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

UK 100 called to open +25pts, with Asian markets higher on the prospect of aggressive monetary easing and more borrowing for government spending in Japan to boost the economy, but caution remains prevalent as US lawmakers prepare to resume their now painful negotiations to avoid the ever-nearing fiscal cliff which could send the economy back into recession.

In a welcome sign of progress, republican House Speaker Boehner urged the democrat controlled Senate to avoid the cliff, and offered to at least consider what they had to offer, however, scepticism and a lack of risk appetite has maintained interest in the US dollar as a safe-haven. Obama has cut his holiday short to deal with looming deadline on tax hikes and spending cuts.

However, last night Treasury secretary Geithner said the US was prepared to use extraordinary measures to avoid breaching its borrowing limits, potentially giving it another 2 months headroom, adding to the existing drama of stalled talks. Nonetheless, consumers demonstrating their fears of uncertainty by holding back from holiday retail sales.

Since we last wrote on Monday, there have been a few snippets of macro data including better than expected readings from the US housing, but a decline by the Richmond Fed yesterday. Overnight, we have seen a jump in Chinese Industrial Profits growth, however, in Japan Vehicle Production and Construction Orders remain weak and Housing Starts slowed.

In Europe, Italy’s technocrat leader Mario Monti also looks to be gaining support for him to lead a centrist alliance which would pitch itself against a returning Berlusconi in February elections.

UK 100 futures have broken above their 5960 highs since late Friday but last Thursday’s hurdle of 5986, so close to the fabled 6000 level, remains. Having traded sideways for a few days, with news-flow limited to the US and its fiscal cliff, the index remains in a shallow rising channel with a base at 5900 and highs potentially at 6000. Note the increase in macro data on the calendar, however, which has potential to decide the fate of the channel’s support/resistance.

In focus today will be the UK Mortgage Approvals for any signs of increased confidence among homebuyers. Thereafter, the main news will be from the US, with updates on jobless claims more important now that the US Fed is tying its policy so closely to employment. To close the day, an update on US New Home Sales will, like the UK mortgage figures, provide an update on consumer confidence.

In FX, GBP/USD has maintained support at 1.615 after fiscal cliff risk-aversion and safe-haven seeking saw the pair decline back to mid-December levels. EUR/USD testing its 1.325 highs of yesterday despite relative USD strength. GBP/EUR broken down to 3-month lows below 1.22.

In Commodities, Gold testing 200-day moving average again at $1664 having bounced from lows driven by USD demand from risk aversion (makes commodities more expensive). Support still in place thanks to trendline of rising lows in place since mid-May. As for the Oils, both US Light and Brent Crude remain in 1-month uptrends having gained strongly yesterday and recovering from Friday’s sell-off.

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

• China               Industrial Profits                     Growth accelerated
• Japan               Vehicle Production                  Contraction slowed
• Japan               Housing Starts                         Growth slowed
• Japan               Construction Orders                Contraction slowed
• Switz                Consumption Indicator            Declined
• See Live Macro calendar for all details

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

• Capital & Regional sells stake in Xscape Braehead to Capital Shopping Centres
• XG Tech says mulling NASDAQ listing
• Randgold Resources cuts production estimate for Ivory Cost mine
• Hansteen acquires GBP 60m portfolio
• Evraz Receives Clearance from Russian Federal Antimonopoly Service