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

UK 100 called to open +13pts at 6450, although still struggling to make a decisive break above that 6460 level which we broke below on Monday. Asian markets higher helped by stronger Chinese Foreign Direct Investment (international optimism), a stronger USD (linked to tapering and stable jobless claims) and thus weaker JPY (back above 99) benefiting Japan’s Nikkei equities, notably exporters, paring the biggest weekly slide in two months.

Note US markets saw Nasdaq interruption linked to technical glitch (another one) which halted all trading for more than three hours, the biggest since Facebook, Hurricane Sandy and 9-11.

Fed’s Fisher said tapering should start in September with US economy strong enough, supported by more solid  macro data yesterday (PMI, housing, leading index, Kansas Fed, Jobless). Note ratings agency Moody’s mulling downgrade of four major US banks (GS, MS, JP & WF) on expected reduction in government support under financial reforms.

Sentiment kept in check by comments for the ECB’s Nowotny that recent positive economic news removes any need for a rate cut (EUR positive) and added to the list of officials saying still too early to say whether Greece will need another bailout with German Finance Minister Scheuble saying no secret plan to sort things out after September election (they’d all do well to copy Merkel and say nothing). Italian political stalemate lingers with threat of government collapse if Berlusconi ousted.

In focus today after German GDP confirmed as solid in Q2 will be the UK GDP print which is seen at a similar level (0.6% QoQ) with rebounds in both exports and imports. The all-important services component (>70% of GDP) seen still growing in June, but less than May. UK Mortgage approvals seen rising in July in-line with recent property market excitement.

In the afternoon, it’s back to the US with more housing data in the form of US New Home Sales which are seen cooling in July although existing home sales surprised to the upside on Wednesday, adding to taper fears, so there is potential for a beat, although the recent rise bond yields and thus borrowing costs is likely to mean surprises/beats linked to front-end loading/rushing to beat rate rises (2yr highs yesterday). To close the week, Eurozone Consumer Confidence seen improving.

UK 100 pretty solid around 6450 after PMI-induced rebound after the Fed minutes stoked tapering fears. The failure to get back above 6460 decisively is a concern, which precludes up from assuming the rebound is genuine and the corrective phase complete. Nonetheless reversion of 6430 from resistance on Wednesday to support is another positive as is remaining above the trendline of falling highs since the middle of the month. Daily graph shows strong candle reversal yesterday.

In FX, USD index maintains recovery above 81.5 finally benefiting from the prospect of tapering. GBP/USD back down below the 1.56 level and 50% Fibonacci retrace of fall since beginning of year. Support possible around 1.55 trendline of falling highs Jan to early Aug and 200-day MA. EUR/USD off yesterday’s high on combination of Fed tapering and Eurozone woes (another Greek bailout, Italian political stalemate, lack of Portuguese reform progress, uneven recovery with France PMI disappointing). Support 1.33.

In Commodities, Gold back up near recent highs despite stronger USD. Tapering prospect (and ability of US economy to hold its own and deal with it) along with better China and Eurozone data rekindling need prospect of need for inflation hedge? Support $1350 late. Upside still possible to $1500 grouping of multiple long-term trendlines.

Oils’ rebounded on better global data (China, Europe) with US Light Crude regaining $105 despite stronger USD. Brent still solid around recent $109-111 range helped by better macro data and supply concerns.

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