Central bankers are increasingly focusing on persuading everyone that inflation is set to turn higher, however the data continues to tell a different story, at least in the US. With a lack of tier one US data this week attention will turn to UK and Eurozone inflation data to drive sentiment. We look at the outlook for forex, equities and commodities.

1. Weekly Outlook
Monday 16th October by Richard Perry, Market Analyst
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ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such
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WHEN: Tuesday 17th October at 0930BST
LAST: +2.9% headline, +2.7% core
FORECAST: +3.0% headline, +2.7% core
Impact: Whilst subdued inflation is an argument
against the Fed hiking, the Bank of England has almost
the opposite problem. Against a backdrop of relative
economic underperformance, high levels of UK inflation
are pushing MPC members closer to raising rates when
the BoE would rather not. A jump in headline CPI to
3.0% would be the highest since May 2012 and give
hawks such as McCafferty and Saunders to be joined
by Andy Haldane to push for a hike. Core CPI at 2.7%
is also still a concern. Sterling and Gilts will react but
also FTSE on the negative correlation.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 17th Oct 0130BST Australia RBA meeting minutes
Tue 17th Oct 0930BST UK CPI (headline / core) +3.0% / +2.7% +2.9% / +2.7%
Tue 17th Oct 1000BST Eurozone German ZEW Economic Sentiment +20 +17
Tue 17th Oct 1100BST Eurozone CPI (final Headline / Core Sept) +1.5% / +1.1% +1.5% / +1.1%
Tue 17th Oct 1415BST US Industrial Production / Capacity Utilization +0.2% (MoM) / 76.2 -0.9% (MoM) / 76.1
Wed 18th Oct 0930BST UK Unemployment / Average Weekly Earnings x b 4.3% / +2.0% 4.3% / +2.1%
Wed 18th Oct 1330BST US Building Permits / Housing Starts 1.25m / 1.18m 1.30m / 1.18m
Wed 18th Oct 1530BST US EIA oil inventories -2.8m
Thu 19th Oct 0300BST China GDP (Q3) / Industrial Production / Retail Sales +6.8% / +6.2% / +10.2% +6.9% / +6.0% / +10.1%
Thu 19th Oct 0930BST UK Retail Sales (ex fuel YoY) +2.0% +2.4%
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
Deciphering the outcome of the Brexit negotiations is anyone’s guess at the moment. For what it is worth, I expect
that in traditional European Union negotiating style it will go down to the wire, with a late night caffeine-fuelled
session before everything is finalised. And that’s just the transition deal! In all seriousness though, progress is slow,
as anyone with a reasonable expectation of all things European would understand (remember Greece?), with both
sides holding firm on even the initial stages of agreement (notably the divorce bill). Headlines are driving the
outlook for sterling and as long as you stay close to the newsflow, there is room for profitable trading. Comments on
the speed of the progress either positive (sterling up) or negative (sterling down) moves the market. Also movement
towards a decisive 2 year transition deal would help smooth the eventual exit and could also be sterling positive.
Both factors played out over the course of a number of hours last Thursday and reflected the case in point.
Increased volatility and sharp swings on sterling. However, Brexit will give way to inflation to be a key driver of
sterling this week as the CPI data and wage growth numbers are released. Last monetary policy meeting showed
the Bank of England suggesting that slack in the economy had decreased and with inflation expected to tick higher
on the headline back to 3.0% the pressure will mount once more for a rate hike in the early November meeting.
Must Watch for: UK CPI
UK Inflation
Headline CPI is expected to pick up to 3.0% which would trigger
a letter to the Chancellor fir teh first time since November 2016

2. Weekly Outlook
Monday 16th October by Richard Perry, Market Analyst
Foreign Exchange
Fed members will be continuing to scratch their heads and ask themselves, “Where’s that inflation?”. In failing
to pick up for the first time in 2017, a subdued core CPI adds further reason to the sceptics on the FOMC that
remain concerned that low inflation may not just be transitory. The flattening yield curve just adds further
corrective pressure now to the dollar. Dollar/Yen has closed below 112.20 to confirm a move that targets
111.00 near term, whilst sterling is above $1.3250 a medium term resistance and the Aussie dollar has driven
above a pivot band at $0.7860/$0.7875. The market is looking past the stronger than expected US Retail Sales
numbers and for now the focus is on what subdued inflation means for the yield curve and the outlook for those
three FOMC rate hikes pencilled in for 2018. The lack of tier one US data will mean that we could see the
negative dollar momentum driving these trades for the coming days. The caveat to this would be that progress
starts being made in Trump’s tax reform plans, but for now this seems unlikely. The notable exception is the
euro which is being held back by political risk on Catalonia for now, with a pivot forming around $1.1820.
Inflation will be in focus for the UK this week to drive sterling as not only CPI but also wage growth will be
announced. This comes after Brexit has been the leading factor for sterling moves in recent days. This should
mean a move away from headline trading on sterling.
WATCH FOR: UK and Eurozone inflation impacting sterling and euro, with RBA minutes driving Aussie
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FX Outlook
USD/JPY
Watch for: The support at 111.45 protects the
medium term pivot at 111.00
Outlook: The market has been rolling over in
slow motion for the past week and closing below
112.20 completed a small 120 pip top that
implies the medium term pivot at 111.00 will
come under threat now. However there is a key
support of the reaction low at 111.45 which is
acting as near term protection. The bulls will be
keen to hold on to the support but this would
then bring up the potential for a larger head and
shoulders top patter formation. The bulls will be
concerned by the bear cross on the MACD lines.
The three previous bear crosses above neutral
in 2017 have all been the precursor to a
significant correction. The medium term support
at 111.00 could be crucial.
EUR/USD
Watch for: The market could begin to pivot
around $1.1820 this week
Outlook: The market breaking back above
$1.1820 was important, but a lack of traction in
the move would suggest the euro bulls are
struggling. This move could reflect a lack of
appetite to chase a stronger euro near term and
may mean that the market begins to look more
of a range play. The past few months have seen
support above $1.1660 and resistance below
$1.2090 in a range of just over 400 pips, whilst
the rally in September saw the market struggling
above $1.2000. Within this we could also now
see $1.1820 becoming a pivot in the range.
Momentum indicators failing for bull traction adds
to this assertion.

3. Weekly Outlook
Monday 16th October by Richard Perry, Market Analyst
Equity Markets
Q3 earnings season has kicked off in the US. The lowballing of company guidance currently means that
earnings growth is expected to be just around 2.8%. However with the history of “lowballing” (guiding lower for
an easy beat) the expectation is that this could ultimately rise to around 6% by the end of reporting season.
Despite a hurricane hit quarter, this would be a fifth consecutive quarter of earnings growth which is also
expected to be subsequently followed by a return to double digit earnings growth by Q1 2018. Are US markets
looking expensive though? The S&P trades around 18.0x 12 month forward earnings. This compares with a 5
year average of 15.5x and a 10 year average of 14.0x. So slightly yes, but given the recovery in the economy
which is progressing well, perhaps not. However there is a big variable on the horizon and that is Trump’s tax
reform. It does not seem as though the market is giving much expectation of this being successful at the
moment (certainly given how flat the yield curve has become). However this could all change is the Republicans
miraculously get this key piece of legislation through. Is there better value in Europe? Again, maybe so. The
DAX is trading around 14x which could represent a good opportunity given the notable strength on the soft data
(PMIs) and the economic recovery which is showing good breadth across the major Eurozone economies. The
FTSE 100 which is a perennial underperformer is also interesting trading on around 15.5x but given 70% of
revenues are overseas is this a mean reversion opportunity? The caveat being Brexit and the negative sterling
correlation.
WATCH FOR: Big bank announcements in US earnings. UK inflation driving sterling and therefore FTSE
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3
DAX Xetra
Watch for: Holding on to the breakout above
13,000 opens for the next bull leg
Outlook: The DAX moved above 13,000 for the
first time last week. This psychological barrier
had been holding back the bulls for over a week
but the market now looks well positioned for
continued upside. An uptrend channel has been
in place for the past seven weeks and the
market has used the consolidation around the
previous all-time high at 12,950 to help renew
upside potential. There is though one slight
caveat in that the MACD lines need a burst of life
to prevent the rally from becoming tired. The
support at 12,910 is increasingly key.
FTSE 100
Watch for: Holding on to the support between
7494/7521 opens a push on the highs.
Outlook: The rally on the FTSE 100 is one
strong trading session away from the all time
high at 7599 again. Can the bulls sustain the
momentum though? On only one occasion in the
past 12 months has the RSI managed to sustain
a move and hold above 70 (during the “Trump
Trade” of November/December 2016). On every
other occasion the RSI has failed at 70. One
factor in the bull’s favour was that the market
closed as an all-time high on Thursday above
7550, so a barrier of sorts has already been
breached. As the market has consolidated in
recent sessions the support between 7494/7521
needs to hold to maintain a bullish bias.
Index Outlook

4. Weekly Outlook
Monday 16th October by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Precious metals have been pulling back higher as the negative correlation with the dollar has continued. The
flattening yield curve has been exacerbated by the core CPI disappointment on Friday and this has pulled dollar
weakness to drive gold higher. A long term pivot between $1300/$1310 will be the key test this week but if the
dollar remains under pressure then gold will be well positioned to continue a recovery. Silver is another market
on a rebound and is looking to sustain a push above its own medium term pivot around $17.25. In the oil market
OPEC is looking for the oil glut to be fully removed within a year. However, oil stocks are still well above its
target of the 5 year average and the continued build in API inventories to 468m barrels last week shows a long
way to go. Market consensus still estimates Brent Crude between $50/$60 if global markets stay balanced.
Last week’s Fed minutes began the acceleration of a sharp fall in the US 2s/10s spread that now meant that the
spread is back below 80 basis points. This is back around recent lows and means that the curve is nearing the
flattest it has been at any time since Q3 2016 when it was at 75 basis points. This suggests that the market
continues to not believe the Fed on the speed of its hiking. A key level to watch on the US 10 year is at 2.30%,
after Friday’s downside break. This is a long term key pivot and holding the break opens 2.20% to 2.22%.
WATCH FOR: The lack of key tier one US data this week means that bond markets could be headline
driven on Trump’s tax plan, whilst commodities remain dollar driven.
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4
Gold
Watch for: A test of the $1300/$1310 pivot is
key this week
Outlook: The market has reached a crossroads
which will dominate the trading outlook for the
coming week. On several occasions in for over a
year now the trading band $1300/$1310 has
been a key pivot and turning point for gold. This
pivot is now being tested. The bulls are coming
into the week in fine technical shape now with
history telling us on three of the occasions in
2017 there were MACD bull crosses, each came
with a strong run higher. RSI and Stochastics
are also positively configured. A decisive close
above $1310 would re-open the upside and be a
key statement of intent by the bulls. $1284 is
supportive now.
Markets Outlook
Brent Crude oil
Watch for: A sustained break back above
$57.45 re-opens the $59.50 key high
Outlook: The day to day moves on oil have
been very choppy of late, however the support
on Brent Crude forming above the key breakout
at $54.70 maintains the support of the three and
a half month uptrend. With momentum indicators
now beginning to settle down from their near
term unwinding move, the bulls are looking well
positioned to push higher once more. The
resistance of the old key highs from earlier in
2017 at $57.45 broadly capped the gains for the
past couple of weeks and will again be eyed by
the bulls. A close above $57.45 would therefore
signal the bulls regaining a degree of control and
re-open the key high at $59.50 once more.

5. Weekly Outlook
Monday 16th October by Richard Perry, Market Analyst
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5
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