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

UK 100 called to open -50pts, with Asian markets seeing a continuation of Friday’s risk aversion, after the Chinese government denied any plans over the weekend to loosen tough restrictions on its real estate sector, while a Chinese central bank (People Bank of China – PBOC) advisor warned that the Chinese economy was not rebounding in Q3 (although a research institute suggested growth only slowing not slumping, so don’t expect massive 2008-like stimulus programme) and the island dispute with Japan continues to dent sentiment.

Sentiment also on the back foot amid talk that France is more open to giving Greece more time to meet the terms of its international bailout, via an easing of the stringent conditions attached, something which would put it at odds with the German who remain staunchly opposed. The same seems to be true on the proposed banking union, with the former prepared to move forward more quickly than its more sceptical peer.

The combination of continued worries over China and its slowing’s knock-on for the global economy, a return of the lingering doubts surrounding Europe such as the possible bailout of Spain and the concerns about the US election outcome and the nation’s fiscal cliff (tax increases, spending cuts) have served to maintain the come-down from the central bank (US and EU) action of late.

As we have said in our last two weekly roundups, we view this move as part of a natural correction after the ground gained of late in anticipation of central bank action. With the main bullets having been fired, focus has, rightly, returned to the negatives seen gains being crystallised. The potential still exists for a correction back to the rising 4-month trendline of support around 5760.

Today, the macro calendar is light but with key survey data providing updates on both sides of the Atlantic. German IFO is expected to improve slightly, which could provide another platform for improved sentiment after the better PMI data published last week. Later on, data from the Chicago and Dallas Fed are the only US specific data of the day but after the much improved Philadelphia Fed figure last Thursday could shape optimism on US growth.

In commodities, Gold has continued to weaken as the central bank effects fade and the dollar strengthens (making commodities more expensive) on the reduced risk appetite. Oil has found some support after its declines of late (fuelled by growth fears, rumours of production increases and reserves releases), with US light crude bouncing off $91 and Brent Crude back up above $110.

In FX, the USD strengthening has halted overnight with a rebound versus GBP with the GBP/USD pair trading at 1.62. EUR/USD remains down near 1-week lows of 1.292. USD/CHF remains on its upward trajectory from last week, while USD/JPY continues to trend lower.

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

• Japan               Supermarket Sales                  Decline
• See Live Macro calendar for all details

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

• Petra Diamonds profit grows
• Diploma expects to meet market estimates for full year
• Bumi says investigating irregularities at Bumi Resources
• Dairy Crest says first half profit to be lower than year ago period
• QinetiQ reports better than expected first half
• Aberdeen Asset Management says assets reach 184.3 bln stg
• A.G.Barr H1 pretax profit 14.9 mln stg vs 16.2 mln stg
• Man Group confirms new corporate structure proposals
• Kea Petroleum says Puka 1 well a commercial discovery