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

UK 100 called to open -25pts at 6515, still close to 6-month rising support, but also under pressure from 6-week falling highs. No sign of a reversal yet, despite positive news in terms of US budget deal agreement and framework for Eurozone banking union, although congressional approval and finer details remain to be confirmed, respectively.

US equities closed with small losses (less than Europe) despite optimism on a bipartisan US budget deal being close, and a late night agreement in Washington could (beware certain party factions)  now set spending for the next 2 years (sequester cuts reduced) and avoid another government shutdown in January.

Approval of the Volcker rule also came with a sigh of relief, sparing the key market-making activities and US banks put in a better performance than the wider market despite tough regulation on prop trading.

The US economic outlook and prospect of Fed QE3 tapering is still weighing on sentiment and with the budget/shutdown having contributed to the no-taper in September, the removal of that risk has just served to increase speculation of an early taper.

Stocks in Asia, however, have failed to be inspired by political progress, remaining cautious ahead of the Fed’s December policy meeting, giving up decidedly more ground (especially China and Hong Kong) following a decline in Aussie Consumer Confidence.

Japan’s Nikkei is suffering from a stronger JPY, a slightly weaker print for Machine Orders (although rebounded in Oct) and Domestic Corp Goods inflation accelerated as expected.

In focus today, the macro calendar holds nothing major before Thursday’s busy slate which will be sure to intensify taper speculation, so the sideways/down drift for the European indices may well persist with drivers lacking after the US budget and EU banking union progress.

 The UK 100 has lost uptrend momentum and fallen back to test trendline of rising lows from 4 Dec. Still close to 6-month rising lows, but also under significant pressure from the falling highs since end-October. A break above 6620 still needed before we get excited about a potential reversal and resumption of 5-year recovery.

In FX, the USD dollar has weakened back to below 80.0 despite the prospect of tapering and optimism on a budget deal. Downtrend acceleration continues from 4 Dec. GBP/USD off its best levels of 1.647 despite weaker USD. EUR/USD taking another leg up from 1.375, with banking union framework (much to do still) outweighing US budget deal.

In commodities, Gold has benefited from the weaker USD to get above the trendline of resistance at $1250, which may well revert to support on any weakness. From here, resistance possible at $1290.

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