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

UK 100 called to open flat at 6340 after another volatile and risk-off overnight session fuelled by a significant weakening in the USD on QE3 concerns and weak Asian equities as Japan continues to suffer and markets gear up for today‘s update on the US labour market and updated expectations of when the Fed will begin scaling back its intervention.

 Asia also weak ahead of Chinese and Japanese data releases over the weekend (Industrial Production, Investment, Retail Sales for the former and GDP and Trade Balance for the latter) providing an update two other countries of interest in terms of global growth/demand.

 Japan’s Nikkei tested bear market territory with its correction having gone beyond 20% from recent highs, although the index has perked up ahead of an update on changes to government pension funds mid-term investment plans, potentially including equities, and news that veteran investor George Soros is back betting on Japan while Japanese officials been very vocal in trying to calm markets, notably the strengthening in JPY.

 The USD weakening is a product of tapering uncertainty and the EUR gaining ground after the ECB left policy unchanged and was less dovish in saying recent data better so no need to act now with new intervention, reducing prospect of negative rates and buying ABS while next year’s growth forecast was upped and inflation expectations trimmed.

 In focus today, we have the UK’s updated Trade Balance and 12-month inflation expectations which could move GBP. Mid-morning Germany’s industrial production has the potential for disappoint, after Factory Orders missed yesterday, so watch EUR.

 The big data is this afternoon’s USD and market-moving US Labour report with Non-Farm Payroll (NFP) additions expected at 165K, but possibly weaker after ADP (kind of warm-up act, but not perfect) missed on Wednesday. The Unemployment Rate should be unchanged at 7.5%.

 A much better NFP could increase expectations of Fed tapering QE3, while anything worse than an ADP-like 135K could temper those fears. Anything in the middle likely to just add fuel to the fire of uncertainty with other mixed macro data of late, maintaining current market volatility. As we reiterate though, tapering has yet to be quantified. Fearful of just $80bn vs. $85/month? A change in unemployment rate could also spice things up.

 UK 100 correction still in progress. 6400 was ditched and 6300 tested, and the brief recovery to 6350 has found some resistance there. The April lows of 6220 are a distinct possibility. NFP likely to be the sentiment and market direction decider this afternoon. Buckle up.

 In FX, GBP/USD rallied to 3-month highs as the USD weakened ahead of NFP and investors displayed a lack of confidence in in the health of the US economy (data so mixed). 1.57 almost tested, but now a pause at 1.56, which matches early May highs and contrasts with 2-month lows of 1.50 late last month.

 EUR/USD also rallied on double-whammy of USD weakness and EUR strength (helped again this morning by German Trade data) regaining the 1.325 handle, having recovered from lows of 1.28 mid-May. Note USD/JPY fallen back sharply from 99 on USD weakening, retesting 96, which has not been seen since mid-April.

 Gold up at $1420 late-May highs, but struggling to do much better despite USD weakening. Like markets and QE3 sentiment, still struggling to find direction/traction. Any breach of $1420 though could release some pressure helping the yellow metal higher, although inflation still benign and Armageddon fears have certainly receded.

 US light Crude benefited from weaker USD (despite uncertainty on global growth) and broken above falling 1-month resistance at $94.25 to test $95. Brent Crude remains hindered by its 1-month trendline of falling highs at $103.75 with which it is currently flirting.

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

• Aussie              AIG Construction  Index   Flat
• Japan               Coincident Index                  Flat
• Japan               Leading Index                        Better
• Germany        Trade Surplus                         Better
• Germany         Labour Costs                          Increased

See Live Macro calendar for all details

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

• Fuller, Smith & Turner profit rises, starts new year well
• SThree says H1 gross profit down 6 pct
• Hornby year profit falls
• Kcom Group full-year profit rises 3.1 pct to 52.7 mln stg
• Serco wins 80 mln stg Hong Kong transport contract
• Bellway has “encouraging” start to second half
• Chariot Oil granted extension to Namibia licence
• BG says Brazil projects on schedule and on budget