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

  UK 100 called to open -30pts at 6090, below Friday’s futures low of 6100, maintaining the recent downtrend on combination of fears regarding Fed stimulus withdrawal on the horizon and the prospect of a cash crisis in China stifling growth in the already slowing world’s #2 economy.

 The latter has pushed Shanghai Composite -5%, banks hit hardest on comments officials wouldn’t intervene to ease money-market stress and PBOC saying liquidity levels appropriate. This equates to is a strong message to speculators and shadow banking sector regarding overstretching themselves and stoking the fires of excess. Similar to Fed talking down overcooked markets?

 Asian bourses in the red, with Japan the outperformer on the weaker JPY (more so due to stronger USD), but Hong Kong and Australia weighed down by China issues.

 Bond markets still seeing weakness on fears of beginning-of-the-end for central bank intervention, sending yields and potentially borrowing costs higher, creating jitters about a dent to consumption.

Remember Fed can, and probably will, change timetable, so beware any further comments suggesting a pushing out of tapering which could see markets (equities, bonds, gold) and rally again. WSJ’s Hilsenrath saying markets mis-reading Fed message, with dovishness overlooked, US markets found some strength on this late on Friday.

Note FT front page article about BIS (central bankers’ bank) annual report saying central banks must head for exit having bought time with intervention, and return to focus on inflation and lobby governments on growth; “extraordinary stimulus becoming increasingly perilous”.

In focus today in a limited calendar will be Germany’s IFO surveys (expected pretty much unchanged, but in growth territory). The Chicago and Dallas Fed readings will be eyed after the jump in Philly Fed on Thursday and given focus on all US data for signs that tapering is warranted. Watch employment components especially.

For the rest of the week, watch out for US Durable Goods Orders and US Housing on Tues. On Weds, Final reading for US GDP will be key with any revisions either warranting Fed tapering or serving as another case of bad news is good in terms of keeping QE3 going. Thurs could see the UK’s double-dip recession revised out of statistical history as Q1 GDP is reported and updates to prior.

Eurozone confidence/sentiment seen slightly improved, German Unemployment stable, a raft of data from Japan on Friday which could show whether Abenomics working its way through. Greek politics still in focus.

UK 100 testing Friday lows, with real potential for a retest of 4yr trendline of rising support around 6050 before resuming its uptrend. If that level breaks, and as the monthly graph shows, it might not just be the beginning of the end for central bank stimulus but also for the 4yr rally. A third repeat of the trend since the mid-1990’s of 4yrs up and 3yrs down?

In FX, GBP/USD fallen below 1.54 on continued USD strength based on expectations of QE3 tapering. A test of the level overnight failed suggesting it may revert to resistance. Downtrend from 1.57 Jun 4-month highs of 1.575. Downside possible to May lows of 1.50. EUR/USD traded back to 1.31 before finding some support overnight. Mid-way through correction from Jun highs of 1.342, with downside possible to May lows of 1.28. USD/JPY rallied to 98.5.

 Despite finding some support at $1270 on Fri morning, Gold struggled to get back above $1300 and with continued USD strengthening, ETF selling, speculation, lack of need for hedge, lack of interest in safehaven and no yield, there is not much supporting the yellow metal.

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UK Company Headlines: (Source: Reuters/DJ Newswires)

• Essar Energy full-year earnings beat expectations
• Devro sees H1 operating profit below last year
• Founding trio confirm buyout bid for miner ENRC
• Kazakhmys board backs bid for ENRC, “realistic” exit
• IMIC agrees $200 mln deal for Afferro
• SEGRO in joint venture talks
• Vodafone announces agreed 7.7 bln euro Kabel deal