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

UK 100 called to open +35pts at 6700, and US & EU futures higher, with China helping risk appetite climb after the HSBC Flash PMI Manufacturing reading improved more than expected, to the highest in seven months, rekindling hopes of the world’s #2 economy recovering, even accelerating, notably within the key SME segment.

Nonetheless, we note the money markets situation continues to deteriorate in China with a net PBOC drain of cash from the system in an effort to tighten margins and calm inflation. It has a way to go to get as bad as the squeeze of this summer, but pressure is likely to be felt by the SME businesses that appear so optimistic within the PMI data above.

US markets closed slightly lower after a 5-day rally on taper delay expectations and valuations hitting near 4-year highs, taking a knock from a Q3 miss and guidance cut by Caterpillar (CAT) which increased fears over China.

The US close mirrored Europe which was under pressure following the ECB’s communication on bank stress tests and bank President Draghi’s blunt “if they have to fail, then so be it”. Reverse backstop? Outright threat to banks to sort things out?

After the US close, AT&T reported solid Q3 earnings with an EPS beat and revenues in-line with further gains in subscriber additions although competition remains hot, notably since Verizon (VZ) got access to the iPhone. Lots of UK results out this morning, looking good on the whole from the likes of WPP, KAZ, ULVR as well as FRES upping dividend and contract wins for SRP and RR. DEB wary though on outlook.

 In focus today we have PMI Manufacturing and Services from the likes of France, Germany and the Eurozone with improvements expected in France (manufacturing seen back above 50), but Germany slowing up after recent gains and holding the region back a little.

 Thereafter it’s UK CBI Trends which should tick up in October. US Jobless claims seen falling in the latest week and the US PMI Manufacturing slipping slightly. Q3 results continue with names like 3M, Colgate Palmolive, Dow Chemical, Ford and Xerox before the US open and Amazon and Microsoft after the US close.

 The UK 100 sideways move already looks to have already run its course with futures already moving back towards the highs of yesterday thanks to China PMI. This suggests yesterday was merely a pause, before a resumption of the uptrend. 6715 still a hurdle. PMI data to be the driver for a breakout, boosting optimism on Europe?

 In FX, USD basket seen renewed weakness, dropping below 79.2. GBP/USD benefiting as a result, already moving back towards 1.625 highs of late Tues/early Weds although highs of 2012 remain a hurdle. EUR/USD strength persists, now above 1.38, last seen Nov 2011. USD/JPY still hanging around 97.5

 Gold holding around recent breakout highs of $1345 helped by USD weakness. Potential for move to continue to $1370 mid-September high and trendline of falling highs since mid-March. Renewed safehaven interest after much shunning. Oils off their lows, but still under pressure with US Light below $98 and Brent below $108.

For any help you may require placing trades or in terms of market information, put a call in to our trading floor – all part of the service.