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

UK 100 called to open +5pts at 6755, with yesterday’s progress towards the top end of the 2-week 6700-6775 trading range thanks to US equities closing higher for the first time and Asia following suit overnight after a tough start to 2014.

This follows the US reporting a lower trade deficit on less oil imports (more shale, fracking), combined with bullish/accommodative comments from Fed members (gradual removal, rates to stay low, end QE3 in 2014 if outlook holds). Eurozone sentiment boosted by strong interest in Irish debt after its recent exit from the EU/IMF bailout. Portugal next?

The better US trade balance lead some banks to upgrade their US Q4 GDP forecasts, adding to the growth/recovery optimism (Chief Lagarde says IMF to raise global growth forecasts) following the Fed’s decision to begin tapering QE3 and Asian equities took the positive lead with Japan’s Nikkei helped by the optimism and the stronger USD resulting in an exporter-friendly weaker JPY.

Macro data overnight showed a deterioration in UK Shop Price inflation (steepest fall in 7 yrs on Christmas discounting) and a big drop in Australian AIG Construction due to mining slowdown which held Aussie equities back versus regional peers.

With US Treasury Secretary Lew visiting Europe this week, having pointed to Germany’s trade surplus as a negative for fostering growth/recovery elsewhere in the region it is fitting that November’s German surplus rose further.

In focus today, finally after some equity gains, the question is whether markets will digest again and move sideways as they await the Fed’s latest FOMC minutes this evening for more details on the decision to taper and the path for its exit from QE3.

Other things to look out for today include Eurozone Retail Sales which are seen rebounding to growth, but the region’s unemployment rate stuck above 12%. German Factory Orders are expected to have rebounded strongly in November.

With US unemployment a key component to the Fed’s policy decision making, today we have the ADP Employment Change report which is considered a warm-up for the monthly labour report (Non-Farm Payrolls – NFP). With the latter showing an average 200K gain for 4 months and supporting the Fed’s recovery view, ADP is seen confirming this for a fifth.

With all eyes on the UK retail sector, note trading statements from Sainsbury (SBRY) this morning highlighting flat and slowing underlying sales in the Christmas quarter, although this was slightly ahead of forecasts.

Mothercare (MTC) has warned on profits due to discounting, weak economic conditions and FX pressure. Domino’s Pizza (DOM) met forecasts. In the housing sector, Persimmon (PSN) saw volumes surge in H2 and expects to deliver strong underlying pre-tax profits.

The UK 100 has moved towards the top-end of its recent 6700-6775 range helped by New Year and global growth optimism.  New watch levels are 6740 and 6775, which could hold as markets await Fed minutes before deciding to resume longer-term uptrend. Note daily momentum back near breakeven, but index holding up.

In FX, the better US trade deficit helped the USD index strengthen to 81. GBP/USD flat around 1.64 and EUR/USD at 1.36 despite possibility of UK reducing unemployment threshold for rate rise discussions and Eurozone dis-inflation requiring more policy easing. USD/JPY up at 105.

Gold back down below $1230 dented by stronger USD, still in long term downtrend and after failing to beat $ and trying for $1250 but stopping just shy. Helped by slowing in $1250. Less liquidations, some physical demand and some short-covering may have helped recently, but safehaven demand still lacking and inflation absent.

 The price of Oil (US light and Brent) has perked up slightly from recent lows on US trade deficit improvement and global growth optimism. Note US export curbs on oil keeping US prices low, but any more to capitalise on new sources (shale, fracking) could result in higher US prices.

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