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

UK 100 called to open -45pts at 6710, hindered by a sharp fall by US stocks after the European close based on increased concern over US equity valuations ahead of Q4 earnings season derived from a Goldman Sachs report stating that the S&P 500 multiples were lofty by almost any measure and more expansion will be difficult to achieve.

US equities were also dented (Nasdaq most) by comments from the Fed’s Lockhart that the US economy is on a solid footing and supported continued stimulus cuts. He did note the unemployment rate (close to threshold) may overstate progress, which undermined some of the economic optimism that had grown around the Fed’s decision to taper.

The Atlanta Fed governor’s comments imply the Fed staying the course on tapering and looking at the overall picture rather than monthly data swings, but it also suggests the possibility of faster tapering remains, something markets had thought ruled out after the rather mixed December jobs report.

The change in sentiment offset the US December budget surplus and news that the US Congress had approved a spending bill agreement that will keep the government financed through September, ending the lingering threat of another government shutdown.

Asian markets weak also on the same US worries, but Japan’s Nikkei is well in the red hit (-3%) by the triple whammy of re-opening after a holiday and first chance to react to US jobs data, JPY strengthening amid safehaven-seeking hurting exporters and a deterioration in current account balance.

In focus today we have UK inflation data with expectations for a rise in CPI and RPI in December and Producer prices falls easing. Eurozone Industrial Production should show a rebound in November.

In the afternoon, US Retail Sales are likely to have slowed in December, hindered by cold weather, although the metric excluding autos is seen growing in-line with November. Import Prices seen rebounding but Export prices flat, while Business inventories growth expected to have slowed in November.

Watch out for US banks kicking off Q4 earnings (JPMorgan and Wells Fargo) season today and after the comments by the Fed’s Lockhart helped move markets yesterday, be aware of Plosser and Fisher adding to the mix after the European close.

The UK 100 is back below the 6730 level of support since Friday afternoon. The sideways move persists, and we note the breach of rising lows from mid-December. Daily momentum back negative. Be prepared for a revisit of Thursday’s lows 6680. The New Year party mood appears to have taken a turn.

In FX, the USD index remains away 80.7 both helped by a spending deal and hindered by economic uncertainty.  GBP/USD retraced to recent 1.635 lows after another test of 1.65. The EUR/USD cross continued to weaken from the 1.637 level although rising lows from July remain intact at 1.36. USD/JPY found support at 103.

Gold made it back above $1250 which gold bugs will hope reverts to support. Helped by USD remaining in 3-day weak range and some renewed macro uncertainty boosting safehaven demand. As pointed to yesterday, watch for 1yr falling highs as resistance around $1280.

The price of Oil remains rangebound for both US Light Crude and Brent around $92 and $107 respectively around recent lows.

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