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

UK 100 called to open +50pts at 6685, being dragged up by US and Asian equities (S&P hit another record) reacting favourably to the prepared testimony text of Fed Chair elect Janet Yellen to the US Senate banking committee today which reinforced her dovish bias. Outgoing Chair Bernanke also helped keep sentiment boosted later by echoing his replacement’s comments about the Fed falling short on jobs and inflation.

Asian Bourses also supported by Japanese GDP coming in better than expectations even if it did slow from the stimulus-fuelled strength in Q1 and Q2, and Industrial Production slowed and Business Spending missed. Nonetheless, Japan again the outperformer in Asia Pacific, despite the USD weakening on Fed comments with the JPY remaining weak on expectations of continued BoJ stimulus.

This morning, GDP updates from France and Germany highlight the OECD’s comments about France being slow to reform with the former’s GDP missing Q3 expectations and going negative, with stock-building (like we saw in the US) being the only thing that offset flat domestic and negative external demand. Germany beat expectations, with growth attributable to domestic demand alone. A tale of two very different countries.

 n focus today we have UK Retail Sales growth seen slowing in October although accelerating over the last 12 months. Eurozone GDP will be of interest given the hopes for a positive reading and the divergent readings so far, weak industrial production and after the ECB rate cut and more comments from members about new policy to help markets.

In the afternoon, US jobless claims seen pretty much unchanged on last week before the Fed’s Plosser (he who said the Fed missed an opportunity to taper in September) gets a chance to balance up the Fed’s comments after Yellen and Bernanke tipped the balance last night towards dovishness – something we are convinced is all part of the game to manage market expectations, maintaining accommodative optimism but avoiding bubbles. Hence the taper on, taper off. Macro data prints just makes it all the more interesting.

UK 100 broken down below 6640 but since recovered thanks to Fed speak. Still in October downtrend with resistance at 6735. Note overnight rally yet to regain 6700 and yesterday’s didn’t get as low as the prior key level 6585. Work to do. Watch levels are 6610 and 6700.

In FX, USD basket back up above 81.0 after weakening to 80.8 on Fed stimulus comments. GBP/USD holding around above 1.60 helped by forward guidance (7% unemployment not a trigger) from BoE inflation report, and growth forecasts upgraded. Resistance 1.612.

EUR/USD back from 1.35 after USD rebounded from Fed-speak fuelled lows overnight and French GDP disappointed this morning. Nonetheless recovering from rate-cut lows. USD/JPY still pushing on towards 100. Recent pull-back could have been bullish flag pattern but would need USD to strengthen further to more BoJ stimulus.

Gold rebounded to $1282 and tested $1289 levels last seen late last week. Still under pressure from stronger USD. Still potential for revisit of $1250, although dovish talk from Yellen today (text already out) may provide a boost to the yellow metal on expectations of weaker USD even if inflation still nothing than needs a hedge and safehaven demand still lacking. Recent sharp falls mean further to rally to shallower falling resistance at $1340.

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