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

UK 100 called to open +40pts at 6545 on fresh optimism surrounding a solution to the US debt ceiling and budget impasse, potentially moving deadlines to allow government to re-open until mid-December and the proverbial sovereign default can to be kicked a few months down the road. Oh how markets love a good can kick. Eurozone taught ‘em best?

US bourses made an impressive turnaround to close higher and Asia taking a positive lead, although not quite as excited, maintaining an element of caution despite the talk of tremendous progress on Capitol Hill. Japan’s Nikkei (back from holiday) playing catch-up but also benefiting from weaker JPY as the USD strengthens from political progress.

No agreement in Washington just yet, but lots of the right sounding noises notably from the Senate where negotiations continue before a meeting between Obama and Congressional leaders at the White House. As always though, actions speak louder and much work still to be done.

Macro data overnight comprised deteriorations across the board from Aussie New Motor Vehicle sales, Japanese industrial production and Capacity Use. German import prices indicated benign inflation. The RBA minutes repeated openness to rate cut but nothing imminent while watching effects of existing stimulus.

In focus today we have UK Inflation data with CPI and RPI edging back thanks to flat petrol prices and slower food price rises. Note softer figures set to be hit in the months to come by higher energy prices. PPI input prices seen softening and output prices unchanged. ZEW surveys seen relatively unmoved in October after the strong figures of September.

US Empire Manufacturing also expected to post a slightly higher print while we have to do without official US data. Central Bank speakers include Fed’s Dudley and BoE’s Tucker & Weale. US Q3 results from Charles Schwab, J&J, Coca Cola, Citigroup, Yahoo! and Intel.

Rio Tinto (RIO) reported a strong quarterly production report making new record while its pending decision on a $5bn investment in Australia is seen as test of confidence in China demand (shares +2.5% in Australia overnight). CEO Angela Ahrendts checks out of Burberry to don a different type of fashionable mac at Apple.

Germany’s Chancellor Merkel continues with a 3^rd round of coalition talks while European finance ministers are expected to approve new banking supervisor allowing eh ECB to start reparations for new role as single currency union’s oversight.

The UK 100 broken back above key 6500 level and above falling highs since 22 September. This takes it back into the upper half of its range since July. Upside potential to 6665 highs of mid-September and 6700 of early August. Any further progress in the US would likely help with a relief rally.

In FX, USD basket, off its 80.2 worst levels of yesterday, remains off its 80.7 highs of last Thursday in the run-up to the weekend that wasn’t. GBP/USD held back below 1.60 overnight.  EUR/USD flat around 1.355. USD/JPY solid around 98.5 with safehaven flows into JPY reversing into the USD on US optimism.

Gold still under lots or pressure testing the August lows of $1275. Stronger USD, US optimism, trend of falling highs from end-August and lack of income hindering the yellow metal. Resistance at $1315 falling trendline.

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