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

UK 100 called to open -20pts, with Asian markets just positive and the US closing mixed, suggesting a slight pullback today from the strong rallies of yesterday which were fuelled by the results of Friday’s post-market Spanish banks stress test and Monday morning’s flat PMI manufacturing data from the Eurozone’s core (Germany and France) – still in contraction, but at least it’s not getting any worse.

Sentiment was further boosted in the afternoon by news that US Manufacturing beat expectations and moved more solidly into growth territory, leading some to take a bit more risk. Note that construction spending, however, remained weak. Federal Reserve (Fed) member Evans (Chicago) stoked the fires of QE (Quantitative Easing) by saying that it’d be at least a year before the renewed efforts had a meaningful impact on unemployment, which helped the USD weaken and the price of Gold higher.

US markets benefited from the strong macro data, comments from Mr Evans, and money-printing Ben (Federal Reserve [Fed] Chairman Bernanke) maintaining his dovish (won’t tighten policy) stance and seeing it necessary for a considerable time even after the economy has strengthened. He also suggested he sees no signs of a downturn and expects continued growth but concerned whether enough to help unemployment.

Bernanke’s comments maintained pressure on the USD and continued to help Gold, however, The FT runs with a front page story about debate raging over the effectiveness of QE3, in terms of banks reaping the rewards of lower mortgage costs  by not passing on the benefit to consumers. The same debate exists in the UK with the Bank of England’s (BOE) recent Funding for lending scheme (FLS), where 13 banks took €60bn in low cost loans with the expectation that the savings would be passed on. No signs just yet – lending actually down.

Other news of note is continued confusion in the Eurozone with a European Central Bank (ECB) official saying that the institution isn’t ready to take on banking supervision in early 2013 and others saying that Spain ready to ask for a full sovereign bailout but Germany is suggesting it waits. And there’s me thinking it was just Rajoy putting off his inevitable premiership demise. Germany still worried about footing the bill. The game of Chicken/blink continues.

Overnight, the Royal Bank of Australia (RBA) cut its benchmark interest rate by 25bps to 3.25pts on a weaker growth outlook, leading to a rise in Australian equities, but a sell-off in the Australian dollar AUD versus its major peers. Remember that Australia is one of the few major nations to have avoided a recession since the downturn of 2007. Elsewhere the morning, UK Nationwide House prices have disappointed, coming in much weaker than expected and in stark contrast to the growth reported in August. Ratings agency Moody’s has also expressed its concerns (not the only ones) over the banks stress test results, believing a figure more like €105bn is needed rather than the €60bn reported.

Today look out for a continued worsening of Spanish unemployment, with consensus looking for another 57K adding to support queue. UK PMI construction which is expected to improve to just shy of breakeven, this after a miss in PMI Manufacturing yesterday and reducing confidence in a Q3 GDP recovery from the upwardly revised final Q2 figure. Eurozone Producer Prices are seen higher again in August, likely on the back of rising input costs. ISM New York, if stable/more positive than last month’s 51.4, could give US markets some momentum on the back of yesterday’s manufacturing figures.

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

• Aussie                          Interest Rates                          Cut by 25bps
• See Live Macro calendar for all details

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

• NextGen says likely to wind up company
• Wolseley profit up, to pay 350 mln stg special dividend
• Babcock Int’l bullish on full year prospects
• Serabi Gold raises 16 mln stg to fund mine start-up
• William Sinclair warns on year profit, CEO to step down
• Firstgroup says still preparing to run West Coast line from Dec.
• John Laing raises 60 mln stg
• Andor Technology sees year earnings in line