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

UK 100 called to open +25pts at 6720, back at its opening level of yesterday following a test of the festive lows after slightly more cautious Fed minutes and dovish reinforcement by the ECB (‘whatever it takes’) sapped recently improved global growth sentiment.

Nonetheless, futures have recovered overnight with markets taking in their stride a worse than expected decline in Chinese trade surplus which may exacerbate slowdown fears (especially after slower inflation prints) as exports fell more than expected and imports surged, meaning it likely China became world’s biggest trading partner in 2013.

A mixed US finish around breakeven came from a continued lack of willingness to commit ahead of the US jobs report, data which could impact the Fed’s decision on its QE3 taper path. More positive data would support the Fed’s decision that US can withstand less help.

With tapering so close, we note, however, continued mixed comments from Fed speakers with George (non-voter) concerned about costs of QE3 and zero rates but less so about low inflation while dissenting voter Kocherlakota said need even more stimulus to resolve jobs crisis quicker.

A worse than expected start to US Q4 earnings season with retailers disappointing (like in the UK) and aluminium refiner Alcoa missing consensus due to big write-downs and depressed commodity prices also added to uncertainty. Shares -4% after hours.

Asia equities also mixed swinging between gains and losses, with Japan’s Nikkei helped by the USD/JPY getting back to 105, Hong Kong positive (despite China negative) but Australia held back by the weak China data and slowdown fears, and despite a huge rebound in Aussie New Home Sales to a 2.5yr high.

With the woes of UK retailers being highlighted by Christmas trading updates, note overnight data from the BRC suggesting like-for-like shop sales growing just 0.6% in December – lower than in November and versus expectations of an acceleration. Note also ratings agency S&P confirming Germany at AAA, Stable.

Focus today will be on US non-Farm Payrolls and whether it beats consensus like ADP did earlier in the week and, with tapering being based on an economic recovery, what it might mean for the pace of Fed reduction in asset purchase stimulus. Supportive or not?

Elsewhere though, updates on industrial production by France, Spain and the UK (growth expected everywhere) and a Dec update on the latter’s GDP estimate. Note US Wholesale sales/inventories seen slowing in November but US Economic optimism rising in January.

The UK 100 tested festive lows yesterday and whilst it has recovered to within the prior range overnight, yesterday’s pre-weakness high gives us a run of falling highs around 6735 which could impede upside. Daily momentum still negative. Long-term uptrend in-tact, but sideways pause not looking as solid.

In FX, the USD index has weakened below its trendline of rising support at 81.1 to test the 81 level ahead of the US jobs report. GBP/USD stronger at 1.646 on USD weakness and BoE standing firm yesterday. EUR/USD weaker ECB dovishness but found support at 1.355. USD/JPY back up at 105 but in very narrow range. GBP/EUR up at 1.21 after test of 2013 highs.

Gold move higher overnight on weaker USD and macro uncertainty thanks to the China trade balance and exports disappointment. Macro-concerns from this and ECB dovishness reviving safehaven demand.  Potential support $1232, but resistance still at $1249.

The price of Oil has also lost some of its recovery momentum on renewed growth uncertainty. 3-week downtrends on US Light Crude and Brent still unbroken.

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