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

UK 100 called to open -35pts at 6430, as the correction persists with the market pricing in a September tapering of QE3 by the US Federal Reserve, with both US and Asian bourses in the red and both developed and emerging markets (equities, bonds and FX) being shaken aggressively.

The July FOMC minutes out tomorrow are hotly awaited, and even of the overall message is likely to be the same (‘taper if data continues to improve’), there may be additional clues as to the timing which is freaking markets out – bond yields higher, impacting borrowing costs and potentially choking off the consumer confidence.

Comments from the Fed’s Lacker (non-voter) were pretty downbeat on the economy suggesting just 2% GDP for the next few years, the ballooning Fed balance sheet a worry and that the Fed had tough choices to make.

Ratings agency S&P said UK banks’ revenue growth to remain subdued, while the Fed has told US banks ahead of their annual stress tests that they should hold more capital than necessary. Note JPMorgan faces another investigation into energy trades.

 RBA minutes retained an easy stance agreeing further interest rate cuts should not be ruled out, holding back AUD. China equities supported by more stimulus speculation with PBOC governor pledging increase in financial support, this while some economists still pointing to excesses in both local debt and property market as real worry. Note South Korean shipping lines increase sing rates next month in a sign of global recovery.

Overnight, data showed a rise in New Zealand inflation expectations which helped the Kiwi dollar while Japanese All Industry Activity Index deteriorated, albeit less than expected, while Nationwide Department Store Sales fell back (consumption-led recovery?).

German Producer Prices were weaker than expected offsetting the Bundesbank’s upbeat monthly report yesterday which said German growth would normalise in H2 and that the ECB could hike rates if inflation accelerated.

Results from the miners this morning show Glencore Xstrata (GLEN) announcing slightly better than expected net earnings significant impairment costs from the recent merger. BHP Billiton (BLT) looks to have missed consensus on falling commodity prices while Persimmon (PSN) showed a solid H1 performance. Wood Group (WG) says trading on-line with guidance.

UK 100 taper correction persists towards the 6400 level which has been key since April, serving as both support and resistance. The 200-day moving average also offers some hope of support. If 6400 holds, potential upside to 6550. If it’s fails, then it’s 6300 or maybe even 6200. Remember that we did rally from 6000 at end-June to 6715 in early August.

In FX, GBP/USD still solid above 1.56 level with support from 50% Fibonacci retrace of fall since beginning of year as well as trendline of falling highs and the 200-day MA. EUR/USD solid around 1.335, near top of recent 1.32-1.34 range.

In Commodities, Gold back from its recent rally with $1350 serving as support as expected Upside still possible to $1500 where there is a crossroads of resistance trendlines, but weakness could also be as far as rising lows from end-June around $1320.

Oils taken a dive from recent highs with Brent back around $109 having reached $110 and Crude back at $106 from $108. Supply concerns and Middle Eastern unrest likely to keep buoying Brent in the near-term offsetting concerns over global weakness from Fed tapering.

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