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

UK 100 called to open -10pts at 6585 after US markets closed lower on a revival of the ‘good data is bad data’ paradigm (good for growth, bad for QE3) following a stronger than expected reading for US ISM Manufacturing yesterday and concerns that US bourses’ gains (recent and year-to-date) may be overextended.

 Asian markets largely in the red with Hong Kong and China weighed by a flood of new IPOs (too many?) as well as slightly disappointing China PMI Services reading following manufacturing prints on Sunday and Monday which cheered the bulls. Australia also taking the China news negatively with miners (especially the precious metals) dropping on the combination news of China and US tapering fears.

 Japan’s Nikkei the standout performer (positive) with exporter equities benefiting from speculation that the BoJ is to announce a new ¥5.5tn stimulus package this week which saw the JPY weaken and the USD/JPY cross rally to >103 near 5-yr highs.

 Overnight, the RBA left interest rates unchanged and delivered its usual message ‘policy appropriate, past easing filtering through’ and maintained its bearish stance on the AUD (‘uncomfortably high , needs to go lower’). The AUD also under pressure from a bigger than expected deterioration in current account even if exports and retail sales improved.

 Overnight Fitch affirmed Greece at B-, Stable, with options to address the 2014-15 funding shortfall but also warned of significant political risk. In Italy PM Letta agreed to a confidence vote while the ECB’s Rehn criticised the country for not reducing debt fast enough. The Fed’s Potter also endorsed the US Central bank’s new reverse repo facility as a help with eventual tightening while US Vice President Biden urged Japan and China to calm tensions over the East China Sea.

 Macro Data included a deterioration in UK BRC Like-for-likes sales to the slowest pace since April and adding to concerns of slower growth in Q4.

 In focus today we have UK PMI Construction seen edging back from its elevated reading of November. Eurozone PPI seen negative and worsening supporting the recent ECB rate cut based on disinflation fears. In the afternoon, US ISM New York and IDB/TIPP Economic Optimism will be looked to for more clues on the US and the perceived timetable for tapering of the Fed’s QE3.

 The UK flagship index UK 100 remains in its corrective trend from end-October, and the ugly duckling among index peers despite UK’s better fundamentals with yesterday’s taper tantrum taking it back from Friday’s revisit of the falling trendline of resistance. Upside thus back to said trendline but after a break below 6610 downside possible to around 6500. Non-Farm Payrolls or expectations thereof to makes things better or worse on Friday?

 In FX, the USD dollar index is back from its 81.0 taper fears 1-week high. GBP/USD is thus back from its multi-year highs of 1.645 although EUR/USD has bounced from 1.353 lows to regain 1.355.

 In commodities, Gold tested low of $1220, closing on the long term rising trendline around $1200 after the USD strengthened on and taper fears and demand for the safehaven took another leg down.

 In Oils, the Saudi Oil Minister says oil supply and demand remain balanced and inventories in the right position while US Light Crude rallied from $92.5 up to $94 ahead of tomorrow’s inventories report which is expected to show a drop for the first time in 3 months. Brent Crude jumped from below $110.5 to make a new 1-month high of $112.2 on stronger demand.