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

  UK 100 called to open -20pts at 6580, with rising optimism from improving data (Eurozone GDP) dented by more uncertainty over US stimulus tapering after the Fed’s Bullard said more time and data was needed with jobs improving but inflation still too low (soft PPI). Middle Eastern unrest has returned, with Egypt declaring a state of emergency, taking the shine of recent calm.

 Overnight, Asian stocks weaker amid mixed earnings and taper talk as well as comments from Japanese officials that a corporate tax cut was not on the agenda after hopes that this could offset the planned sales tax hike was seen potentially stalling a consumption-heavy economic recovery.

 Note that the Japanese Cabinet also upgraded Japan’s inflation and jobs outlook, strengthening the JPY (below 98 vs USD) and hitting Nikkei exporters. To counter this, ratings agency Moody’s said weak growth puts the recovery in jeopardy and is credit negative.

 China continued to injected more funds into the money markets to maintain market confidence and the Shanghai Securities news said China may cut the banks’ RRR once or twice this year (strange, it’s not even Friday yet – early for speculation).

 In focus today, amid a likely quiet session in Europe on account of a religious holiday (Assumption day) will be UK Retail Sales which are seen getting a boost in July from the weather. US Weekly Jobless Claims seen relatively unchanged although US Consumer Price Inflation (which Bullard said was still too low) is seen ticking up to the Fed’s target (headline, rather than core reading), potentially intensifying taper talk.

 US Empire State Manufacturing seen edging higher along with both Industrial and Manufacturing Production and Capacity Use. As a consumer confidence gauge US NAHB Housing seen flat and the Philly Fed falling back.

 The UK 100 has broken below its recent trendline of rising lows at 6585 from a normally bearish rising wedge. This opens up the possibility of a fall back to the 6560 level we broke out from on Friday, and possibly even further. 6480 summer lows? Back in summer range 6500-6660 with momentum indicators hovering around breakeven and thin volumes.

 In FX, the stronger GBP/USD back testing falling resistance at 1.554 after weak PPI data and BoE minutes being taken as sign rate hikes could come earlier. US CPI will be watched for impact in taper sentiment. Support 1.54, Resistance 1.575 if breakout.  EUR/USD up at 1.33, with support at 1.325 and resistance 1.34.

 USD/JPY turned back down below 98 after recent rebound. Concerns on growth and taxes in Japan competing with taper fears. Falling highs to contend with a round 99.3. USD Index also turned down after rebound, to revisit 81.5. Falling highs.

 In Commodities, Gold benefiting from weaker USD. Test near $1350 July highs. Breakout could see resistance at round number $1400 Support still likely around $1300 rising lows from June plunge. Oil process benefiting from Middle Eastern unrest and supply concerns. Brent trading 4-month highs  above $110, while WTI has regained $107.

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