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

UK 100 called to open +35pts at 6365 after another mixed session in Asia following a late bounce in the US to close just positive amid speculation that both sides in Washington could be working towards a budget deal comprising a short-term raising of the debt ceiling by Friday, to release the nation’s government from its partial shutdown and avoid a possible technical sovereign default. Are Republicans finally softening on Obamacare?

FOMC minutes were interesting in the split on tapering (those for fearing loss of credibility, those against saying economy not ready and political/fiscal/financial headwinds), but still aiming for 2013 tapering and 2014 end. Note minutes are from September’s meeting before the Washington impasse took hold, so views likely changed given impact on Q4 GDP.

 Interesting comment in minutes regarding only a few members wanting to focus on tapering the Treasury bonds component of QE3 asset purchases rather than MBS as well, suggesting less want or need to support housing market. Still the case given tighter financial markets? Will delays see Janet taper, rather than Ben?

In Asia, Japan positive thanks to the stronger USD on budget progress speculation weakening the JPY and thus helping exporters on the Nikkei 225 as well as stronger Machine Tool Orders and Consumer Confidence prints. Australia in the red on mixed employment data with a nice fall in the unemployment rate but less jobs created than hoped and a fall in participation. South Korea held interest rates, but cut 2014 GDP.

ECB president Draghi speaking last night said €uro’s doubters mis-understood political will for more integration in Eurozone even at crisis heights. He also expects a single bank resolution mechanism in force by beginning of 2015.

In focus today, we have the Bank of England update on rates and QE (no change, no change) and US jobless claims which is one of the few employment data teases available from the US while the government is in partial shutdown. Away from that, the ECB monthly report and speeches from central bankers (Fed, ECB) and the IMF will be of interest. US Treasury Secretary Lew to testify to the Senate, warning them on default .

The UK 100 drifting again after Tuesday’s sharp sell-off and yesterday’s failure to test the breakdown at 6385 means postnatal resistance at 6375 and then September falling highs at 6400. Progress from Washington, if speculation proves correct, could release index from recent lows and see the watchers on the side-lines return. Support at 6340 and then 6320.

In FX, USD Index rallied to near 80.7 on speculation of Washington progress, close to but not quite the highs of late September. GBP/USD held back below 1.595 on USD strength.  EUR/USD testing 1.35. JPY seems to be the major loser with flow out of the recent safehaven (USD/JPY up at 97.7 vs. recent 96.5 lows).

Gold hanging around $1300 with falling trendline of highs from late August still holding and safehaven appetite lacking. Stronger USD also not helping.

US Light Crude Oil back off its October lows of $101 again following sharp sell-off from October highs $104, while Brent has also rebounded but maintains rising highs and lows for the month.

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