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

UK 100 called to open +5pts at 6730, kicking off the first full week of the New Year on a marginally positive note after a mixed US close on Friday thanks to mixed macro data and Fed speakers (Plosser, Lacker) questioning the strength of US recovery and Bernanke potentially using his last speech to defend his tenure and say that while upbeat about the recovery he is conscious it is far from complete.

The opening call is likely also hindered by a weak session in Asia with Japan’s Nikkei held back by JPY strengthening and China taking a knock after HSBC/Markit PMI Services falling to its slowest pace of growth since Aug 2011 in December, highlighting the growth challenges facing the new government as it embarks on far-reaching reforms.

The Chinese data also comes on the back of disappointments (4-month lows) in the official gauges of both manufacturing and services last week which likely begs more questions about slowing growth in the world’s #2 economy. Following the recent debt audit, ratings agency Moody’s said elevated China local government debt has risks.

The weak Asia (JP, AU, HK, CN) is also in part due to increased contraction in the Indian PMI Service sector and the Fed’s decision to taper in January meaning having a strengthening knock-on effect on the South Korean Won via the weaker JPY, which is hurting its exports.

In focus today we have Eurozone PMI Services which are seen confirmed in growth (just) with Italy and France still holding things back while Germany and the UK advance. Note Ireland which has just exited its bailout saw its reading jump to >60 this morning. Eurozone Investor confidence reading expected to have gained in January.

In the afternoon, German Consumer Inflation seen accelerating, at odds with the region’s worrying disinflation which has been stoking calls for another rate cut/stimulus. US ISM Services (Dec) data expected to be upbeat and Factory Orders (Nov) seen rebounding, supporting the Fed’s decision to start tapering this month. Note also that Senate confirmation of Janet Yellen as next Fed Chair is expected later today.

The UK 100 has maintained its sideways course within the 6700-6750 range.  The pause after the Strong December rally is still in motion which on the one hand offers the chance it is a consolidation head of a second leg for the rally. On the other hand it could be the start of a small correction (supported by a drop in the daily momentum indicator) with more normal trading volumes resuming as market participants return to their desks.

For GBP follower, note a Sunday Times article that states the BoE Governor Carney is set to change the unemployment benchmark for a rate rise within the bank’s forward guidance, potentially revising it down  to 6.5% from 7.0%. In Europe, an FT article states that Bank reforms are set to ease up on splitting up of operations.

GBP/USD back at 1.635, pre-Christmas levels, hindered by stronger USD and prospect of change in forward guidance suggesting longer to wait before a rate rise. EUR/USD down at early Dec lows below 1.36, on the stronger USD and some weakness in European macro data and the risk of softer bank reforms. USD/JPY taking a breather from recent 105 highs but holding 104 for now.

Gold has maintained its positive start to 2014 almost reaching a 3-week high of $1250 after its pre-New Year spike and test of June lows. While it has been hindered by tapering suggesting economic recovery, are their worrying signs in China that are reviving safehaven demand, outweighing the stronger USD and lack of inflation needing a hedge?

The price of Oil remains depressed by the prospect of more supply from Libya with US Light Crude around $94 and Brent around $107.

For any help you may require placing trades or in terms of market information, put a call in to our trading floor – all part of the service.