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

UK 100 called to open +5pts this morning at 6585, now well off the 6660 highs of Sun/Mon but support overnight close to the 6560 floor of last week’s pre-taper sideways channel. No real challenge of 6600 overnight which so the week’s downtrend intact with resistance now 6590 (yesterday’s intra-day support). If 6560 fails look for 6505 then 6420.

All eyes on the Fed this evening given its position as quasi-leader of the central bank gang, with $10bn tapering of QE3 widely expected within the Treasurys component. Any change to MBS purchases would likely have a greater relative impact on the now squeezed refinancing market; any increase welcomed, but cut taken negatively.

Note, however, some market participants expecting no change, potentially denting Fed credibility after the build-up to September, with US macro-economic data having become less convincing over the last 2 months. Possible just focus on forward guidance. And just when we get the answer about tapering focus likely to move to Obama’s struggle on the debt ceiling issue next month.

Asian markets relatively quiet ex-Japan, with the Nikkei rebounding from yesterday’s weakness taking a lead from the modestly positive US close (worse CPI data suggesting worse GDP and more QE; housing flat; Microsoft buyback and dividend hike). China in the red after house price data showed continued acceleration which could lead to cooling measures to avoid a bubble (something becoming a worry in the UK too; uneven, all Southeast & London).

ECB also worried about asset bubbles amid loose monetary policy, with Coeure saying accommodation still needed, but must remain vigilant to safeguard recovery, with over–reactions to macro data dangerous. Greece and Portugal situation also getting more airtime as we approach the German election after which the negotiation fun likely starting again after a few months off. US officials suggesting US, CN, RU, FR & UK meeting at UN today to discuss draft resolution on Syria.

In focus today, aside the Barclays rights issue, it’s all about the Fed update this evening, with the statement and press conference analysed as closely as usual, not just the size of the tapering but the clues as to future policy moves and timing. Data-wise, US Housing Starts seen growing more slowly in Aug and Building Permits growth dropping slightly. BoE minutes of interest for UK and GBP. Obama speaking mid-afternoon

In FX, USD index back at base of tight 81.4-81.8 range. Tapering announcement could be make or break in terms of continued weakness or break higher. GBP/USD slowed up at intersecting trendline since 2009 lows just shy of 1.60. BoE minutes of interest at 9.30am. EUR/USD slowed up at 1.335, but with rising 10-day support.

Gold remains under pressure after its breakdown at $1365 from the rising channel on lack of safehaven seeking and absence of fears of inflation, and despite weak USD. $1300 tested overnight and $1350 resistance the near term.

Oil down at 1-month lows still under pressure. Off worst levels on combination of less supply disruption fears and reduced US monetary stimulus having an effect on global growth. US Light Crude broken below $105 and Brent Crude below $108.

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