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

UK 100 called to open +5pts this morning at 6,565, with the index trying to break out above the 6560 ceiling of much of yesterday, albeit still under pressure and trading cautiously sideways on account of taper uncertainty and looming deadlines for US in terms of Budget agreement (1 Oct) and the reference sovereign hitting its debt ceiling (17 Oct, according to Treasury Secretary Lew).

Asian equities again mixed on a US close in the red following weak Durable Goods Orders suggesting weakness in Q3 and Home sales in-line but with downward revisions to the previous month. Note JPMorgan mulling huge $11bn settlement for regulatory probes on MBS (mortgage backed securities). Wall Mart also cutting orders suggesting slower US.

Although news limited and economic data absent, Japan (and USD/JPY) benefiting from Kyoda headline saying “Japanese stimulus steps to have pledge to study corporate tax cut” (which could offset sales tax hike). Abe to announce economic measures on same day as tax decision Oct 1 (Japan + US on same day – watch USD/JPY next week for volatility).

With all the excitement and volatility from updates by Fed members, Dudley was again speaking late last night and said the Fed must be humble with regards to the Taper unknowns, with financial stability just as important as monetary policy (i.e. “taper talk costs main street”) and that fed will face “communications and operational challenges and unexpected consequences when it ends unconventional policies”.

Note also that some point to US shutdown would meaning no NFP (delayed) which would deprive markets of that key piece of US employment data which would update views on tapering. However, there was a unanimous Senate vote for another short-term (3-month) budget last night and Obama could still step in and raise the debt ceiling to avoid the prospect of a disastrous creditor default.

In Europe, the IMF approved a $1bn payment to Ireland, while Greece’s deputy PM said Athens does not need a 3^rd bailout…but might need debt re-profiling!). The ECB’s Asmussen said the ESM (European Stability Mechanism) treaty will have to change before it can be used as a temporary backstop, highlighting the more messy negotiations we have been spared over the summer.

In focus today we have UK and US GDP updates (third estimates). Watch GBP/USD and major equity indices should there be any surprises, either to the upside or downside. The US did on 2^nd estimate. US Weekly Jobless seen reverting after computer errors, although we said that last week and we are still waiting.

US Pending Home Sales are seen remaining weak in August and Kansas City Fed unchanged. It’s another day for central bank speaker bingo with the ECB and Fed in full flow, so potential for impact on EUR/USD.

UK 100 still sideways for the last 3 days with 6530-6600 range trading out of falling channel which has lost momentum. 3-month graph shows bounce around 6530 keeping uptrend alive (although 1-month says otherwise). Resistance 6600.

In FX, USD index bounced off 80.4 week lows after breaking below trendline of rising lows. Fiscal headwinds weighing heavy ahead of key weekend before deadline. GBP/USD benefiting from USD weakness to revisit near 1.61. EUR/USD also bounced to 1.353, although off its overnight highs.

Gold still skulking around $1320-40 with USD weakness helping a bit, but prospect of rising interest rates less need for safehaven and lack of yield still holding it back.

Oil seen US Light Crude trade down to make new 1-month lows of $102.2 after surprise jump in US inventory data as refiners curbed demand and imports rose. Brent Crude not as weak, bouncing off $108.0 before last-week’s 1-month lows, but still pressured by easing in Middle East tensions.

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