 Good morning. Welcome to CMC markets on Friday the 13th of October and a quick look at the week ahead beginning the 16th of October with me, Michael Hewson. It's been a largely positive week for equity markets, which when you consider the horrific events that took place last weekend in Israel and Gaza is perhaps a little bit surprising, but essentially that's where we are. I think perhaps there's a feeling that maybe the events won't translate into a wider conflict that draws in the likes of Hezbollah and Iran. But at the moment that remains very much an unknown factor. But the fact remains is that we are higher on the week for equity markets. Oil prices have rebounded quite strongly from the losses of last week, although they are off the highs of the week. And bond markets are also higher yields are lower, which brings us to the next question. Where do we go to next? Well, obviously, I think a large part of that will very much depend on events in the Middle East, the tragic events in the Middle East, and whether or not the conflict escalates beyond the borders of that particular region. It makes it also very complicated when it comes to the outlook for inflation. Because obviously, if the conflict does escalate, then energy prices could well go quite a bit higher. For the time being, we have seen a fairly decent rebound in crude oil prices. But it has been fairly well contained for the time being to round about the 200 day moving average and the peaks that we saw on the Monday. So round about $90 a barrel. But certainly there is a very, very much an upside risk to oil prices. And the possibility that we could go higher. And if obviously that happens, then you could will see that the inflation problem that the global economy has been wrestling with could get quite a lot more entrenched. So moving slightly beyond that and outside that, and the rebound in oil prices that we've currently seen, we've also we've also had a number of other factors this week that have helped drive market sentiment. And that's essentially the economic data. Obviously, last week's payrolls numbers were very, very good. That prompted a big rise in yields, which has subsequently unwound a little bit. We can see that particularly in the US 10 year right here. This is this is last this is last Friday, where we saw the US 10 year making you 16 year high. This is the weekend events. And since then we've seen quite a bit of choppiness going forward, certainly with respect to the events of the last few days. So it really begs the question, where do we go to from here? Well, at the moment, based on the price action, we are we still remain very much of the opinion, perhaps that we may well have seen a topping out in US rates, because ultimately, I think, even if we do get a much more resilient inflation, it's going to be very, very difficult for central banks to hike rates further, even if even if oil prices do go higher, because ultimately, there's really not much central banks can do to mitigate a big spike in the energy complex. And the hope is that ultimately that will unwind itself, if things do start to settle down, or is there, or there is diminishing risk of an escalation beyond the current confines of the conflict. Looking at the S&P 500, the fact that we've rebounded has brought us back to the 50 day moving average. But it's also kept us below this downtrend line from the peaks back in July. These are the March 2022 highs up here. So obviously, that's the wider resistance level. We did rebound off the 200 day moving average. So that is likely to continue to act as support. But we did see a bit of a sharp decline yesterday on the back of those CPI numbers, which I've got to say, seemed a little bit of an outsized reaction to what was a modest miss when it comes to headline inflationary pressure. I think yields have already started to retreat this week, mainly due to haven buying. But we've also heard from a number of Fed officials who said that US rate policy could be restrictive enough. And that rates may not need to rise much further. So at the moment, we appear to be in a bit of a no man's land. When it comes to the prospect of further rate hikes, with a still reasonably resilient US economy, an economy, and a rate policy that's struggling to return inflation to target. Reality is that the path to 2% may take a lot longer to achieve than originally thought. And consequently, what that means is that inflation is likely to remain a lot stickier than markets that originally been looking to price in. So I think that's essentially where we are. And that I think that is what is being reflected in bond markets. I think the fact that oil prices and inflation in particular is remaining as sticky as it is, could well mean that we may not head back to target, the 2% target for at least another two or three years. And I think markets are slowly starting to come to realize that having said that, we've heard we've come out with China's inflation and trade data for September earlier this morning. And Chinese in Chinese inflation, edge backs to 0% PPI minus 2.5. So there's very, there's still very much a bit of a disinflationary impulse coming out from China and there has been chatter this week about the prospects of further stimulus measures $137 billion stimulus plan had been has been mooted has been bandied about, if you like, support for the Chinese banking sector has also been bandied about so you could argue that perhaps we might see a rebound in stock markets from where we are at the moment. But for the time being, I think we try we have to try and step back a little bit from the new cycle and the narrative and actually look at the price action and the price action is telling me at the moment that we still remain very much in sell the rally mode when it comes to equity markets and I think that's a sensible way to play it. What is the price doing. Let's quickly see if we can put a bit of a trend line in through these peaks here. Have a look at that. I mean, look at that. Again, another downtrend line here. So the NASDAQ is still struggling to overcome the previous peaks. We've seen a very strong rally in the past few days, but we need to overcome the previous peaks. So as I say, well, it's very easy to be potentially bullish on equity markets when you actually look at the backdrop, you look at the fact that oil prices are still very, very choppy. We've seen big gains in natural gas prices as well this week. That is a headwind. That is a headwind for the global economy as we head towards the end of this year. Some markets have have formed slightly better than others this week. Obviously, FTSE 100 being one of them, given the heavy exposure to basic resources and oil and gas here. We've seen a bit of a rebound. I've still left that in there. I'm sort of skeptical as to whether or not I really should because ultimately it's not really particularly useful. So let's try and redraw that and maybe draw it through there. A little bit of curve fitting, but ultimately I think these highs here are particularly important as a benchmark, simply because obviously they were the highs back in September. So I think if we're to make further progress on the FTSE 100, we really need to break through this trend line resistance through here. But it's interesting how all of these equity markets are looking fairly similar in terms of their upside resistance when it comes to their previous peaks. With the DAX, again, we've seen a death cross, a 50-day moving average is close below the 200-day moving average. But for me, that's not a proper death cross. It is, to all intents and purposes, a death cross because the 50-day has dropped below the 200-day, but look at what the 200-day is doing. It's pointing higher. An effective death cross would be the 50-day crossing below the 200-day and the 200-day would be starting to decline as well. That is clearly not happening. The 200-day is trending higher. So for me, that is a false signal and therefore should really be ignored. Having said that, I still think there's potential resistance here anyway, around about 15,600, and consequently I think that's the way you need to look at that. Ignore the death cross because it's not really particularly a decent signal because of the way the 50-day and the 200-day are positioned. And I think that's the way you have to play it. Again, a downtrend in place. So again, as with the NASDAQ, as with the S&P, as with the FTSE 100, equity markets still look vulnerable to further declines. And the dollar has also rebounded quite strongly, which is not a good thing if you're thinking in terms of risk. You want the dollar to weaken for risk assets to go up. That is clearly not happening. We saw a big pullback, a big rebound in the dollar yesterday. After declining in the first part of the week, we've seen the euro pullback rather from this trend line resistance here from the peaks back in July. So we saw a bit of dollar weakness in the first part of the week. And then we saw a lot of dollar strength in the wake of those inflation numbers that we saw out of the US. And as I said, I mean, the reaction to that was outsized relative to the size of the miss on the inflation numbers. We were talking about 0.1%, which to all intends and purposes is a rounding error. So it does seem a little bit of an overreaction. But nonetheless, we're still in an uptrend for the dollar. So we have to, again, take that into account. Dollar yen is looking to retest that 150 level. So again, very much in the uptrend when it comes to dollar yen as well, previous peaks at around about 150, 20 going forward. Gold has been one of the key beneficiaries of this week's events. And consequently, we could well see further gains here. I think if we were to take any clues from what might happen with it with respects to bond yields, I think we can look for it in gold because yields have slipped back. Gold has benefited not only as a consequence of the slide in yields that we've seen this week, but also because of haven demand. And consequently, we could well see a move back towards the 50 day moving average here and this trend like downtrend line through here. So there's potential for gold to get quite a bit firmer over the course of the next few trading sessions. So when we strip everything out in terms of what's happening this week, the underlying trends that we've talked about in previous weeks are still in place. Ultimately, equity markets still look very much a sell on rally trade. The dollar is still very much buy on dips. And until such times as those trends change, I think that's essentially the way the markets you have to position yourself for the markets. Now earning season is getting underway now against a backdrop of what is still a fairly resilient US economy after those bumper payrolls numbers that we saw last week. I'm JP Morgan city group and Wells Fargo release their earnings later today. Big question I think for me with respect to them will be a particular focus on Wells Fargo. I think in terms of loan demand provisions for credit losses, mortgage demand with US mortgage rates up around 7.5%. Essentially, how is the US consumer performing? You know, we can look at JP Morgan as well. But in terms of their profits and their revenues and what have you, it's not particularly instructive because at the moment JP Morgan is a little bit of a cash machine and is by far and away the strongest US bank. I think it's going to be looking at the health of the US consumer. You need to be looking at banks like Wells Fargo. So that's going to be interesting coming up this week. We've also got all this coming week we've got, we've got Netflix and we've got, we've got Tesla. And I think they're going to be particularly interesting in terms of the wider macro story. Tesla, because of deliveries, vehicle deliveries and what have you. Certainly look at drawing a potential line or pattern on the Tesla chart, seen a really strong rally over the course of the past few months. The big question is, will we break to the upside or will we break to the downside? And I think much will depend on margins. The recent numbers that came out with respect to car deliveries, vehicle deliveries could be instructive. When Tesla reported its Q2 numbers back in July, the shares fell back. Despite the fact that there was record revenues over the quarter, record revenues of nearly $25 billion. Profits came in at $0.91 a share. Operating margins however were lower. Now the declines gathered pace after Elon Musk said that vehicle production was likely to slow in Q3 due to factory shutdowns and that is essentially what we saw. There was also little detail on when investors would see the unveiling of the new Cybertruck. Musk kept the four year target of 1.8 million vehicle deliveries, even as Tesla confirmed that 466,140 cars were delivered during Q2. Now in Q3, vehicle delivery slowed to 435,059. This was well below forecasts of around about 440,000. And this was despite the fact that we knew about production downtime at the Shanghai and Austin Gigafactories, which accounted for most of the shortfall. As far as its other businesses are concerned, energy generation and storage, these have seen strong growth over the past 12 months. With Q2 seeing a 74% increase in revenue in this area to $1.51 billion. But it still remains a very, very small part of Tesla's overall business when you consider the $25 billion in revenues over Q2. So Q3 revenues are expected to fall modestly from the numbers seen in Q2 to $24.6 billion. Profits are also expected to be lower. So I think it's going to be interesting in the context of where we go to next is how far optimistic is Musk about meeting the company's delivery targets. Moving on to Netflix, Q3 numbers. The outlook for Netflix has deteriorated a little bit since they released their Q2 numbers. This is the release of the Q2 numbers back in July, February 2022. Revenues fell short and Q2 only modestly short to $8.19 billion. Profits were much better than expected due to the crackdown on password sharing, $3.29 to share. 5.9 million new customers were added during Q2. So I think the big question here for Netflix is whether they can continue to see those revenues grow. Expectations are for Q3 to see revenues of $8.5 billion. They expect to see a similar rise in new subscribers for Q3, so an extra 5 to 6 million. That'll be interesting. Also, the industry is having to contend with the impact of the writers and the actor strikes. And while Netflix said it expects to see better cash flow because of the strikes due to not having to pay out as much on new content, any impact from the strike isn't likely to be felt until next year when it comes to looking to add new content. Because there won't be any, because essentially that part of the business hasn't been taking place. So there will be delays. Operating margins keep an eye on them. They're expected to improve to 22%. With four-year operating margin expected to remain between 18 and 20%. So those are the two particular companies I'm keeping my eye on next week. Obviously we've got Goldman Sachs and Morgan Stanley as well. So I think obviously they will continue the theme of the banking sector. We've also got Bank of America. I think Bank of America is going to be particularly interesting given the concerns or the very, very poor performance, I would say, of the Bank of America share price over concerns about the size of its Treasury book. So Bank of America is on the 18th. We've got Goldman Sachs on the 17th of October. We've got Tesla on the 18th and we've got Netflix on the 18th. So the 18th is going to be a very busy day. In the UK, we've got Whitbread, Premier and owner Whitbread, whose shares have been performing reasonably well over the course of this year. Seen some fairly strong gains as the pandemic recovery continues apace. We've drifted back and tested the 200-day moving average. Seen a fairly decent rebound off that. German business is still loss making but it's continuing to improve. And the company is continuing to add new capacity when it comes to hotel rooms. So this first half revenues for Whitbread, they're expected to rise to one and a half billion pounds and revenues per room expected to rise by seven pounds and eight P. So those numbers are going to be particularly interested to give a good indication as to how well the UK economy is doing or the budget economy is doing. Stacation economy, however you want to call it. It's also going to be a big week when it comes to UK inflation, CPI and wages. And that could have a big impact on where the pound goes to next. So we've got UK wages on the 17th. The wages growth has been an area and will be an area that will be particular interest of the Bank of England. We've had a whole host of UK policy makers this week talking about the fact that monetary policy is restricted. We've had Swati Dingra, who's the dove on the committee now who says that the UK economy is starting to stagnate and certainly looking at the recent data. It's hard to argue with that assessment. Certainly, I think the Bank of England is done now when it comes to raising rates that pause last month, even though it was a little bit of a surprise to a lot of people. I'd like to say it was a surprise to me. It was a surprise, but it was something that they needed to do. And it was, and I was arguing that that's what they should do. They've now done it. And I think ultimately it'll be a big, big surprise if we see another rate hike this year. Now, will that weigh on the pound? Well, not necessarily, because if the Fed goes the same way in November, and let's not forget the Fed is meeting on the 1st of November, the Bank of England is meeting on the 2nd. If we are at the end of the rate hiking cycle, then I think there's potential for the pound to rebound. But at the moment, we remain very much in a downtrend. That strong move lower there is not good news. The big support level remains 120. But I think much will depend on how resilient next week wages and inflation data is. And the wages data could tell us one story. The wage growth remains resilient at 7.8% for the three months to September. Yes, including bonuses, it is much higher, but it's important to understand that it is including bonuses. They are one offs. So they don't actually impact to the same extent the underlying data, which is lower. So 8.5 maybe including bonuses at 7.8 is the number that I'm particularly interested in going forward. And we've got the same thing here that we got in the DAX, where the 50 day and the 200 are basically looking to roll over each other. But again, the 200 is pointing up. So even if we do get a crossover, I'm not anticipating a big drop lower. So CPI next week core CPI was 6.2 fell from 6.7 and headline CPI was 6.8. So I would hope to see and would expect to see a continued softening in those numbers. But even if they come in round about the same sorts of levels, I still don't think that increases the pressure of the Bank of England to do more. There's still much more in terms of tightening that hasn't as yet come through, which is likely to act as a break on the UK economy. So I think status quo is the name of the game. Euro Sterling got a nice little trend line here on the Euro Sterling. So we could well see this price action start to compress. I would imagine that this level here will hold any rebounds in Euro Sterling and we eventually start or continue to drift sideways. But we could get a retest of the 200 day moving average at 87.20 over the course of the past week or so, given the lack of Euro data and the fact that we've got a whole host of sterling numbers coming out. Euro Dollar again, similar sort of things, a cable downtrend. And I've already covered that. So I'm not going to go over that ground again. But we remain very much in a downtrend for Euro Dollar for cable and Euro Sterling is trading sideways. We've also got third quarter GDP from China. That should be interesting as well as retail sales out of China for September and industrial production. There's been little to no indication that we're going to see a significant improvement in the Chinese economy from the slowdown that we saw in Q2. Yes, it's going to come in slightly better, but it's a very low bar. We're going to improve on Q2, but we're talking of an increase from 0.8% in Q2 in terms of GDP growth quarter on quarter to 1%. And anyway, no one believes the China GDP numbers are because I think they're a little bit of an act of fiction, but ultimately they tell you a story or they're indicative of a direction of travel. And ultimately the trade numbers earlier this week told us or told me anyway that internal demand, domestic demand in China still remains a very weak indeed. So not really expected to see a significant pick up there. We've also got US retail sales for September, expecting a gain of 0.2% there. But I should caveat that the recent consumer credit numbers show that US consumers pulled back spending quite sharply in September. Consumer credit was actually repaid. That's the first time that's happened in a long time. So you could argue that perhaps we could see a downside surprise when it comes to US retail sales. Okay, so that's pretty much it for this week, ladies and gentlemen. As I say, there's going to be an awful lot of what I would call headline risk over the weekend, given recent events in the Middle East, which could potentially see quite a bit of volatility or a bit of gapping when we return on Monday. Otherwise, I hope everyone has a great weekend and speak to you all same time, same place next week. Thank you very much for listening.