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

UK 100 called to open +20pts at 6615, helped by a positive albeit quiet session in Asia (Hong Kong closed due to typhoon heading for mainland) helped by global optimism and after better than expected French and German Q2 GDP readings this morning, which bode well for the Eurozone figure later this morning.

A report by ratings agency Moody’s that a return to sustainable GDP growth will help Japanese banks also helped the region while a stronger USD/JPY (>98) also gave Nikkei exporters a boost.

US markets closed modestly higher and the USD stronger after the solid US Retail Sales report for July, with ex-Autos better than expected and upward revisions to the prior months signalling increased consumer confidence and markets pricing in increased possibility of tapering in September.

Stateside optimism, also buoyed by talk from the Fed’s Lockhart (non FOMC voter) playing down taper fears (more expectations management on behalf of Bernanke?) by saying it could take place at any of the next three meetings, and Labour market need to improve even further. Roadblock on M&A in airline industry (American Airlines and US Airways) put a dampener on things.

In focus today will be the BoE minutes and unemployment reading given the close links between the latter and interest rate policy through mid-2016. The voting result will be key in terms of any division in the ranks on forward guidance which would erode confidence that rates will stay low for as long as Carney has pledged.

Thereafter, Eurozone GDP is seen improving into positive growth after the better than expected French and German readings this morning on the back of good ZEW surveys and improved Industrial Production yesterday. Goodbye recession? US Producer Price inflation seen remaining benign on a core basis.

The UK 100 regained its recent highs of 6620 overnight, but this has remained resistance. Rising lows from 7 August at 6585 intact, maintaining chance of breakout to 6715, but thin summer volumes hampering advances. A test of 6630 highs of 6-7 Aug would be welcomed.

In FX, the stronger USD after the US Retail Sales report (increased chance of Fed tapering) is maintaining the GBP/USD correction from resistance around 1.555 (2013 falling highs). Support possible around 1.54 late July highs. EUR/USD has fallen back to test 1.325, now well off last week’s 2-month highs of 1.34.

USD/JPY rebound continues on function of strong USD (US Retail Sales, Fed tapering) and weak JPY on prospect of slower growth requiring more stimulus. Regained 98, with upside potential (especially if taper fears intensify) to August highs of 100 and July highs of 101.5. USD Index rebound continues, nearing 82 although downtrend from early July yet to be broken decisively. Resistance likely at early August high 82.5.

In Commodities, Gold fallen back from recent highs near $1350 on stronger USD (macro data, taper fears). Support still likely around $1300 round number and rising lows from June plunge.

US Light Crude slowed up at $107, but still in uptrend from 8 Aug low of $102.5. Upside potential to Early month highs of $108.5. Brent Crude regained recent highs of $110, but fallen back to $109.5. Near-term technical upside potentially limited.

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