Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 called to open -15pts at 6500 after a late recovery from yesterday’s test of 6-month rising support at 6470, although still under significant pressure with a steep 4-day falling trendline at 6510 holding it back. The 5-week correction is like a bad smell.

Market sentiment still inextricably linked to expectations on the outlook for US monetary stimulus after very strong private jobs and better housing data yesterday, even if ISM services (and key employment component) was less impressive, increased expectations of a move soon. Could NFP make it 2 positive >200K surprises in a row?

US markets pared losses into the close to finish breakeven as investors continued to adjust data-dependent taper odds ahead of the all-important US payrolls report tomorrow. The late recovery may be more linked to the latest Fed Beige book providing both messages of optimism and weakness (still ‘modest to moderate’ growth), which may have ‘tapered’ (sorry) the odds of an early (Dec/Jan) reduction to QE3.

In Asia, equities in the red, with Japan’s Nikkei and Australia’s ASX taking the brunt of the declines as the former sees continued profit-taking and the latter suffers from a bigger trade deficit and profits warning/job cuts by Quantas.  On top of that, uncertainty towards US monetary policy as well as the ECB update today also weighing.

In Europe, Ratings agency Moody’s upgraded its outlook on Spain to stable from negative, leaving its BAA3 rating unchanged citing progress in the country’s economic and fiscal situation. Much talk about taper fears and rise in US Treasury yields forcing the ECB’s hand should European debt follow suit.

M&A news this morning with German chemicals name Merck KGaA confirming it will buy AZ Electronics for 403.5p/share representing a 53% premium to last night’s closing price. The EU also cleared the Microsoft-Nokia mobile deal.

In focus today we have the UK’s Autumn budget from chancellor Osborne (some tinkering for sure but more focus on positive outlook and potential budget surplus coming sooner than expected so long as austerity continues (short-term pain for long term gain).

We also have rate decisions from the BoE and ECB. No changes expected from either with data not quite there for the former but going in the right direction quickly (too quickly?) for a rate rise and the latter having moved just last month and waiting to digest the effects of that move before doing so again. The press conference for the latter will be key for gauging dovishness and whether other measures may be in the way to help the Eurozone.

The US is seen having its Q3 annualised GDP revised up 3.1% from the prior surprise 2.8% (flattered by inventory builds). Q3 Personal consumption seen unchanged at 1.5%, US Jobless Claims solid around 320K new and 2.8m continuing and US Factory Orders taking a tumble in October. With jitters about QE3 tapering ahead of tomorrow’s NFP (especially after the blowout ADP yesterday, beware Fed speakers too (Lockhart and Fisher).

Following an acceleration of the correction to test 6500, the UK 100 went on to plumb lower before finding 6-month rising support around 6470. The recovery is nonetheless struggling to hold 6,500 and with steep falling highs risks the 200-day MA and 61.8% Fibonacci retracement of the October rally (6305-6820) potentially reverting to resistance.

 In FX, the USD dollar has dropped back to trade below 80.5 despite strong US data increasing fears of the Fed tapering sooner, with a sharp sell-off overnight. GBP/USD back up testing recent highs 1.64 on weaker USD ahead of UK Autumn budget  while EUR/USD has jumped to test 1.364.

 In commodities, Gold has rebounded on the weaker USD, to test recent highs $1250, but fallen back again since, held back by 5-week falling highs since end-October. Appetite to try higher, but not convincing and still potential for fall-back to long-term rising trendline around $1200.

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