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

UK 100 called to open +25pts, helped by renewed optimism surrounding a resolution for the US fiscal cliff. This saw US markets close higher, led by financials and helped by house builders, although a fiscal deal before Turkey is served still looks unlikely.

Both Republicans and Democrats sides look to have ceded some ground since the weekend in their respective fights against tax hikes and spending cuts but a gap remains to be bridged, likely taking any potential deal to the 11^th hour if not beyond the 1 Jan deadline.

Asian markets largely positive in anticipation of a juicy stimulus plan being in the pipeline in Japan following the weekend election and change of power. A survey of bankers in China also revealed a growing number expecting some form of policy easing while a government researcher suggest plenty of room to lower the banks’ reserve requirement ratio (RRR) further. Note Goldman Sachs has raised its China GDP estimate for Q4 to 7.8% from 7.6% and raised 2013 to 8.2% from 8.1%.

Overnight macro data comprised a mixed bag from China with monthly Property Prices rising at their fastest pace in 2 years despite a tougher government line on purchase restrictions. This was, however, countered by a bigger than anticipated fall in Foreign Direct Investment (12^th year-on-year decline in 13 months), suggesting continued uncertainty regarding the nation’s growth rebound.

In further signs of slowing global growth, notably from Asia, the Royal Bank of Australia (RBA) minutes showed a discussion about leaving rates unchanged and a wait for more information, but in light of the expected peak in mining investment and underperformance of certain sectors of the economy, a 25bp cut was warranted.

The UK 100 has rebounded from its lows of yesterday helped by the fiscal cliff optimism, although a 1-month graph highlights the short-term (3 day) falling highs which may prove a hurdle  around 5940. We still wonder whether Santa’s rally has already been delivered. Has the market baked in a fiscal cliff deal, and so upside capped? Are there enough catalysts for another push north? Or is this just a pause before a resumption of the mid-November rally?

In focus today will be the UK inflation where November figures for Consumer Price Inflation (CPI) are expected to have cooled a touch from last month on a monthly basis but remain stubbornly high on an annualised basis due to big rises in energy prices. Retail Price Inflation (RPI) and Producer Price Inflation (PPI) seen posting similar growth to October. In the afternoon, look out for US house prices which are seen improving slightly, providing an insight into homeowner/consumer confidence.

In FX, GBP/USD returned to early October highs of 1.622. EUR/USD still trading around 3-month highs of 1.3175.  GBP/EUR off its 3-month lows of 1.225. Commodities benefiting from the weaker USD with Gold regaining $1700, but it has already slowed up. In Oil, both US Light Crude and Brent Crude remain in uptrends, with US light crude at 8 day highs but Brent struggling at yesterday’s highs.

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

• China               Foreign Direct Investment      Worse
• China               Property Prices                        Improved
• Japan               N’wide Dept Store Sales         Improved
• India                Interest Rates                         Unchanged, as expected
• See Live Macro calendar for all details

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

• Keller backs full-year forecast
• Petrofac sees FY net profit growth of at least 15 pct
• Morgan Sindall trading in line, says short-term challenging
• SkyePharma agrees $8 mln AstraZeneca settlement
• Anglo Pacific in $15 mln gold royalty deal
• Heathrow (SP) Ltd sees year earnings up 10 pct
• Competition Commission gives Rank-Gala merger options
• Software company Universe sees profit ahead of view
• Impellam sees return to profit growth
• British Polythene sees 2012 at top end of view
• Software firm Delcam sees year profit ahead of view
• Haynes Publishing sees Q2 trading improvement
• Catlin estimates Sandy losses at $200 mln
• Interserve buys home healthcare provider
• Rolls Royce signs $1bln contract with Skymark Airlines
• Polymetal to acquire first platinum project in Russia
• Noble Investments buys auctioneers Dreweatts
• Whitbread agrees 51 mln stg sale and leaseback
• Novae estimates Sandy net cost at $25-30 mln
• HiWave Tech seeks sale of trading business