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

UK 100 called to open flat, with another negative lead provided by Wall Street keeping Asian equities under pressure, with fears over the looming US fiscal cliff sending the US back into recession and concerns over Europe (Greece, Spain, eurozone growth) continuing to weigh on sentiment, having already brought markets back from their highs of late.

We are, nonetheless, off the worst overnight levels for futures, thanks to Chinese data suggesting that inflation has dropped, reviving expectations of wiggle-room for authorities in terms of policy easing (if necessary) to boost what may be improving growth (bottomed out?), itself supported by better than expected Industrial Production, Fixed Asset Investment and Retail Sales.

Not great news from Australia though, with the Royal Bank of Australia (RBA) sounding a dovish tone and downgrading its growth forecasts on weakening mining and fiscal tightening. The IMF, however, provided a more upbeat recent assessment of the G20, suggesting global GDP growth stabilised, albeit at subdued levels, and ratings agency S&P helped out by claiming that US politicians will eventually compromise, which will see negative effects of the fiscal cliff avoided.

Doubts on Europe stem from Greece finally approving new austerity measures in order to receive its next tranche of bailout aid, but the Troika of bailout lenders (EC, IMF, ECB) now in disagreement which may hold things up for weeks, taking the nation down to the financing wire yet again.  Parliament still has another vote on Sunday too which could add to risk.

Spain managed to sell more debt than it asked for yesterday, meaning its financing is complete for the year, which likely pushed out any bailout request well into next year, although Fitch says the nation’s credit rating is appropriate for now, but any negative action would likely be to non-investment grade.  A short selling ban may also be lifted early in Greece, which could see pressure on its equities.

The fact that the ECB provided nothing new in terms of how/when/to what extent it will help troubled nations such as Spain, waiting for request for help first, also added to the fray. As did Draghi’s comments about a worsening economic outlook, and the bank not having made any decisions about what to do next year.

The UK 100 index has broken below those long-term trendlines of rising support. This offers potential for a more significant correction. While the breakdown point could revert to resistance, we also note that 2-day lows are no worse than October lows. Support?

In FX, GBP/USD remains around the 1.595-1.605 level. EUR/USD still in downtrend, but off lows of near 1.27 yesterday. GBP/EUR remains in uptrend, with support around 1.25. In commodities, Gold made further advances, exceeding post Obama re-election highs to reach $1738, although now off best levels. With Cable (GBP/USD) in a tight range, the price of oil doing the same, with Brent Crude around $107 and US Light Crude at $85.

In focus today will be the UK’s Trade Balance data, which is seen improving in terms of deficit. Industrial Production data from France and Italy are unlikely to provide much respite from the poor German data of late, which in aggregate is sure to weigh on Europe’s own data, impacted by austerity and economic slowdown. In the US, updates on Consumer Confidence and Wholesale Inventories are seen pretty much flat on the prior month.

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

• China               Consumer & Producer Inflation          Lower, better
• Japan               Consumer Confidence                                    Down, but Better
• China               Industrial Production                          Better
• China               Fixed Asset Investment                       Better
• China               Retail Sales                                         Better
• Germany         Consumer Inflation                             In-line
• See Live Macro calendar for all details

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

• Lonmin to price share offer at 45 pct discount
• Hammerson sells last office property, wholly focused on shops
• BP says its share of 2006 Alaska spill payment is $66 mln
• Tullett Prebon sees four revenue down 12 pct on last year
• Rolls Royce continues to see good growth in FY profit
• Galliford Try sets out plan to deliver more growth
• Rentokil Initial Q3 profit up
• IAG third-quarter profit falls 25 pct, cuts 4,500 jobs at Iberia
• Enquest expands outside of N.Sea, output on track
• Kentz wins $45 mln solar contract in South Africa
• Beazley 9-month premiums up 9 pct
• Xchanging says trading in line, on track for year
• Petroceltic JV awarded Egypt oil licence
• Hornby shelves dividend, says facing challenges
• Grainger creates new social housing subsidiary