesn't do. Ladies and gentlemen, you know, I think I can say this with some confidence is that it doesn't change the overall scenario that we've been looking at over the course of the past few days or past few weeks. Equity markets by and large are still in a little bit of a trend particularly here in Europe less so in the US where we just come off another very decent quarter. I think it will be difficult for equity markets in the US in the first part of the quarter to replicate what we saw in Q3 given the uncertainties and depending on the outcome in November. We will dictate how we finish the year so I think that for me more than anything else is one of the key unknowns but one thing I can say is that the 3400 level on the S&P 500 is likely to be a very significant resistance level in the short to medium term. So in terms of the overall outlook, I still think there's potential for a little bit of another thrust to the downside. That's not to say that we won't go higher later, but in the short term, we've got a big barrier at 3400 on the four hour chart here, a nice little tweezer top with a bearish reversal there. We need to now take out the lows around the end of September of 3300. So that's the range at the moment 3300 3400 in terms of the S&P 500. If we look at the DAX, it's a similar sort of story really. If I take this out and do a Fibonacci and do some FIB levels on this, it gives us a better idea of where we are. And we'll look at the corridor price action that we've been in since mid June. I don't anticipate that changing anytime soon, which suggests to me that while we could get further weakness the 200 day moving average, as well as the 23.6% Fibonacci replacement level of the up move from the March lows to the August highs is likely to be a very key support level on any thrusts lower, notwithstanding the fact it also coincides with the lows at the end of July. So continue to range trade. I think in terms of the DAX, we can sort of draw a similar sort of story with respect to the FTSE 100 again. And I've talked about this a great deal over the course of the past few weeks. We are in a very, very slow downtrend. Now obviously Brexit talks, the UK Brexit talks are going to continue over the course of the next week or so. And as such, they are likely to weigh on equity market performance, particularly in with respect to the FTSE 100 though, obviously the weak oil price is not helping the oil majors. And all this talk of negative rates from the Bank of England is not helping UK banks, so the mixed messages coming from the Bank of England isn't helping either. I still maintain that it's going to be very, very difficult for the Bank of England to move into negative territory when it comes to rates, but maybe this policy they've got of not taking negative rates off the table is just as effective in terms of keeping money market rates low without them actually having to pull the trigger on a rate cut at the same time. Certainly Dave Ramston has come out and suggested that 0.1% is the lower bound for UK interest rates, which flies in the face of comments by Sylvia Tenreiro, who suggested that there was some evidence that negative rates were a positive factor. I don't know what research she was looking at, but certainly I've seen very little evidence that negative rates are in any way a positive thing for the economies that they serve. I've certainly seen no evidence of that in Europe, Switzerland, Japan, or anywhere else for that matter, even Tim Buck too. Negative rates to my mind are an economically damaging and economically illiterate but try telling that to the economic group think that seems to be, seems to permeate central banking at the moment. The biggest problem that we have at the moment is not to do with where rates are, it's to do with infection rates, a different type of rate, infection rates here in the UK and in Europe more broadly. That is what is likely to affect sentiment going forward and that is what is affecting sentiment going forward is the weather gets colder, the days get shorter, and we will have to stay in more. What effects, what steps, what further steps will the governments take to try and mitigate infection rates while trying to keep the economy and their respective economies on life support. European Central Bank is already probably as low as it can go. They're in huge amounts of difficulty. They're in deflation on the headline rate and core prices are at a record low. So it's really down to fiscal policy and fiscal policy at the moment, apart from the UK appears to be in very short supply certainly in the US. The EU Recovery Fund noises out of Germany suggests that is not going to happen on the 1st of January, which means that it's unlikely to happen much before March there are still significant divisions amongst EU leaders about the terms and conditions of the EU pandemic recovery fund. And that for me is going to be very, very difficult for countries like Italy and Spain, which brings me on to looking towards the week ahead. Before I move on to that very important to keep an eye on this level on the FTSE 100 here. There's a significant support level if I just draw a little line in there for you. You can see it there it goes quite nice. Nice to see that let me just pull that stochastic back for you. There we go. Get rid of that. 5785800 level big, big support on the FTSE 100 pay close attention to that because there is a chance that if we go for another test of that it could well give way. Why do I say that? Because every reaction off that low has been lower and generally that's a sign of failing momentum. So we've got lower highs. We haven't actually got lower lows, but if we do break down, then we could well see further declines back towards this series of twin lows here from May the 4th, which is around about 5,650. So pay close attention to those series of lows through their ladies and gentlemen. Right, looking ahead to the week ahead. We've got a couple of fairly stand out events to keep an eye on obviously notwithstanding the US presidential election and the impossible debate between the vice presidents or the vice president and the vice presidential candidate on the left. We've got the latest FOMC minutes, which are due out on the 7th of October. We've also got latest services PMI is global services PMI is. And we've got the RBA rate decision and we've got a host of UK data as well. So let's start. Let's start with the US dollar. Now we've seen a bit of a rebound in the dollar. And today on the back of that Trump news, certainly nothing significant. But again, we do appear to be showing some signs of a possible base in the dollar. If we look at the way the price action is formed here. These Fed minutes aren't really going to probably tell us too much already that we don't already know about Fed's future policy. We've seen over the past few days, we've seen a raft of Fed speakers come out with respect to their views on average inflation targeting and a much more focused approach when it comes to targeting the unemployment rate. I think the Fed's main problem at the moment is the proximity of the November US election. So I think it's no it was not really a surprise that we really didn't get anything particularly tangible from the Fed minutes. But I think what the Fed minutes could tell us is the nature and the shape of the discussions as to how the Fed will achieve a policy goal that they've already found very difficult to meet over the last 20 years. You basically target an average inflation rate of 2% when you've actually only hit 2% twice in the last 20 years, and only then for about seven or eight months. We also saw two descents on the latest Fed meeting. It'd be interesting to understand the reasonings behind both of them. We had Minneapolis Fed chair Neil Kashkari descent, because he wanted a stronger commitment to not raising rates on the foreseeable future I mean I don't know what's stronger about keeping rates low after 2024. Maybe you wanted it out to 2034, but that was that was the reason he dissented it wasn't dovish enough. And then you had the Dallas Fed president Robert Kaplan dissenting because of concerns that the commitment to a lower for longer policy would encourage over excessive risk taking. Two descents each for differing reasons. And that suggests that while on the margins, there is significant disagreement or potential for distance agreement on the broader message. I think that there remains an awful lot where the Fed is in agreement and I think in the event. If you get past the presidential election, you'll see a much more interventionist Fed, probably even more so than we already have done. Also it'll be interesting to note on the services PMIs for September. Now, in the last few days, manufacturing PMIs are broadly been very positive, which suggests that there has been an increase in depart increasing global demand. There's been a little bit of what I would call inventory restocking, which has helped boost the manufacturing PMI numbers up to some fairly decent mid 50 levels. The biggest problem and it's always going to be the problem is the services side because the services side relies on demand. It relies on consumers going out and spending money and that's where the weak link is and particularly so in the UK and the US where services makes up a significantly higher proportion of economic activity. So this is going to be an increasing concern, particularly in light of the lockdowns, the localized lockdowns that we're not only seeing here in the UK, but also more broadly in countries like Spain, in Madrid, in France, in Marseille and pretty much across the whole of Europe in general. So in particular, I'll be paying close attention to Italy and Spain, where in August we saw contractions of 47.7 and 47.1. It's unlikely that September will be much better, which makes it even more important that the EU leaders come to an agreement on an EU recovery fund, a little sign of that sadly. And the France services PMI is also expected to be confirmed at 47.5 because that's what the flash reading for September was. So it's a very weak outlook. It's not been all bad news when it comes to services PMI US and UK numbers have continued to improve and recent Chinese services PMI activity has also held up fairly well. The big concern now going forward, it's not really about the services sector in September, because I think with respect to the UK and the US, that's likely to be fairly decent. In August, UK services PMI was at 58.8 while the recent flash PMI number showed a much more resilient 55.1. So again, fairly decent there. Similar sort of story in the US, the biggest concern is that what effect the the measures that have been announced in recent days will have an October economic activity as we head into the fourth quarter. We know Q3 is going to be good for the UK economy. And in light of that, the monthly GDP numbers for August for the UK economy are likely to be fairly positive. And again, this is the UK GDP numbers are due on the ninth. Again, looking for a very positive outcome there certainly the performance of the pound has been largely positive I think there's an also a significant amount of Brexit you trade deal optimism on the back of that. What I would caution against is that if you're trading headlines on EU UK Brexit trade negotiations, you're going to get whipsawed quite aggressively we saw that in recent days with respect to the performance in the in the value of the pound. But if we look at the pound, I'm still very much of the opinion that it remains pretty much a by the dip trade, you know, sort of flash crashes not withstanding and as long as we stay above the 200 day moving average in this area of support here. At the moment we're towards the top end of the C recent range. I certainly wouldn't be looking to buy it too aggressively near these recent highs that 130 is a significant barrier it's going to take something quite substantial to push it through there. And I'll be very surprised if we get a trade deal. Any time soon. What we could get is a further, like a transition trade deal if you like a four or five years of understand that's one of the possibilities being discussed whether or not there's any truth in that remains to be seen but I think what both the EU in the UK need now is a bit of time, because neither economy can withstand another shock on top of the coronavirus shock so the hope is that our pound shop politicians will get together and actually agree mutually agreeable compromise that gets us over the course of the next four or five years. In any case, this week's GDP number should come across as fairly positive even if it doesn't recoup the big decline of nine minus 19.8% that we saw in the second quarter. So still pretty much playing the range on cable 130 near the top. Look to buy dips on that. Same sort of thing really I think applies when it comes to euro sterling though again I'm of the opinion that the line of least resistance for you euro sterling is for a stronger pound and a weaker euro. We can see that here we've got lower highs and lower lows. So even though we are significantly higher from where we were in May. There does appear to be some evidence of failing momentum. And I think if we do break below this low here, which is around about 90 20. If we break below 90, you could see further weakness back to the lows that we saw in early September in and around the 89 88 90 89 area. So if you look at the euro sterling draw a trend line through those highs there, you probably got good, you probably got a good resistance line for a potential sell the rally type trade going forward. Draw that line in there and you can see that quite nicely. We've also got RBA, the Australian dollar, let me just bring that chart up there. The RBA rate decision has been on some speculation in recent days that the RBA may well cut rates from their current record lows of 0.25% to 0.1%. Again, there's been some speculation that they might delay that until the November meeting. There's been little indication that so far that the RBA appears inclined to lean in that direction and they could probably suggest I would suggest doing more QE rather than cut rates further. I think there's a growing realization. The interest rate cuts are a blunt tool and don't really achieve that much. And I think I think the world of the world of central bank is slowly slowly coming to the realization that perhaps easing quantitative easing bomb buying is probably a more effective way of trying to maintain fairly loose monetary policy conditions. As I've been speaking equity markets have started to roll over a little bit more. Obviously, that's a bit of a concern. But again, it's within the overall context of the recent range that we've currently been in and as such. And as I said previously, we still have, I don't have sight of the latest US payrolls report. But what I would suggest is that if we get a poor number, then that could raise the prospect of a potential stimulus package between now and the US election. But I've got to be honest. I'm not optimistic. Given the current music music, given the current move music coming out of DC. So in terms of the Aussie dollar. I think the bias more broadly is for the RBA to towards the side of quantity of easing, rather than implementing another rate cap, but as I will wait and see in that decision is out on the 6th. We've also got on the earnings front a couple of things from Tesco's and Delta, but before I cover that, I'm going to go to gold. I think gold prices move up over the course of the past few days, but we could now be starting to run into resistance territory from the highs that we saw in August. So we I think will need a significant push higher to get through this trend line resistance here, which is currently around about 1920 1930 area. That's going to be the big, big level on gold prices. If we can move through that, then there's a good chance we can go back to $2,000 an ounce. But at the moment, we do appear to be running into a little bit of selling interest anywhere near the 50 day moving average in this resistance from the trend line from the highs in August. Brent crude. Big, big support level coming into play right now in an around $39 a barrel 3890. If we break below that then there's potential for us to go quite a bit lower. There is a Fibonacci level there from the June lows, which currently comes in around about $36 50. So if we break through $39 and I think there's a good chance we could go back to 36 and a half in the short to medium term. That's a large part of the reason for this weakness in oil prices is simply because of the fact that demand expectations have come in quite sharply, given the various rolling lockdowns that are starting to take place pretty much across the northern hemisphere. Moving on to just one other thing that I've got my eye on this week. First half numbers and supermarkets have been one of the few winners of the pandemic but you wouldn't really know it. So look at their share prices. If I look at this chart in particular get rid of that line. We've broken below the July lows. I think the biggest concern that I think shareholders and investors have about supermarkets in general is higher costs. They're having to recruit an awful lot more staff. Even though like for like sales have been increasing quite sharply and online is also doing very very well. So Tesco's has scale on its side. I will be, I'll be very surprised if we don't see a positive reaction from Tesco's first half numbers. And these are due out on the 7th of October. And we're also expecting tentatively the latest third quarter numbers from Delta Airlines. Now the airline sector has been absolutely hammered in recent weeks and months. And with the expiry of the federal aid program at the end of September. There's a good chance that we could see size of all number of job losses being announced in the next week or so. From the airline sectors as the furlough money runs out. The airlines the US Airlines cannot afford to keep these employees on the payroll if they're not flying the planes. So that is another factor to price in to any stimulus. If the airlines announced further job cuts and there's a good chance that we're talking 30 to 40,000 jobs here on top of the 28,000 job losses that Disney announced this week. Then that could be an incentive for the US to announce a stimulus package sooner rather than later. So the noise around Delta's numbers if they do release them in the coming week is likely to could well play a part in the overall debate around fiscal stimulus. So I think that's pretty much covered everything that I wanted to talk about today. As I say, I haven't got haven't got sight of the latest payroll payrolls numbers, but they could also play a big part in the events of the upcoming week. Until then, have a great week and have a great weekend. And I'll speak to you same time, same place in a week or so from now. Thanks very much for listening. It's Michael Houston talking to you from CMC markets.