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

  UK 100 called to open +60pts at 6090, despite another red session for Asia with China and its banks taking the brunt of it again on concerns of a liquidity crisis and a poor China Beige Book reading.

The Shanghai Composite has fallen a further 2.5% – levels not seen since early 2009, testing bear market territory like Japan’s Nikkei. Fears of tighter US monetary policy still weighing on risk sentiment, but China officials meeting (now) creating optimism of China cash solution.

 China’s PBOC again held back from relieving money markets pressure (open market operations suspended), apparently trying to teach the banks/shadow-banks and markets a lesson by maintaining that liquidity levels are reasonable, but adds risk to the countries already slowing growth profile in a world where growth is lacking/slow to recover.

 Note ratings agency Moody’s cutting its view on Hong Kong’s banks to negative, something which is weighing on the country’s equities in addition to the Chinese woes. Japan also weak, after the JPY pulled back (potentially on safehaven demand given China cash concerns) but Australia the outperformer helped by the persistently weaker AUD (on USD strength).

 Note talk by Italy’s Mediobanca that the country is likely to need a bailout within 6 months, Portugal’s PM said he could request fresh easing of budget goals if needed, Ireland said it will continue to work on bank bail-in rules and Greece had a cabinet reshuffle. Some focus may return to the struggling region after the recent concentration on the US and China.

 In response to the equity and bond market declines since last week’s Fed FOMC update (US 10yr Treasury bonds spiked again, potentially raising sovereign and consumer borrowing costs) the Fed’s Fisher (hawkish) lashed out at ‘feral hogs’ of markets trying to force Fed Chairman Bernanke to reverse his plans. He backs tapering, but data needs to improve and so sees easy policy for a while and full QE3 exit a long way off. Colleague Kocherlakota remained very dovish, and Dudley critical.

 In focus today we have a more plentiful calendar to shift sentiment, with UK CBI data seen improving, US Durable Goods Orders (likely considered a key metric of the US recovery) seen again up around 3% in May, although flat ex-transport.

 US Housing and Consumer Confidence updates are expected to show improvements for the former, and a slight pullback in the latter. After a strong rebound by the Dallas Fed yesterday (all components improved), today’s it’s the turn of Richmond Fed, although note that the Chicago Fed did fail to recover as much as anticipated.

 Given the impact of the Fed’s Fisher’s comments about markets being addicted to easy money, note that additional Fed speakers on the agenda which could also attract attention.

 UK 100 tried as low as 6005 (round number support) this morning but bounce on optimism of a China cash solution while we have been writing to regain the highs of late last night around 6080. We had been looking for support around 6040 thanks to the 4yr trendline of rising support, however, the test to near 6000 may have jeopardised it. A regain of 6200 needed for signs of uptrend revival. Monthly graph still pretty ugly in terms of major (4yr) reversal potential.

 In FX, GBP/USD and EUR/USD off their lows but still in downtrends as USD strengthens as markets price in an end to QE3. USD/JPY rallied to 98.7 before turning back on safehaven demand trumping the USD strengthening.

 Gold still under pressure below $1300 hindered by, USD strength, ETF selling, speculation, lack of need for hedge, lack of interest in safehaven and no yield. Sorry but there is not much supporting the yellow metal, however, beware all that speculation needing to be closed out. Potential for short-squeeze spike.

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

• Japan               Corporate Service Price Index                        Better
• Japan               Small Business Confidence                 Improved

See Live Macro calendar for all details

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

• Ultra Electronics wins 16.1 mln stg EDF Energy contract
• Domino Printing underlying first-half profit falls 3 pct
• Wood Group gets North Sea contract extension
• Rexam warns H1 operating performance to dip
• K3 Business Tech warns on profit
• Northgate says full-year underlying pretax profit down to 49.5 mln stg
• Kier consortium preferred bidder for Mersey bridge project
• Kellan gets two future funding approaches
• Petrofac says on course for modest growth