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

  UK 100 called to open +25pts at 6700, after another positive US close and overnight Asian session thanks to a weekend deal with Iran which would see its nuclear capabilities limited in exchange for a $7bn easing of sanctions. Nonetheless, the UK index is still struggling to break the falling highs from end-October at 6710.

 Taper talk still a dominant theme given the continued stream of central bank speakers, and albeit via very much mixed messages, the bias may be shifting towards a reduction in QE3 relatively soon, but heavily countered with tapering not being tightening, rates staying low for long(er) and a host of potential other tools including a lower unemployment threshold, negative deposit rates.

 In Europe, German Chancellor Merkel says Greece needs to implement the reforms it pledged if it wants to receive the next tranche of bailout aid, while according to an EU document the region is considering cheap loans to governments as an incentive to structural reforms. The ECB’s Asmussen still warning against use of negative deposit rates.

 In Asia overnight the ECB’s Coeure was playing down Eurozone deflation risks while Noyer noted positively that European financial markets are calming and interest rates returning to normal, while the BoJ’s Kuroda said negative rates may have been possible but implications unknown and that Japanese economy improving moderately.

 The S&P has also warned Japan that Abenomics improving near-term prospects but it gives a 1/3 chance of a cut to its AA- rating within two years, while tensions have risen between China and Japan over East China sea dispute.

 In focus today, we have UK BBA Home Loans seen improving and supportive of the UK property recovery. In the afternoon, we have the Chicago and Dallas Fed Index and an expected rebound in Pending Home Sales.

 UK 100 back testing the 6700 zone thanks to optimism from Iran Nuclear deal, but still to break the trendline of falling highs from end-October.  A break of this is still needed to rekindle the longer-term uptrend. Downside still possible to recent lows of 6640, which could increase the chances of a bearish descending triangle pattern, which could break even lower (6500). Daily momentum still just negative.

 In FX, USD basket rallied back to 80.9 overnight, off its recent 80.6 lows although still a way from recent highs 81.3-81.5. Tapering being priced in more but other tools being ignored? Or increase in demand as currency reserve as precious metals are shunned and Iran deal seen sceptically?

 GBP/USD rallied to near 1.625 but fallen back to 1.62 after USD strengthens on taper talk. We note another fail (3 since early October) at the major resistance from multi-year falling highs around 1.625.

 EUR/USD also slowed up at 1.35 after USD strengthened and negative deposit rates  talked down by Draghi and Co. USD/JPY rallied higher to hit 102 on stronger USD more than weaker JPY.

 Gold hindered by stronger USD and less safehaven demand after Iranian nuclear deal. Technicals also maintain downtrend from end-October. Still no income and benign inflation. A revisit of $1200 looking increasingly likely before bargain hunters step in.

 Oil dropped on Iranian nuclear deal, with US Light Crude down from $95.5 to recent lows $93.5 and Brent Crude giving up a similar amount to revisit $108.5 from recent highs $111.5 to $110.

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UK Company Headlines: (Source: Reuters/DJ Newswires)

• Rolls-Royce wins $215 mln F-35 Lightning II contract
• Costain awarded 30 mln stg Paddington contract
• Quintain Estates first half profit falls a third
• Interserve agrees 150 million stg Sussex uni deal
• Salamander Energy places $150 mln unsecured bond
• Cranswick H1 profit up 4 pct, sees year in line
• Chemring says full year trading in line with board guidance
• Essar Energy says first-half revenue rises 5 pct