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

  UK 100 called to open -5pts at 6540 after all the excitement and hopes yesterday, that a deal to extend the US debt ceiling and re-open government amounted to nothing, again. This prompted ratings agency Fitch to put the US’s AAA credit rating on negative watch (note S&P stripped it of AAA 2 years ago) based on a lack of progress which could lead to a technical default as 1-month bond yields spiked  to 2008 highs on the prospect of T-Bills due not being paid.

 Senate scheduled to reconvene at midday (US time) to resume ‘efforts’ before tomorrow’s Oct 17 deadline. However, debt ceiling day is not necessarily default day. They can’t borrow more from this date, but they can likely stretch out what’s left in the pot for a bit longer prioritising debt interest. How long remains to be seen. China urging solution.

 Furthermore, a deal by one house (Senate or HoR) is one thing. It’s still got to be passed by the other, which has been the issue for weeks now with both standing firm on their views surrounding Obamacare – the President’s 2010 affordable healthcare plan. More worrying now is the amount of infighting among Republicans between extreme and more moderate. HoR Speaker Boehner has his work cut out.

 Asian trading choppy as markets focus ever more on the US and its painful fiscal discussions ad in reaction to downbeat message/outlook from US results. Japan and Australia just in the blue, with Hong Kong in the red following China down as the mainland is impacted by reports over valuations of companies linked to the new free-trade zone.

 In Europe, more specifically Germany, the Green party has ruled out a coalition with the Chancellor’s CDUs based on a lack of common ground. More talks set with the SPD which Merkel needs to get on board in order to form a new government. Note German finance minister Scheuble warning that direct aid for EU banks is unlikely, while Ireland aims to close loopholes that have led to tax haven allegations.

 In focus today, we have the UK jobs data where unemployment is seen flat at 7.7%, although the jobs increase accelerating, claims falling and earnings growth unchanged. Eurozone Consumer Price Inflation (CPI) seen confirmed as benign doing little for the EUR. US data limited to NAHB Housing index seen roughly flat.

 Q3 results wise, US sentiment hit by lacklustre financials and downbeat messages from Intel and Yahoo as Q4 outlooks disappoint. This after a Citigroup miss on lower trading revenues and mortgage work added to the woes of JPMorgan. Today the line-up includes, BNY Mellon and Bank of America before the US open and then eBay and IBM after the close.

 The UK 100 still holding above 6520 which is interesting given the proximity of the deadline. Trading narrow 6520-6570 range. Any move out will be based on hopes of an agreement or worries about a lack of. Pause before resumption of uptrend? Or plateau before deadline and sell-off?

 In FX, USD basket, down from excitement highs of 80.8 yesterday but still trading above mid-range of late last week. GBP/USD still held back below 1.60. EUR/USD also flat around 1.355. USD/JPY holding around 98.5. USD the running the game.

 Gold back up above August $1270 lows after test and visit of $1250 level last seen in July. Hurdle still at $1300 as well as falling highs at $1315. Safehaven seeking resumed as US deadline nears and despite stronger USD.

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