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

UK 100 called to open -5pts at 6385, after US and Asian equities took another leg lower following publication of the Fed’s July FOMC minutes which offered little to counter recent anxiety regarding QE3 tapering by year-end, even if market expectations for September could be pushed out a touch after some more mixed data prints since and some Fed members calling for patience.

Committee still on Bernanke’s side (taper if data keep improving), even if some division in ranks regarding timing, and while minutes failed to add clarity they succeeded in fuelling confusion, with discussions on lowering unemployment target to offset concerns about tapering meaning rate hikes and tighter monetary policy sooner than economy could deal with.

Loose monetary policy showing importance to markets with apparent ignoring of China’s improved HSBC Flash PMI Manufacturing (even if Asia off its lows) which jumped to 50.1 – a 4-month high after plumbing an 11-month low in July offering some hope that slowing growth in the world’s #2 economy was stabilising.

Speculation China’s PBOC to inject more into money markets today and next week. BoE’s Weale said he could envisage more QE under certain circumstances. Europe still dogged by talk of another Greek bailout, although Merkel keeping quiet (‘unclear’) ahead of September election.

In focus today, along with the forensic dissection, interpretation and over-interpretation that accompany any communication from major central banks, especially the Fed, we have Eurozone PMI updates on Manufacturing and Services. With China starting things on a positive note, and after the region’s GDP recovery, can France and Germany (more so the latter) register consensus improvements and help the region to continue edging higher from breakeven?

With a loosening of the unemployment metric being discussed by Fed members, and after US Jobless claims improvements for lows 300’s and sub-3m, the data will be as watched as ever. US PMI Manufacturing seen a touch lower.

US House Prices seen just as strong in June., while the US leading index is seen accelerating and the Kansas City Fed Manufacturing flat. Jackson Hole Economic Symposium looked to for comments although several major central bankers (including Fed, BoE, ECB) are absent potentially reducing its significance for the first year in a while.

UK 100 maintained weakness overnight after Fed FOMC minute. Trendline of falling highs still solid and now close to 6400 which was the level we had been looking to for support over the last 2 days. So that’s below a round number, increasing falling resistance, and below 200-day MA. Not a good look. The taper tantrum persists. Now not only do we need a break above 6400, but also above 6450 before we can consider the corrective down phase to be complete.

In FX, USD index off its lows (80.8) back at the lows of last Thursday (81.5) having bounced from near the lows of mid-to-late June (80.7). Is the USD finally set to benefit from the prospect of tapering? GBP/USD back down at 1.56 50% Fibonacci retrace of fall since beginning of year. Failure to retest June highs, but still above Jan-Aug falling and 200-day MA. EUR/USD also lower, back down below 1.335. Potential support at overnight lows from intersecting trendline from 5 Aug.

In Commodities, Gold off its best levels of late on account of stronger USD. $1350 still possible as support, but it depends how strong the USD index gets over the next while after its weakening of late. Upside still possible to recent highs $1385.

Oils’ weakness slowed up with US Light Crude finding support at $103.5 despite stronger USD and prospect of tapering slowing US growth. Brent still at top-end of recent range settling around $109.5, helped by supply concerns and Middle Eastern unrest.

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