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

UK 100 called to open +65pts this morning at 6650, breaking out of the sideways range it had been in for much of last week while risk was taken off the table ahead of the Fed’s Wednesday communique and update on its stimulus programme.

Investors reacting positively to news that the more hawkish Larry Summers has withdrawn from the race to be the next Fed chair in Jan (not enough support from Obama’s Democrats), paving the way for the more accommodative vice-chair Janet Yellen.

Markets suggesting not worried about tapering per se, rather the speed of it, seeing her reduce bond buying more slowly and leave rates lower for longer. USD index weaker helping risk appetite and commodities.

Sentiment also helped by news of deal between US & Russia over Syria’s chemical weapons surrender. German Chancellor Merkel’s sister party and allies won the Bavarian election which bodes well for her to keep her position in next week’s general election.

Overnight data includes another tick back in UK house prices, which may in fact be a welcome thing given the concerns of overheating and fears of a bubble.

Dominating focus this week will be the Fed update from which markets expect tapering to be announced but just a small amount ($5-15bn). UK inflation tomorrow of interest in terms of the BoE’s forward guidance and BoE minutes on Weds. US inflation seen mixed and housing starts more positive. UK Retail Sales seen flat, US jobless rebounding after last week’s anomaly.

Today, we have Eurozone consumer inflation which is seen rebounding in August, but cooler over the last 12 months and well off target, but core flat. US Empire State Manufacturing is expected to improve slightly, while US Industrial & Manufacturing Production are anticipated to report a rebound.

The sideways 6560-6600 sideways range has been ditched and the trend of falling highs since end-May at 6620 has also been breached. Next major levels: resistance at highs of early August at 6715; support at 6620 breakout and then 6640-50 trendlines over highs from late August.

In FX, USD index ticked back down below 81.5 on the Fed chair candidate news. Falling trend since 5/6 Sept, with second half of last week being just a pause on the way down to August lows of 81 and just below. GBP/USD maintained its rise towards 1.60, getting to highest since Jan 22 and now toying with a trendline below lows of 2009-12. After 1.60, major resistance at falling highs since 2009 highs at 1.62. EUR/USD given a boost to above 1.335, nearing highs of August at 1.345.

Gold bounced of lows of near $1300 on Friday to regain $1325. After breakdown from rising channel still under pressure with lack of safehaven seeking, fears of inflation. Helped by slightly weaker USD, but nothing special. $1350 now likely resistance.

Oil lower on potential Syria deal, with US Light Crude around $107 and Brent Crude at $110.5 Middle East and tapering still the drivers.

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