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

UK 100 called to open +15pts, helped by Asian equities mostly higher thanks to better than expected trade data out of China (better exports and imports; better trade balance) adding to the weight of recent macro data pointing to a rebound in growth in the world’s #2 economy. Benign inflation readings also provided support, reducing fears of over price inflation from the recovery.

Chinese equities also higher ahead of the New Year holiday celebrations, however the ugly duckling in the region was again Japan’s Nikkei as profit taking continued after the recent weak JPY-fuelled rally by exporters, dented by the JPY strengthening in the wake of a worse than expected current account deficit and reversal of the EUR/JPY following Draghi’s comments that the ECB would monitor the recent EUR appreciation to see if it alters price stability.

Going against the China recovery theme though was Australia’s RBA cutting its near-term growth and inflation forecasts in its quarterly monetary policy statement, with the dovish inflation tone retaining scope for further policy easing if necessary to boost growth. China growth not as strong?

Staying with central bank policy, the ECB press conference saw Draghi manage to talk down the EUR against its peers whilst simultaneously talking up the recovery trajectory of the region. An impressively non-committal performance, akin to the power of last year’s statements. Solid performance also from BoE incoming governor Carney who testified to UK politicians and suggested shaking things up in terms policy decision making and debate on tools/targets to be used.

US markets closed in the red after worse macro data as US Jobless Claims ticked back up and a drop in Non-farm Productivity and rise in Unit Labour Costs – a nasty mix – while mounting uncertainty in the US (fiscal) and Eurozone (political) added to arguments for correction after recent rally. With newsflow from Italy and Spain not being enough, the word from Brussels is also that leaders remain far from agreement on the EU 7yr Budget.

Data this morning shows worse German Trade data, but this hasn’t taken too much of a shine off futures’ reaction the Chinese numbers. However, news of a big loss by France’s Peugeot Citroen as it writes down the value of automotive assets due the troubled state of EU markets reinforces the impact of forced austerity and consumers being squeezed.

UK 100 futures recovered overnight after index tried almost as low as 6200 yesterday. We have mentioned several the possibility of a drop to 6160 as a healthy 3% correction after 13.5% rally from mid-Nov, before uptrend resumes. With falling highs from early Feb, the correction could still have legs, with a falling channel having formed with resistance at 6300 and support at 6160.

In FX, GBP/USD still got support after tested long-term (4yr) rising trendline at 1.565. Still in downtrend from 1.63 at beginning of year. EUR/USD fallen to levels below 1.34 last seen in late January thanks to Draghi statement. GBP/EUR recovered from lows of 1.15 thanks to Draghi comments but approaching Jan 25 breakdown point at 1.175. Resistance?

In Commodities, Gold back in middle of tight $1665-1685 range. In Oil, US Light Crude trading back around $96, with recent highs and lows at $97 and $95. Brent Crude broken up above $117 resistance to try towards $118 overnight.

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Overnight Macro Data: (Source: Reuters/DJ Newswires)

• China               Trade Balance                         Better
• China               Exports                                    Better
• China               Imports                                    Better
• Japan               Eco Watchers Surveys             Better
• China               Inflation                                   In-line, benign
• Switz                Unemployment                       In-line
• Germany         Trade Balance                         Worse
• Germany         Exports                                    Worse
• Germany         Imports                                    Worse
• See Live Macro calendar for all details

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

• C&W Comms says trading in line with outlook
• UK’s Shaftesbury says vacant space at exceptionally low levels
• Workspace – Rent roll up 4.5% in financial YTD
• Aquarius Platinum mine earnings down in first half