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

UK 100 called to open +5pts, after US markets extended gains on Fiscal Cliff news that House Speaker Boehner was putting together a contingency plan in case a deal is not reached, where tax hikes would be prevented for anyone earning <$1m. While Obama rejected the proposal, he also expressed continued optimism that a compromise on a deal to avoid the pending tax hikes and spending cuts is achievable before the 1 Jan deadline. Boehner is also confident of a broader deal.

Asian markets buoyant after positive US handover, with Japan’s Nikkei the outperformer on continued post-election expectations of more monetary easing from the Bank of Japan (BoJ) and speculation that the newly elected Liberal Democrats will scrap spending caps for 2013 and existing fiscal reform to help growth. Chinese equities posting losses on year-end profit taking.

Overnight macro data restricted to Japan with its Trade Deficit widening on reduced exports. Expansion in Industrial Activity was in-line but there was a mixed bag for the economic indices. Other news includes the World Bank cutting their forecasts for growth in East Asia for the next 2yrs, however, it did raise its expectations for China after Goldman Sachs did likewise yesterday.

The UK 100 has moved higher on the continued fiscal cliff optimism, closing in on the 9-month highs reached last week at 5,965. Will this hold again or could Santa’s Rally have a second wind and see the index push on towards the magic 6,000 level last seen in March. Thereafter, look to 6,100 as the real hurdle, of early 2011.

In focus today will be the German IFO Business surveys which are seen flat for the Current Assessment, but improving for both the Business Climate and Expectations. Thereafter, the Bank of England (BoE) minutes will provide more insight into thinking on more quantitative easing, although expectations are for no change on voting since last month. Eurozone Construction Output is likely to have remained weak, dented by austerity and the UK’s CBI Retail Sales are seen falling back from last month’s strong reading. Consensus is anticipating US Housing to show growth in permits but a fall in starts, reversing last month’s reading.

In FX, GBP/USD has pushed on yet further, clearing the 1.625 level and closing in on September highs of 1.63. EUR/USD is now trading 3-month of 1.325. GBP/EUR back down near 3-month lows of 1.225. While Commodities such as Oil have continued to benefit from the weaker USD, Brent Crude reaching $109 and US light crude $88, note that Gold has fallen back to test and bounce off its 200-day moving average at $1664, despite inflationary expectations from QE4.

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Overnight Macro Data: (Source: Reuters/DJ Newswires)

• Japan               Trade Balance                         Deficit widened
• Japan               All Industry Activity Index       In-line
• Japan               Leading Index                          Improved
• Japan               Coincident Index                     Deteriorated
• See Live Macro calendar for all details

UK Company Headlines: (Source: Reuters/DJ Newswires)

• UK’s FSA fines UBS £160m for Libor rigging
• UBS CEO Ermotti says does not expect to exit Japan
• UBS admits fraud in $1.5bn Libor rigging settlement
• TUI AG profits +24% on holidays, hotels strength
• Spectris to sell Fusion to Heraeus for $172m
• Sportingbet says business picked up in recent weeks
• Bunzl makes two new acquisitions
• Bunzl 2012 trading in line with expectations
• Colt to take €28m charge on restructuring
• Halma buys surgical products firm
• Berendsen says trading in line with expectations
• Gulfsands Petroleum makes Moroccan acquisition
• Salamander Energy says Bravo produces first oil
• CPP sees rise in provision for customer redress
• Salamander Energy signs new debt facilities
• Kingfisher’s COO Sutherland moves to helm of Co-op