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

UK 100 called to open +5pts at 6700, after US markets closed higher buoyed by comments from the Fed’s Bullard (offsetting hawkish FOMC minutes) that QE3 must continue, even if he offset this by saying a strong November jobs report potentially increasing the chance of a December taper. Data also a driver, with Philly Fed and PPI disappointing (taper off) but jobs and PMI better (taper on, but econ recovery).

In true balanced fashion, another Fed speaker – Lacker – reiterated opposition to QE3. No change. Still trying to manage expectations and keep us guessing on taper timing and threatening another taper tantrum especially with US equities still pushing all-time highs. US also buoyed by Yellen being approved as next Fed chair and potential US political hurdles being reduced with Democrats vote against use of the famed fililbuster.

In Europe, the ECB’s Asmussen played down the risk of deflation (despite recent ECB rate cut) and stressed ECB would use all available tools to maintain price stability. He cautioned against but said couldn’t rule out negative deposit rates.

Draghi very clear that markets should not infer negative deposit rates are on the way and that economy recovering but fragile and uneven and defended rate cut by saying ‘we’ should strengthen the weakest economies rather than weakening the strongest. Wedimann also assured unlimited support for as long as necessary.

Asian bourses overnight have taken the positive lead from the US, with small gains after three days of profit-taking. Japan still eking out progress thanks to JPY weakening comments from BoJ governor that currency not at abnormally low levels while he expects growth to exceed potential even after next April’s sales tax hike and inflation to hit 2% target in H214. China and Hong Kong heading for biggest weekly gain in 2 years on reform hopes.

This morning we have had German GDP confirmed as positive which is a relief after the negative print by France and concerns on the region after recent dis-inflation and ECB rate cut.

In focus today, we have a very quiet economic calendar, which could be both a driver for continued gains in the US and recovery by the UK Index . At the same time, after the yesterday’s progress it can lead to a bout of risk-off into the weekend. With data limited, listen out for Central bankers speaking with the ECB and Fed still at it. Beware also ‘rumour Friday’.

Major data limited to German IFO Surveys where slight gains expected. Thereafter there is nothing until late in the afternoon, when we get US Job Openings (seen slightly lower) and the Kansas City Fed Manufacturing Index, seen flat.  

UK 100 back at trendline of falling highs at 6710.  A break of this is needed to rekindle the longer-term uptrend. Downside still possible to recent lows of 6640, and then November lows 6610, but we note the progress of yesterday. We note that after flirting with positive the daily chart momentum has slipped back negative.

In FX, USD basket fallen back to test 81.0 after the hawkish Fed minutes were offset by some Fed speaker comments. Resistance at 81.3, with downside still to recent breakout 80.9 and then recent lows 80.6.

GBP/USD rallied to 1.62, helped by weaker USD and not held back by comments from the BoE’s dale about rates staying low for a sustained time. We still note major resistance from recent highs and multi-year falling highs at 1.625.

EUR/USD still trying to recover back to 1.35 helped by more dovish Fed talk and ECB speakers playing down negative deposit rates and rate cuts/deflation. USD/JPY holding 101 after BoJ comments.

Gold hindered by technicals and stronger USD now trading well below $1250 for 2 sessions. Falling 1-month resistance at $1260. Still a lack of safehaven demand (central bank backstops), no income and benign inflation. Still possible that weakness persists for a visit of $1200 before seeing bargain hunters.

Oil spiked on Iran nuclear deal hopes fading with US Light Crude up near recent $95.5 highs and Brent Crude moving back to $110.

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