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

UK 100 called to open -5pts, but with the index still hanging around 6300 as caution returns ahead of US Non-Farm Payrolls, where we get an update on the #1 world economy’s unemployment situation. After better-than-expected ADP Employment Change figure earlier in the weak data, there is potential for an upside surprise to the expected growth in NFP jobs adds in January.

With the metric so explicitly linked to the US Fed’s highly accommodative stance (asset purchases to continue until rate falls to 6.5% from current 7.8%), a stance reiterated in Wednesday’s FOMC statement (‘pause in growth’), it could be another case of good news is good (more jobs, growth) but bad news is gooder (QE to continue) providing another shot in the arm for risk appetite.

US markets closed just in the red as some January profits were taken off the table following mixed economic data (negative GDP, consumption up, spending lower than income), although the S&P 500 still managed to finish the month +5%, its best performance for 16 years. The US Senate (Democrat-controlled) approved the Republican-approved suspension of government debt limit giving politicians more time to bicker/dig heels in on proposed tax hikes and spending cuts.

Overnight, we had conflicting readings from China with official PMI Manufacturing showing a slight decline and HSBC figure showing a small gain to 2yr highs. Both still growing which is good news. Japan Jobless and Household Spending worse than expected, supporting need for policy easing and while ratings agency Moody’s says planned stimulus will likely lift economy out of recession, it also said effects will be temporary and its debt trajectory will rise without a boost to growth.

Australian PMI Manufacturing (11th month of contraction) and PPI missed expectations in-line and Commodity Index (affected by growth in Asia) still weak leaving door open for more benchmark interest rate cuts by the RBA next week. AUD dented as a result.

While the US employment data will be very much the focus today, the morning will be dominated by the raft of PMI Manufacturing prints from Europe where consensus is expecting continued contractionary reading, highlighting the region’s travails linked to necessary post-financial crisis austerity and resulting slowing economic growth. UK PMI Manufacturing seen falling slightly, but remaining the only major beacon of growth.

UK 100 futures still around 6300 which we increasingly see as a rest-stop for January’s rally. As mentioned in our UK 100 Focus, a pause for breath need not always result in a sell-off. A sideways move can be just as good. With so much talk about the index being overbought, note this does not always result in an imminent correction, indeed when the index is so overbought, the existing trend can often continue a little longer. NFP could well decide the next move.

In FX, GBP/USD regained 1.58 on FOMC ‘pause for growth’ comments meaning QE to continue. EUR/USD now above 1.36; comments surfacing about EUR getting too strong, which could hinder exports and the region’s economic recovery. GBP/EUR still under pressure sub-1.17 and but not weakened any further from around 1.165.

In Commodities, Gold came back off $1685 sharply but found support at $1660. USD direction would well be decided this afternoon by US unemployment data. In Oil, US Light Crude back up at $98 after a decline to $97.4. Resistance up at $98.6. Brent Crude remains in strong uptrend, nearing $115.

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

• China               Manufacturing PMI                            Worse
• China               HSBC Manufacturing PMI                   Better
• Japan               Vehicle Sales                                       Deteriorated further
• See Live Macro calendar for all details

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

• De La Rue sees flat 2012/13 financial results
• Spectris says sale of Fusion uv completed
• Tate and Lyle Q3 pretax profit in line
• Electrocomponents reports rise in sales
• Qinetiq renews contract with Britain’s MoD, signs 998 mln stg agreement
• Cost controls help BT to beat profit forecasts
• Sirius Petroleum proposes new funding strategy
• New World Oil and Gas abandons well in Belize