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

UK 100 called to open -20pts at 6350 after struggling to regain yesterday’s close and reverse the sharp overnight sell-off as the US political deadlock continued and the threat of a possible default began to be priced in to US 1-month paper with market yields and auction demand at the highest and lowest levels since 2008 and 2009, respectively.

News that Obama is set to nominate the dovish vice Chair Janet Yellen to the top job at the Fed (and in global central banking) has seen sentiment improve, on prospect of policy continuity – rates staying low for long and policy accommodative – but US political gridlock still dominant as well as the IMF cutting global growth forecasts and warning the US.

President Obama and Republican House of Rep Speaker Boehner still refusing to budge on the budget, with the former saying willing to talk but accusing the latter of holding the country to ransom with default threat and being played by extreme members of own party.

House Republicans have moved to set up a House/Senate working group to recommend debt limit increase and discretionary spending for 2014, but Democrats rejected as a gimmick. A couple of Fed speakers said in favour of tapering in September, with delays undermining credibility and efficacy of forward guidance.

Overnight, Asian equities mixed but Japan higher on Fed news and  BOJ minutes showing an upward revision of its overall economic assessment but some noted a slower than expected exports pick up (likely on strengthening of JPY back from extreme lows) but supporting policy and reforms. Alcoa kicked of US Q3 earnings season on the right foot with EPS and Revenues that topped expectations.

In focus today, we have UK production data which is seen improving in August, likely bolstering sentiment after the IMF actually increased growth forecasts for the nation and reversed its calls for austerity to be loosened, much to Chancellor Osborne’s relief. It’ll be interesting to see whether NIESR also ups its GDP estimate keeping George smiling.

Germany also reports production data which will be of interest given the miss by Factory Orders yesterday. With a lack of US data still, all eyes on the minutes from the last Fed meeting – the one where they elected to stick rather than twist. What’s the buzz in the cap, especially with Yellen now needing just Senate banking committee approval in order to jump in the hot-seat from Feb?

 The UK 100 made a sharp breakdown below late August lows of 6350 to test 6305 overnight and accelerating the existing downtrend. A bounce since has ensued with recovery to the breakdown level, but no progress since with it possibly becoming a hurdle. 3-month graph shows potential resistance now at 6350 and 6385, with support at 6305 overnight lows then 6200 level dating back to June/July.

In FX, USD Index maintained rebound from support at 80 after breakout from falling channel, despite news of Yellen Fed nomination likely meaning loose policy for longer. Test of Oct 4 highs of 80.3 key today, with a breakout opening up the possibility of a move to 80.4 and then 80.7.

GBP/USD held back at 1.612, but with support at 1.60. EUR/USD weaker, testing recent lows of 1.354.

Gold back down at $1318 from recent perk-up to $1330, still hindered by falling trendline of falling highs since late August. Stronger USD also not helping, while safehaven status still ignored in spite of US political turmoil and threat of US sovereign default.

US Light Crude Oil still sideways around $103.5, despite IMF cutting global growth forecasts, and with resistance around $104, while Brent maintains its breakout above recent falling highs at $109.5 to test $110.5.

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