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

UK 100 called to open flat, with several Asian markets still closed and volumes thin due to Lunar New year celebrations. Japan’s Nikkei higher, playing catch-up after long weekend, after a further weakening of the JPY, especially after comments from a US Treasury member that Washington was in favour of Tokyo’s efforts to stimulate growth and promote inflation (a benefit for US consumption via lower prices), as well as comments from the BoJ that more easing could be justified this year.

Overnight macro data comprised worse UK House prices in Jan, a mixed batch of Australian confidence data, much improved Japanese Consumer confidence (stimulus improving sentiment?) but weakness in Indian Industrial Production in December putting the cat amongst the optimistic pigeons of emerging market growth, especially after a slightly weak month prior.

However, data overshadowed by geopolitical uncertainty with North Korea confirming completion of an underground nuclear test, causing an artificial earthquake which was detected by South Korea. This will go raising tensions again in the region that the country is sabre-rattling despite widespread criticism from world powers and the UN Security Council.

US markets closed in the red, with market moving newsflow/data lacking. Currencies and the EUR remain hot topics with the ECB’s Weideman warning policy makers to refrain from talking down the single currency (I guess that includes both Draghi and France’s Moscovicci?), due to inflation risks. With the G20 meeting of finance ministers so close (end of the week) the subject of ‘currency wars’ (the fight to devalue versus peers) will likely only gain momentum in the run-up.

Ratings agency Moody’s has cut its outlook on for developed economies despite an easing of global macro recovery risks over the last quarter and said it expects the US, UK and China to expand in 2013, but for the Eurozone to stagnate, with macro outlook risks skewed to the downside and growth still likely pedestrian at best.

In focus today will be the UK inflation data which is expected to show consumer pricing pressure easing back in January although the yearly rate is seen unchanged. On an annual basis, the RPI is actually seen ticking up a touch. Producer Prices are seen rising on both the input and output front but the former by more so, continuing the squeeze on profitability.

We also have several countries issuing debt (bonds) with Spain likely of most interest with political instability having had an impact on yields (borrowing costs) in the secondary market. Spanish PM Rayoy also speaking at the market open, with the leader in the spotlight on allegations of his party taking backhanders.

UK 100 futures remain in downtrend although yesterday’s trading tested the resistance at 6280 for most of the day. The test of resistance and 2-day rising lows are of interest, but so too is the failure to break above it. Despite the test, we still see a decline to 6150 (-3% from recent highs) as a necessary journey before any resumption of the long-term uptrend.

In FX, GBP/USD back down at long-term rising trendline from where it found support and bounced recently. Resistance possible around 1.58 again after pull back from this level. EUR/USD still hovering around 1.34 although this could be a pause before another bout of weakness, and fall to support at 1.33. Momentum dropping on technicals. GBP/EUR back below 1.18 level after sharp reversal from rebound to 1.18 yesterday.

In Commodities, Gold back below 1650 after sharp sell off on USD strengthening yesterday. Having fallen from the $1660-1680 range, we note support at 1630 from early January lows and possible resistance around $1655. In Oil, US Light Crude found resistance around $97, although this was after a significant rally from lows of $95. Brent Crude fell back from highs of $119 but maintains long term uptrend with possible support at $118. Convergence of the two oil prices attributed to cashing on prior widening of the spread between the two to extreme levels.

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

• UK                    RICS House Price balance       Worse
• Aussie              Business Conditions                Negative, but improved
• Aussie              Business Confidence               Improved
• Japan               Consumer Confidence                        Better
• India                Industrial Production              Worse
• Japan               Machine Tool Orders              Still weak, but less so
• See Live Macro calendar for all details

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

• Nationwide Accident Repair Services sees FY in line
• Sinclair IS Pharma signs distribution deals
• Modern Water to raise 10 mln stg
• Galliford Try wins 60 mln stg housing contracts
• Rolls Royce says wins $83.7 mln contract with U.S.
• Dragon Oil ups dividend, 2012 profit falls 8 pct
• London Mining settles with Wits Basin
• Albemarle & Bond says H1 profits lower
• Sinclair IS Pharma’s first-half adj loss narrows
• Glencore’s African copper output climbs in 2012
• Barclays to axe 3,700 jobs in $2.7 bln cost cut plan
• United Drug sees year adjusted EPS 5 to 8 pct up
• Hibu says hopes to reach deal on capital structure in near future
• Bumi says meets FY coal output target, costs fall in Q4
• Caretech says trading in line
• Xstrata 2012 copper production dips, meets forecasts
• Premier Gold Resources granted Cholokkaindy license extension
• JKX says on-track for Q2 Rudenkovskoye plan
• Dunelm H1 profit up 14.6 pct to 59.8 mln stg
• Volex sees year profit in line