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

UK 100 called to open +30pts at 6460 continuing yesterday’s revival of risk appetite on hopes of a US fiscal solution, albeit short-term (6-weeks), which saw European and US bourses close +2% and Asia post gains of at least 1% overnight. Optimism has been compounded by short-covering due to the potential for a weekend US resolution.

All eyes still on Congress in Washington and whether a deal can be made between Republicans and Democrats to avert a breach of the debt ceiling from 17 Oct, re-open the partially closed government and agree on a budget. Positive noises/hints of progress emanating from meetings between the two camps last night, but nothing concrete as yet.

At least they are talking though. Russia’s Fin Min also revealed that Treasury Secretary Lew and Fed Chairman Bernanke told G20 counterparts that the debt ceiling would be resolved before the deadline. This can be offset by some speculation (denied) Obama rejected Republican plan for debt ceiling extension without re-opening of government.

In Asia, Japan’s Nikkei benefiting from USD strength versus JPY helping exporters, even if Japanese inflation and money supply data was positive. This morning, German data shows rebound in Wholesale Prices but Consumer Price Inflation unchanged.

In focus today, we have UK Construction Output which is seen growing, but not as fast as in July, although the annual figure should show acceleration. Q3 results from US heavyweight banks Wells Fargo (midday) and JPMorgan (before US open).  Expectations are for weak trading revenue, a sharp decline in mortgage–refinancing activity and rising legal costs.

Plenty of central bankers speaking to fill the void of official US macro data due to the shutdown, but in the afternoon we do have Uni of Michigan consumer confidence which is seen ticking back down in October.

Don’t forget the market debut of Royal Mail Group (RMG) this morning in London. Priced at top end of range (330p) but suggestions are for an opening price around 20% higher (~400p). Lots of hype surrounding this with huge demand and over-subscription by both retail and institutional investors.

The UK 100 rebound saw it break out of the falling 1-month channel and make a close revisit to October highs of 6485. Progress from Washington helping, and a deal today would surely help seal a breakout of the real hurdle 6500, removing a major concern and open up the possibility of a rally back to 6600/6650. Any more delays, would of course be a negative.

In FX, USD Index hanging around 80.5 despite news of progress. Markets want something concrete. GBP/USD recovering back to 1.60.  EUR/USD testing also rebounded from 1.35 to near 1.355. USD/JPY rallied from 97.5 to 98.5, as safehaven flows into JPY reverse.

Gold broken below $1300 as falling trendline of highs from late August holds it back at $1320, US progress sees lack of safehaven demand. Stronger USD also not helping. Potential support at early October lows $1275.

US Light Crude Oil remains in recent $101-104 range, but latest rally stopped short of testing the top of the range. Brent Crude, however, surged from $110 to test $112.

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