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

  UK 100 called to open +5pts at 6780, off its worst levels of yesterday afternoon, but failing overnight to regain the 6805 breakdown level after a negative finish by US stocks flowed into Asia, exacerbated by concerns relating to China’s shadow banking sector with the potential default of a $500m high-yield ICBC trust than lent money to a failed coal miner coupled with a credit risk alert by China on its coal industry.

 What other skeletons lurk in terms of Chinese non-performing loans (NPL) to local governments/companies for unviable projects? How dangerous could it be for the world’s #2 economy. Ironically, with ICBC saying it will not compensate investors, it is benefiting, as is the Shanghai composite, helped by drop in money market rates.

 After contraction in the China HSBC/Market PMI data yesterday was weathered pretty well by markets early on, volatility among emerging market currencies (especially Argentina, Turkey) dented equities into the European close amid a flight to quality on fresh concerns about developed markets own growth as US manufacturing PMI fell. Emerging market fears spread to Asia overnight.

 US equity futures breakeven, unmoved my positive results after-market from the likes of Starbucks and Microsoft and hurt by the US PMI Manufacturing drop (still growing) adding to the earlier worries on China (contraction). Fresh fears as to whether Fed should keep tapering.

 In Asia, Japan’s Nikkei is the key underperformer, dented by USD/JPY falling back to Jan lows of 103, due to the weak USD and JPY reverting to its historical safehaven status as well as comments from the Japanese Finance Minister echoing Abe that deflation almost over. Australia hurt by China fears and despite AUD weakening more than USD, pushing AUD/USD to 3.5yr lows.

 In the UK, after unemployment came so close to the BoE’s 7.0% threshold for considering a rate rise, and inflation back at target for first time in years, the FT suggests Governor Carney may abandon forward guidance in its current guise rather than admit defeat and change the unemployment threshold. He did, however, reiterate to the BBC that it is but a threshold and sees no reason to raise rates.

 In Europe, ratings agency Fitch has reaffirmed Germany’s AAA rating and stable outlook while the IMF has confirmed that no new negotiation team will not be sent to Athens until both sides clarify differences. Work to do.

 In focus today we have a real lack of macro data (good or bad; less volatility or more time to focus on jitters?). The BBA’s mortgage approvals will be of interest for an update on the UK housing market and consumer sentiment.

 After the Fitch update, there is a possibility that peer Moody’s will update on the UK and France today. UK PM Cameron is scheduled to speak this morning ad BoE Governor Carney at midday. US Q4 results continue with updates from Honeywell, Procter & Gamble, Xerox, Kimberly-Clark and Black & Decker.

 UK 100 futures fell as low as 6760 after the European close and managed to rally back to 6799 overnight. The failed to get back above 6800 or indeed the 6805 support breached yesterday is a concern, however, a low of 6771 overnight offers then chance of rising lows.

 In FX, the USD index has fallen back to 80.5 as growth returns return and Argentina raced to stem falls in the Peso after its devaluation. Note Jan lows ate 80.2. As for GBP/USD, it has broken above recent 1.66 highs on the possibility of an earlier than guided UK rate rise and weaker USD. EUR/USD back trading around 1.37 helped by weaker USD. USD/JPY back down at 103. AUD/USD fallen to 0.87.

 Gold benefited from weaker USD to test $1265 helped also by growth concerns (developed and emerging) seeing a flight to safety and the yellow metal acting more like a safehaven. $1270 to beat to get above December highs.

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