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

UK 100 called to open +25pts at 6600 and thus testing the bugbear trendline of falling highs which have held the index in a correction phase since end-October. This as the Fed’s taper announcement continues to be digested as a signal of economic recovery rather than policy tightening, combined with a bit of a traditional Santa rally (+3.2% this week).

European equity futures also positive, despite a largely breakeven US session for stocks (uninspiring jobs/housing data, some post-taper profit-taking) but failing to be dented by news of an S&P downgrade for the EU to AA+ from AAA in response to budget negotiations and following member state downgrades. The EUR/USD remains weaker post-taper, but the downgrade has not added to this markedly.

 Asia mixed overnight with Japan benefiting helped by a post-taper stronger USD and thus weaker JPY, as well as confirmation from the BoJ that will maintain course with its stimulus programme (monetary base expansion) growth/inflation forecasts/targets unchanged.  Australia is buoyed by renewed interest in the natural resources sector and hoes of a global recovery.

 China (and Hong Kong) are the odd ones out again on mainland liquidity concerns after tardy (and very early public notification of) emergency PBOC intervention action to calm money markets have failed to 7-day repo rates come back far enough from their highest levels since the June crunch. Talk of an RRR cut by year-end (well, it is Friday!).

 Macro data overnight saw UK consumer confidence miss and deteriorate, but the German version beat, while German Producer Price inflation was in-line showing a monthly improvement in weakness but annual slowing worsening.

 German Chancellor Merkel says progress made in stabilising Eurozone, but holes already being picked in banking union with too much reliance on national governments for next decade meaning banks-sovereign ‘doom-loop’ still just as dangerously strong.

 In focus today we have the final reading for UK Q3 GDP which is seen confirmed at 0.8% QoQ and 1.5% YoY, although it could be a touch higher after Construction Output last week saw October beat and September revised higher. The UK Index of Services (big chunk of GDP) in October also seen accelerating but UK Public Sector Borrowing seen worsening.

 In the US in the afternoon, GDP seen confirmed at 3.6% QOQ annualised, although any revisions could impact how the decision to taper is considered. With digestion so far, it would appear good news is good news again, but any data misses could lead to questions of whether the fed moved too early. Eurozone Consumer Confidence seen improving but only slightly.

 The UK 100 is back testing its bugbear trendline of falling highs since end-October at 6600. Good to see, but with that key level yet to be broken we remain cautious and conscious that the correction is not over until it’s over. This could just be the top before another venture south. Daily momentum already dropped back to nothing.

 In FX, the USD dollar index has pushed on to near 81 on the prospect of tapering beginning ion in January. GBP/USD held in recent 1.625-1.645 range by stronger USD but possibility of earlier rate rise by BOE given unemployment improvement, however, inflation worries have reduced. EUR/USD back below 1.367 level on the stronger USD on Fed taper and European concerns (banking union not perfect) but note rising lows at 1.355 if weakness persist.

 In commodities, Gold still struggling below $1200 near 6-month lows, testing $1187 and nearing June lows of $1180. The bounce overnight has also failed to challenge $1200. The yellow metal hurt by stronger USD and lack in inflation, less perceived need for a safehaven and lack of income.

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