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

UK 100 called to open -40pts at 6685, having broken down from the tight 6700-6740 range on Fed member speak which continued to confound in terms of QE3 tapering (Kocherlakota for more stimulus and unemployment threshold lowered; Lockhart saying jobs data means December taper possible) and the communique from China’s 3^rd political plenary lacking specifics in terms of reforms even if it alluded to optimism and there being a bigger role for ‘markets’ versus the state.

Asian bourses have followed the US lower from its record (muted macro data, Fed speak on tapering,), although with more pronounced losses due to the region being disappointed by the rather general/vague Chinese statement in terms of its plan for the next decade.

Macro data has included a miss for Japanese Machine Orders and Aussie Wage Cost Index, but an improvement for Aussie consumer confidence thanks to rising property prices. Note Japan’s Nikkei the outperformer in Asia Pacific, only just in the red on BoJ economic recovery comments, compared to peers Hong Kong and Australia’s negative reaction to China’s strategy update (or lack thereof).

In focus today we have UK jobs data which is seen showing better claimant count, jobless claims and earnings, but slower jobs adds and an unchanged unemployment rate. After the surprise drop in UK inflation yesterday and with improving economic growth the aggregate of the data trio may have a bearing on the UK’s Inflation Report and the BoE’s economic projections and forward guidance, given that employment is improving and inflation moving away from a potential knock-out clause and rate rise. When will it say to expect a rate rise now?

Thereafter, Eurozone industrial Production is seen weakening in September, in-line with weak prints of late from France and Germany and supporting the need for the ECB’s rate cut to boost demand/growth. In the afternoon, we have ECB and Fed speakers.

UK 100 broken down from sideways 6700-6740 range and the declines reinforce the falling trend from late October with resistance now at 6740.  Watch level 6640 still in play, representing 1/3 correction of the of the October rally. That’s as long as optimism hangs around and markets view economic recovery as a positive rather than a QE killer.

In FX, USD basket flat around 81.2 after recent recovery, although we did have another test of 81.55 early yesterday on the prospect of stimulus being tapered by the Fed but little reaction to the Fed speak last night. 81.6. Rising lows support 81.0.

Note GBP/USD holding just below 1.59 ahead of BOE quarterly inflation report. Under pressure from stronger USD, and low UK inflation reducing chance of rate rise. Change in economic projections by BoE and any update on forward guidance could be key. Support 1.585.

EUR/USD regains 1.345 after USD came off its third attempt at 81.55. Overall still under pressure from strong USD on tapering being priced in and recent ECB rate cut. Well off recent highs of 1.38, but a way to go before September lows of 1.31.  USD/JPY found support at 99.5 and still potential to hit 100 last seen in mid-September.

Gold maintains down course testing a $1265 and closing in on our expectations of a revisit of $1250. Strong USD, a factor of potential stimulus withdrawal and economy being able to withstand it, and thus less need for safehaven are hurting the yellow metal. Falling multi-month resistance at $1350 is a way off now but could well come into play if there is a big taper off call and USD weakening which sees the metal deliver a relief rally.

Oil seen US Light Crude drop to $93 from recent $99 late October highs on worries over Fed stimulus withdrawal and forecast of another big stockpile build. EIA US inventory data delayed this week due to public holiday on Monday. Brent Crude supported by Middle East tension (Iran et al) helping it hold $106 versus recent lows of $103 and highs of $110.

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