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

UK 100 called to open -75pts at 6,435, with still no compromise in the US between the Senate (Democrats) and the House of Representatives (Republicans) on the US budget (due by midnight), with the latter insisting on a 1yr delay to Healthcare reforms (Obama refuses to budge), and potential for at least a partial shutdown of many agencies – possibly more – on top of the existing sequester and with the debt ceiling deadline also looming (17 Oct).

Over in the Europe, while things have been calm(er), Italy risks being the source of latest fireworks with Prime Minister Letta confirming he is seeking a vote of confidence after Berlusconi (who may be ejected from Senate due to tax-fraud) ordered (yes, he’s still running the show) the withdrawal of 5 cabinet members from his party’s wing within the young coalition and emphasised its fragility. VAT is the issue within next year’s budget.

In Asia, markets dented by worries on the other side of the pond, and after some weak macro-economic data out of Japan, with improvements in Manufacturing PMI, Retail Sales and construction, offset by mixed Industrial production, housing and vehicle Production.

China bucking the trend despite only a small improvement in HSBC PMI Manufacturing (in contrast to the preliminary reading), although many pointing to the survey being private sector focused (harder hit) and that the official reading may provide a better news on state-owned operations and continued recovery of the world’s #2 economy.

This morning, UK house price data shows continued rise, but Germany Retail Sales weaker than expected (while its politicians discuss a coalition) and industrial giant Siemens has announced that it is aiming to cut 15,000 jobs by the end of next year to boost profits. The crisis is still biting.

In focus today we’ll no-doubt have non-stop coverage of the US political bickering over the budget and what seems like total disregard for the far-reaching effects should we see the first government shutdown in 17 years. UK Lending data seen adding to the property bubble fears. Eurozone consumer inflation data seen cooling a touch.

In the afternoon, US Chicago PMI seen improving and we also get an update from the Dallas Fed. Much talk about budget negotiations/government shutdown eclipsing Friday’s Jobs report (non-farm payrolls) given its importance within QE3 and tapering.

UK 100 broken down below the 6500 level it had been above since early September, maintaining its downtrend since mid-month. Below overnight lows of 6430, next real support 6390 and 6350. All eyes on the US sorting things out.

In FX, USD index depressed by budget situation and potential for government shutdown and another round of stubbornness on the debt ceiling. Off its worst levels of 80.2 on Friday though, regaining 80.4. GBP/USD up near 2013 highs 1.62 helped by US woes and BoE Governor Carney’s comments on QE. EUR/USD held back by Italy worries back down near recent lows 1.348, although still near 3-month highs. Gold did well on the weak USD last week and remains near the $1350 level it left behind mid-month.

Oil maintains its southerly course, with US Light Crude down at $101.5 on US inventory build and prospect of government shutdown. Brent Crude still to break 1-month lows of $107.5.

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