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

  UK 100 called to open +50pts at 6545 on the back of US equities rallying to new records and Asia following suit overnight after the US Fed announced the beginning of the end of its extraordinary QE3 stimulus programme, with a modest $10bn first reduction in its $85bn monthly bond purchases in January and further measured steps expected in 2014.

The Fed’s move has been driven by improved US data (jobs, growth, spending, investment) and political progress (note the senate passed the bipartisan budget overnight), and balanced by a reinforcement of forward guidance that interest rates will stay very low for a ‘considerable time after QE ends’ and until unemployment falls below 6.5%’.

 The dovish boost to forward guidance has served to reassure markets (as the Fed will have hoped) that stimulus-tapering does not equate to true policy-tightening, with emphasis that sub-target inflation remains a concern, that future decisions will remain data-dependent and that it can adjust to changing conditions (pause taper).

 The positive market reaction shows markets finally (after a long 6 months of preparation) recognise tapering as an economic positive (proof things improving) rather than a policy negative (less easy money) with less central bank support being required following the financial crisis as a clear sign of the economy have made a significant progress.

 The Fed’s economic projections are for the US to grow slightly faster in 2014 than previously expected, but it did trim its 2015 and 2016 forecasts. The $10bn taper is also evenly split between Treasury bonds and Mortgage-Backed Securities (MBS), suggesting more faith in the housing market recovery and consumer/household confidence.

 In Asia, stocks on Japan’s Nikkei benefited from stronger USD (less money printing for QE3) and thus weaker JPY while the same is true for Aussie stocks thanks to a weaker AUD. Note European finance ministers reached a deal late yesterday on the bank resolution mechanism.

 In focus today will of course be much discussion on the taper-fallout, but data-wise the eyes will be on UK Retail Sales which are seen rebounding in November. US jobless claims are seen falling back from last week’s jump (which erased weeks of falls). The Philly Fed is seen improving although US Existing Home sales are seen weaker than the Starts and Permits prints yesterday. The US data-watching is far from over.

 The UK 100 rallied as high as 9 Dec highs of 6580 overnight, but has since fallen back. The jump took the index beyond its 2-week falling highs but failed to challenge the falling highs at 6600 from end-October which remains the most significant biggest hurdle into year-end and leaves the index in its now near 7-week correction.

 In FX, the USD dollar index rose to 80.8 overnight and settled at 80.65 on the prospect of less currency weakening money-printing. GBP/USD got above recent 1.647 highs briefly and almost to 1.65, but finds itself back below 1.64 at yesterday’s pre-FOMC level thanks to the stronger USD. EUR/USD pulled back on the stronger USD offsetting EUR strength to trade below 1.37

 In commodities, Gold is trading down around December lows $1210 due to the stronger USD reducing the purchasing power of non-USD buyers and tapering being digested as an economic positive and reducing fears of further crises and this need for a safehaven.

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

• Glencore completes deal to raise Mutanda stake
• Costain awarded 100 mln stg UK road link contract
• Keller says trading in line with expectations
• Sirius Minerals says H1 loss after tax of 6.3 mln stg
• Ferrex signs Gabon iron ore exploration deal with Anglo, Kumba
• Wood Group says wins contract in Canada
• Bumi completes name change to Asia Resource Minerals
• 888 confident on meeting FY expectations
• Ofcom to consult on BT’s Openreach service
• Turkey’s Tekfen consortium, BP sign $975 mln construction deal in Shah Deniz II