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

  UK 100 called to open -45pts, despite US and Asian equities higher on US growth optimism and a Fitch upgrade to the US banking sector (first positive rating since 2008), but not without the latter seeing continued volatility (recovering from early losses) and the former closing off its best levels. QE3 taper fears still lurking.

Japan’s Nikkei still assisted by USD/JPY regaining the 102 level and strong Retail Trade data, while China has gained for a fourth successive day. Strength also derived from dovish commentary from ECB’s Nowotny (low rates key) and France’s Noyer (not convinced by negative interest rates).

Australia just breakeven, hindered by IMF cutting its growth 2013-14 growth forecasts for China (and warning on debt) and disappointing macro data, but offset somewhat by AUD falling below key support after PIMCO said it expected RBA interest rates to fall further and Goldman Sachs upgrading Aussie Miners whilst downgrading the Banks.

Futures suggesting a weak European open, at odds with improved sentiment yesterday after US data (Housing, Manufacturing, Consumer confidence) beat expectations and took Wall Street to yet another record high, with positive data taken as good news for growth rather than bad news for QE3, in contrast to last week’s ‘taper tantrum’ correction.

In spite of equity pull-back US 10yr Treasury bonds continue to sell off on USD-strengthening Fed QE3 taper fears, seeing yields rise to multi-month highs, which could pressure borrowing costs and the housing market (improved market was a sentiment booster yesterday), while Japanese yields remain elevated, contrary to the BoJ’s stated plan to bring down borrowing costs, as liquidity evaporated.

In focus today will be German Unemployment, although it is seen very stable, while UK CBI Retail Sales are seen improving to positive in May. In the afternoon, German Consumer Price Inflation (CPI) seen below target as in the Eurozone as a whole leaving the ECB with room for manoeuvre.

The UK 100 has fallen back to the key level of 6720-30 (support and resistance over last few weeks). If this proves supportive, it could as a platform for recovery to prior correction highs. Nonetheless, with the correction not having got as far as 5%, there is also still potential for the bounce seen to have been a knee-jerk to the sharp falls, and further left to retrace and serve as digestion of the gains of the last few months.

In FX, GBP/USD fallen back to 1.50 again on USD strengthening on QE3 taper fears. While EUR/USD as fallen back towards recent lows of 1.285 for the same reason. USD/JPY back above 102. AUD/USD broken below key technical support at 0.96.

 Gold still range-bound $1380-1400 with stronger USD hindering advances, along with muted demand due to benign inflation meaning less need for hedge and global backstops meaning  less need for safehaven.

US light Crude off its highs of $96, on stronger USD and likely on IMF cuts to China growth forecast cuts. Trading middle of 1-month $92.5-97.5 range. Brent Crude also off yesterday’s highs of $104.75, but closer to 1-month highs of $105.5 than lows of $101.

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

• Japan               Retail Trade                            Better
• Aussie              Westpac Leading Index           Growth slowed
• Aussie              HIA New Home Sales              Solid growth
• Aussie              Construction Work Done        Worse
• Switz                UBS Consumption Indicator    Improved

See Live Macro calendar for all details

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

• BG Group eyes expansion of Australia LNG project
• Silence Therapeutics names Ali Mortazavi as CEO
• De La Rue steps up cost-cutting drive
• Gulf Keystone to split CEO, chairman roles
• Cobham wins aviation services contract extension
• Topps Tiles cautious on FY outcome as recent trade dips
• Telford Homes says recent trade has been strong
• Enquest to enter North Africa