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

UK 100 called to open +10pts, with Asian markets recovering from negative lead provided by Europe and the US after HSBC Chinese manufacturing PMI showed improvement from the prior month, taking it closer to the breakeven level between contraction and growth (it’s been 12 months below), boosting sentiment that the nation’s slowdown may indeed be bottoming out, notably after the better data of last week. Note that new orders and exports achieved 6 and 5-month highs.

Sentiment also helped by an article in German daily newspaper Sueddeutsche Zeitung suggests (unsourced) that the Eurozone members have given Greece an additional 2 years (until 2016) to meet its fiscal targets (bringing deficit to GDP target sub-3%), with the privatisation schedule also pushed back and it looking very likely the state coffers will be replenished with the next tranche of aid from the EU. As we might expect, an ECB official has already denied the 2yr extension.

Speculation continues regarding further stimulus from the Bank of Japan (BoJ), with a Nikkei survey of 11 analysts seeing all expecting action at the Bank’s next meeting. On monetary stimulus, Bank of England (BoE) Governor Mervyn King gave another downbeat assessment of the economy and said the Bank’s action (money printing; QE) may be reaching the limits of its effectiveness

US markets closed lower on deterioration in risk sentiment, largely on the back of a continued raft of disappointing earnings reports (DuPont, Xerox, 3M, UPS). While many beat/met EPS expectations, revenues were light and the outlook from management was not pretty. With limited macro data, the pullback by the Richmond Fed manufacturing index also served to scupper any lingering bullishness. Negative data from the Spain (to miss deficit target) also added to the glum mood.

That sell-off from the key 5915 level materialised, however, the next key level 5800-15 was regained and could provide a platform for another potential attack on the former.

In FX, the Australian dollar (AUD) has rallied after Q3 inflation data came in hotter than expected, reducing the chances of another rate cut from the RBA in November. GBP/USD has rallied in the last hour from yesterday’s 1-month lows, although still in a 1-month downtrend. EUR/USD remains under pressure after sell-off from mid-month. GBP/EUR looks to be trying to bottom out after making 1-month lows the day before yesterday.

In commodities, Gold still under pressure via stronger USD, with it now even closer to that 1700 level, a whole $100 from the early month 1800 highs which were incidentally also 12-month highs. US Crude Oil has rebounded overnight, having been dented by the poor US earnings data and stronger US dollar, and making new 1-month lows of $86. Brent Crude also rebounded, although without making a new 1-month low.

Today’s macro is line-up is busier than the last two combined. While October PMI Manufacturing & Services numbers for Europe and Germany are all nearly expected to remain in contraction territory (sub-50), we are expecting slight improvements. German IFO Business Surveys are seen largely unchanged in October. UK CBI figures from the UK high-street are also seen improving.

Q3 Results continue with aerospace giant Boeing and telecoms behemoth AT&T. US New home sales will be keenly watched after the recent jump in starts and permits. And the day closes with the US Federal Reserve’s (FOMC) rate decision and statement. While we expect no change in policy after the recent major announcement, colour in the statement will be much analysed given the sharp improvement in unemployment (key metric) so soon.

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

• Aussie              Consumer Price Inflation                    Faster than expected
• China               HSBC Flash Manufacturing PMI         Improved, but still contraction
• See Live Macro calendar for all details

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

• Home Retail H1 profit down 37 pct, to reposition Argos
• Elan says Q3 revenues up 10 pct
• Rathbone Brothers – Assets rise 9.5 pct in 2012
• Sports Direct sales up 18 pct, sees strong trading
• Punch Taverns full-year pretax profit falls
• National Express says UK bus, rail performed well in Q3
• Dart Group expects to exceed FY market expectations
• BAT volumes hit by tough times in Brazil