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

UK 100 called to open +5pts, holding on to its advances of yesterday thanks to an overnight improvement in the Chinese Non-Manufacturing PMI reading for November which adds to the solid figure for Manufacturing earlier in the week and buoys hopes of an economic rebound from the #2 economy.

Asian markets saw Japan and China closed but newspapers ran with stories highlighting a tricky year for China on account of lumpy export demand denting manufacturing, while optimism runs high surrounding policy coordination between the new Japanese government and the Bank of Japan (BoJ) to revive the economy.

Futures also held on overnight after US markets started the year strongly on the back of good US macro data (ISM, PMI) and excitement from a US fiscal cliff deal, however, flat trading overnight suggests optimism towards the 11^th hour deal may be waning and caution returning ahead of the next round of political wrangling (raising debt-limit, fiscal cliff #2).

The ratings agencies returned from the festivities full of joy, with S&P saying the fiscal cliff deal did nothing to change the nation’s credit rating outlook, failing to put it its medium-term financing on a firmer footing, but it did reduce the chance of a recession in the next 12 months. Less joyous was Moody’s which hinted at a US downgrade for the same reasoning and DBRS which said only 20% of the problem had been tackled.

Having powered though the 6000 marker the question is whether it will revert to support on any pullback. If so, then we must look to mid-crisis highs of 6100/6130 from April 2011 as the next target and resistance. As we said yesterday, however, US political wrangling is set to continue and next week will see trading floors back at full capacity.

In terms of focus today, keep an eye on UK PMI construction where a slight improvement is forecast, but with growth still absent. It’ll be back to the US in the afternoon for more news on the jobs market with the ADP Employment Change the most important, being considered a pre-cursor for tomorrow’s US Non-Farm Payrolls, especially after the recent change in the former’s methodology meant last month’s readings were very similar and consensus for this month is almost identical.

In FX, GBP/USD tried as high as 1.64 yesterday on the improved risk appetite and shunning of the safehaven dollar in preference of equities and commodities. Note the 3.5yr trendline of falling resistance just above 1.64 which could be significant. EUR/USD found resistance at its 8-momth highs of 1.33 yesterday and is now trading a whole 1.5pts lower. Support possible around 1.30. GBP/EUR broke though resistance at 1.233 to trade 1.235 as both GBP and EUR strengthen against USD. Next resistance 1.24.

In Commodities, Gold still benefiting (although off its highs) from post-fiscal cliff risk-on mood and weaker USD  and broken above 6-week falling highs. 200-day moving average back on the rise again. Support still solid at rising lows around $1640. Resistance likely $1720 and $1750. Oils still being helped by weaker USD but now off their highs US Light may have support at $92.5 and Brent Crude the same around $111.6. Resistance for both ay yesterday’s highs.

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

• China               Non-Manufacturing PMI         Improved
• See Live Macro calendar for all details

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

• John Menzies sees FY in line, to take restructuring hit
• William Sinclair annual profit slumps
• Balfour Beatty acquires U.S. energy storage firm
• Chemring appoints Steve Bowers as Finance Director
• Next nudges profit forecast higher as sales rise
• Northern Petroleum Second Offshore Guyane Well Starts Drilling
• CRH made 18 acquisitions, Investment initiatives worth €375m during H2
• Galliford Try Construction Unit gets 4 contracts worth £55m