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

UK 100 called to open +5pts, finding support after yesterday’s sell off, with Asian equities in the red as they play catch-up with European and US global finally deliver an overdue correction following the significant 2.5 month rally, with European political instability (Italy + Spain) and geopolitical uncertainty in the Middle East serving as the reason of choice to counter the growing bullishness.

Overnight we had China HSBC Service PMI which improved nicely to a four-month high in January and well into growth territory and adds to the improved macro outlook and rebound in the world’s #2 economy. Elsewhere, UK BRC Sales were much better than expected as was the Aussie Trade Balance and House Prices.

The RBA also left interest rates unchanged as widely expected, although it retained its dovish stance with benign inflation allowing scope for future policy easing to help growth. AUD weaker as a result but still near 1.04 support, while the JPY strengthened a bit from 93.0 lows against USD although it remains very weak after prolonged hopes of stimulus/intervention.

In focus today will be the Eurozone Services PMI data (significant part of GDP) which are expected to show continued contraction in all but Germany where growth is expected to buck the trend with levels seen in China. The UK is seen close to the key 50 level which distinguishes between growth and contraction. Upside surprise possible. Eurozone Retail Sales expected to remain weak on account of depressed growth from austerity. In the afternoon, US ISM Services seen producing growth like China and Germany.

UK 100 futures found support at 6250 overnight after yesterday’s declines. European, and especially political factors rearing their ugly head after period of extreme quiet have served as reason of choice to counter growing bullishness since mid-November and early January when the US averted its fiscal cliff.

Nonetheless, this may only be half-time for the overdue correction following significant 13% 10/11-week rally. Downside still possible to 6150, as more join the profit taking party, however, good news for the bulls is that this is where major support would likely kick in, helping out as a platform for a renewal of the uptrend towards 6400 with a better risk/reward setup. Global macro outlook is still satisfactory and the correction is just a healthy rite of passage.

In FX, GBP/USD turned back after its bounce from 1.57.  Support still available at 1.565, with resistance likely at 15.8. EUR/USD turned back sharply from 1.37 highs as Eurozone concerns returned. Support possible at 1.34 prior break-up. GBP/EUR maintained bounce from below 1.15 but resistance possible at 1.175 after breakdown below 2012 support.

In Commodities, Gold remains in tight $1660-1680 range. In Oil, US Light Crude found some support at $96.4 after declines fuelled by stronger USD. Brent Crude also weak after stringer USD but may find some support at $114 thanks to major rising trendline.

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

• UK                    BRC Sales                                Better
• Aussie              Trade Balance                         Better
• Aussie              House Price Index                   Better
• China               HSBC Services PMI                  Improved
• Aussie              Interest Rates                          Unchanged
• Swiss                Trade balance                         Worse
• See Live Macro calendar for all details

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

• BG quarterly profit drops, will miss 2015 production target
• Flybe says has reached agreement with Ryanair on aircraft and routes
• Qinetiq says U.S. still uncertain, FY outlook unchanged
• Victrex says group sales volume rises
• Talktalk Telecom sees year results in line with guidance
• UBM announces proposed sale of data services businesses
• BP Q4 beats forecast as oil spill trial looms
• Shanks sees slower growth in 2013
• Barclays increases mis-selling provisions
• Chip designer ARM’s Q4 profit beats expectations
• Huntsworth sees double-digit profit rise in 2012