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

UK 100 called to start the new week +10pts, maintaining the positive New Year trend and 2½   month rally, helped by rotation out of bonds (safety, yielding little) into equities/commodities (risk, betting on growth/recovery) after largely positive session for Asia.

Japan is, however, the stand-out (under)performer, well in the red after hitting 3yr highs last Friday likely on profit taking following the excitement regarding a wave of stimulus from the government and Bank of Japan (BoJ).

Overnight data included better than expected UK House Prices data which could give a boost to consumer confidence, while Japanese Machine Tool orders remained very weak and German Producer Price Index (PPI) was negative for January compared to consensus for flat reading. Macro calendar very light today, not helped by US holiday (Martin Luther King day).

US markets closed last week higher, rallying in the latter half of the day after House Republicans said they would vote on a 3-month extension to the US debt ceiling this week, to allow the Washington the opportunity to reach a proper compromise on fiscal cliff. I can see this being repeated a few times. More fudge anyone?

Sentiment also helped by ratings agency S&P expecting global recovery to continue in 2013, although on a knife-edge, ECB forecasting gradual recovery in Eurozone and IMF publishing a positive bailout programme progress report on Portugal.

In focus this week will be the latest monetary policy decision from the Bank of Japan (BoJ) after weeks of pressure from the new PM Abe. Expectations are for a higher 2% inflation target (up from 1%), which it will miss for a good while, and expansion of QE yet further possibly even making it open-ended like the US to combat deflation and boost growth. Watch out also for the Eurogroup meeting although no decision expected on Cyprus’ bailout.

Elsewhere, major data includes German ZEW and IFO business confidence figures (seen improving), UK unemployment will remain under pressure, Eurozone flash PMIs for services and Manufacturing should improve but remain in contraction while UK GDP is seen having contracted in Q4 of 2012.

The UK 100 futures have tried ever higher overnight, hitting a high of 6193 not seen since May 2008. Support possible at 6145, after breaking above the May 2011 high level on Friday.

In FX, GBP/USD still under pressure since beginning of year with better US macro data seeing a flow out of the safehaven and prospect of end of QE being in sight. Support found at mid-Nov lows at 1.584. EUR/USD remains in its 6-day range of 1.325 and 1.34 as both sides benefit from improved sentiment. GBP/EUR under continued pressure, with a test of 1.18 handle overnight..

In Commodities, Gold has traded flat since Thursday afternoon in a $10 range around $1685, echoing the narrow range on EUR/USD. Benefiting despite USD strengthening. In Oil, US Light Crude has traded back from its $96 level on stronger USD. Brent Crude attracting a bit more interest likely on back of supply concerns attached to events in Algeria.

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

• UK                    Rightmove House Prices                     Better
• Japan               Machine Tool Orders                          Still weak
• German           Producer Price Index                           Worse
• See Live Macro calendar for all details

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

• Pearson endures weak key selling season
• Resolution names new chairman
• Car dealers H.R. Owen sees year results ahead
• Stobart names Avril Palmer-Baunack as chairman
• Afren says 2012 output in line with guidance
• Randgold Resources says Côte d’Ivoire mine returning to normal post-fire
• Subsea 7 gets $135M pipeline contract
• Serica Energy Operations Update and Forward Programme