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

UK 100 called to open -15pts, with Asian markets mixed despite continued worries over Spain (PM says bailout not imminent, because borrowing costs down on expectations of a bailout being imminent!) and Greece (can it find the savings required to receive the next tranche of aid), as well as global economic slowdown.

The latter was exacerbated by China’s service sector (Non-manufacturing PMI) pulling back sharply from the August reading (12-month low), while Australia’s trade deficit widened markedly, leading to further losses on the Australian Dollar (AUD) versus majors after the Royal Bank of Australia’s (RBA) rate cut of yesterday.

Overnight macro data also included UK BRC Shop Price Index growing, but less than in August, easing the consumer burden slightly. The Australian Service Sector also contracted further, with continued weakness in manufacturing and construction having a negative knock-on for the services sector. This was further evidence that yesterday’s RBA rate cut might not be the last, in order to help ease the pain in a nation which avoided the recession but is seeing a reversal of fortunes linked to the Chinese slowdown and in now having to undergo some self-imposed austerity.

Other news of note overnight was the Asian Development Bank cutting growth estimates for China, India and emerging Asia, pointing to the Eurozone crisis (sovereign debt and recessionary macro data) and the US fiscal cliff (end of tax cuts and start of spending cuts in Jan) as the biggest risks to the global growth outlook.

US markets finished the session mixed with a late recovery following a sell-off after the European close when Spanish PM Rajoy denied that a bailout request was imminent, however, this suggests a bailout is still needed, and so it is only a matter of time (a theme we have got used to over the last few years). Greece also back in the frame with the finance minister saying he was unsure whether agreement could be reached with the Troika (ECB, EU and IMF) regarding budget cuts and disbursement of the next lot of aid before the next EU summit on Oct 18-19.

Today’s macro data focuses on Services PMI in Europe, with only Germany and the UK seen in growth territory. After Monday’s poor Manufacturing PMI data for the region, the Q3 picture remains grim from a recessionary point of view. The UK figure is key, given its importance with the GDP make-up and the weakness in other sectors.

In the afternoon, Eurozone Retail Sales are seen disappointing again in August, as austerity and unemployment bite hard. The US ADP Employment Change will be keenly watched for signals regarding Friday’s Non-Farm Payrolls (NFP), given that the US Federal Reserve (Fed) has now explicitly tied unemployment to its quantitative easing (so long as no improvement, we’ll keep printing money to buy assets and bring down borrowing costs to help economy). Although beware of poor correlation of late, with August ADP strong, but NFP coming in well below.

Given the recent moves in the price of oil, keep an eye on the US Weekly Crude Stocks, which, while very often volatile, have led to some big moves in oil prices recently, notably with increased macroeconomic and geopolitical drivers in play.

In FX and Commodities, the USD is stronger versus GBP, EUR, AUD and CHF overnight, leading to a pullback in commodities prices such as Gold and Oil.

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Overnight Macro Data: (Source: Reuters/DJ Newswires)

• UK                    BRC Shop Price Inflation         Growth, but slower
• Aussie              AIG Services Index                  Faster contraction
• China               Non-Manufacturing PMI         Contraction, 12-month low
• Aussie              New Home Sales                     Continued slowdown
• Aussie              Trade Balance                         Deficit much wider
• See Live Macro calendar for all details

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

• EasyJet raises full year profit guidance
• Dunelm first quarter sales grow
• Marston’s pre-tax earnings in line with expectations
• Exceptionals push Sportingbet to year loss
• Tesco says UK sales improving
• African Barrick expands Bulyanhulu project
• Sainsbury’s beats Q2 sales forecasts
• BTG raises FY revenue guidance
• Britvic, A.G. Barr get “put up or shut up” extension in merger talks
• FirstGroup says disappointed by DfT move
• Timeweave recommends takeover bid
• Lamprell warns on profit again
• Xstrata increases resource estimate at Argentina project