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

UK 100 called to open +10pts at 6755, holding above Friday’s US Non-Farm Payrolls lows, as markets continue to interpret positively the December cold weather-impacted jobs report, taking the NFP miss as an anomaly and the improved unemployment rate as a sign of underlying economic improvement warranting a gradual exit from the Fed’s QE3.

The reaction suggests belief that tapering is unlikely to take place any faster than expected even if the unemployment rate improvement (even closer to Fed threshold) and participation rate deterioration (more dropping out of labour pool, less slack in economy) continue to confound and January’s polar vortex may result in a similar impact to NFP next month. 

US stocks closed mostly higher (DJIA only just in the red) suggesting scepticism that the last jobs report of 2013 casts enough doubt about the underlying US economic recovery, and expect a continued measured reduction in QE3 over the course of 2014.

Note the Fed’s Bullard suggesting tapering will continue as is with more focus on unemployment rate than NFP miss suggesting seasonal swings to be ignored. Nonetheless, with forward guidance being for rates to stay low until QE finished and unemployment below 6.5% markets will likely want some clarification on the horizon for a rate rise.

In Asia, equities have started the week mixed (Japan closed for public holiday) with emerging markets higher lead by Indonesia after the country diluted its ore export ban and fears of accelerated US tapering reduced. Base metals gaining as a result. Watch the miners today.

 Australia in the red after the weaker US dollar resulted in a AUD/USD rise >0.90 which hurt exporters, despite the mining sector boost from Indonesia. Data overnight was confined to down-under with Aussie Home loans maintain their solid growth while job adverts remained soft and investment lending dropped.

 In focus today we have a very light calendar (no major data prints) which will allow plenty more time to dwell on Friday’s NFP and lack of reliability from the warm-up report ADP. UK, US and Eurozone inflation and US & UK Retail Sales will also garner much attention over the course of the week as will ratings agency Moody’s update on Ireland on Friday.

This week we have the US banks starting to report Q4 results on Tuesday, and we note the FT reporting that financial regulators (Basel) yesterday watered down controversial new international rules on leverage designed to curtail bank reliance on debt and avoid ‘gaming of the system’ after much industry lobbying. Banks 1, regulators 0.

The UK 100 made another test of festive lows on Friday and remains within touching distance of a breakout. However, it’s not a breakout until it’s actually broken out. For now the sideways pause continues and rising lows from mid-December could help. Daily momentum still stuck around breakeven.

In FX, the USD index has weakened back to 80.6 after the weaker US jobs report which, combined with the BoE staying  put on policy last week, has helped GBP/USD get back up to 1.65. The EUR/USD cross has regained the key 1.637 level but failed to make any progress. Rising lows from July still intact at 1.36. USD/JPY back below 103.5 on weaker USD which will hinder Japanese stocks when the re-open tonight.

Gold moved up to above 2014 highs and to retest $1250 helped by the weaker USD and some macro uncertainty from last week’s China trade data and US jobs report.  Note 1yr falling highs resistance at $1280.

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