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

UK 100 called to open -20pts at 6670, with risk sentiment in Asia dented by reports that Chinese banks have tripled bad loan write-offs in H1, potentially to clear the decks before another wave of defaults arrives due to an overheating property market. Watch UK banks’ reaction – only 6 days until their results too.

Note Business sentiment in China improved in September, China money markets jumping overnight after the PBOC held off from adding any new liquidity and a PBOC advisor saying he bank could tighten policy to counter inflation but would do so via money markets.

This offset optimism from the US (S&P hit another record; Q3 results decent) that jobs data, and the government shutdown effect has sealed a delay in the Fed’s tapering until 2014 (beneficial to emerging markets). Note Obama’s economic adviser saying the shutdown had cost 120K jobs (almost one whole month of NFP).

As Asian stocks fell, and sentiment reversed, the JPY strengthened hindering Japan’s Nikkei while Australia suffered from fears over China, its biggest trading partner. In macro data, Aussie inflation well above expectations (fuel, utilities, tax) likely meaning further paring of rate cut bets by the RBA and adding to current AUD strength weighing on exporters.

In focus today we have the ECB presenting details of its Asset Quality Review (AQR; health check) on Eurozone banks ahead of it becoming banking supervisor next year. What is the focus? Credibility is key to control negative feedback loop between banks and sovereigns IT has already announced the biggest banks will need a capital buffer >8%, which is faster than Basel III reforms.

Elsewhere, we have UK home loans which are important given the resurgent property market and government initiatives which may be helping inflate another bubble. BoE minutes of interest for latest voting split and especially given banks acknowledgement of more clarity needed on forward guidance.

US House Prices seen showing more growth in August (pre-shutdown) while Eurozone consumer Confidence may improve a touch. The Bank of Canada is seen leaving rates unchanged. Q3 results continue with the likes of GlaxoSmithKline, Boeing and Caterpillar.

The UK 100 fallen back from revisit of Jul/Aug highs 6715. Long-term graph still shows major intersecting trendline to get back above. Shorter-term graph shows fall-back to test intersecting trendline around 6670 (Sept highs). Conflicting signals. After 6% rally and US update on jobs are we set for a period of consolidation?

In FX, USD basket still under much pressure, but after plumbing lows of 79.2 it has rebounded this morning to 79.3. GBP/USD fallen back below 1.62. Support at 1.615? EUR/USD off its near 1.38 highs, but not as weak as GBP. USD/JPY fallen sharply to trade sub-97.5

Gold benefited from USD weakness to get as high as $1345. Break above trendline of falling highs from late August. Still benefiting from some safehaven interest in wake of US debt ceiling fiasco and in anticipation of another round in a few months. Oil remains weak on recent US stockpile, with US Light below $98.

For any help you may require placing trades or in terms of market information, put a call in to our trading floor – all part of the service.