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

UK 100 called to open flat, with Asian markets mixed overnight amid a quiet handover from the US where data was absent but fiscal cliff commentary (Wall St Journal) was supportive (negotiations on-going, Obama optimistic of a deal). After the fears yesterday of a return by Berlusconi to Italian politics, the FT is reporting that technocrat Monti  is in talks with centrist parties to run for re-election after pressure from the markets, political parties and the church following his resignation.

Overnight, data showed less than expected Chinese New Loans (and 12% less than last month) which goes against the grain of better/improving data regarding economic growth. UK House Prices fell more quickly than last month versus an expected slowing in the decline. Manpower surveys showed little change in Japan while India improved and China deteriorated. Aussie business surveys showed no change in negative vie won conditions but a worsening in confidence. German Wholesale Prices also grew by less than expected in November.

Major index futures remaining near recent highs on optimism that the US Federal Reserve (Fed) alludes to QE4 tomorrow in an effort to stimulate the US economy by weakening the USD which would likely see a rally in risk assets such as equities and commodities.

The UK 100 keeps knocking at the door of long-term falling resistance, testing new highs following the US close on fiscal cliff optimism. Note, however, that since the beginning of the month we have some shallow rising highs. Could this continue, with the index gradually grinding higher through the long-term level?  As we said yesterday, negative sentiment (Eurozone politics, US fiscal cliff) may be offset by a QE4 move by the US Federal Reserve (Fed).

Today’s focus will likely remain on Italy but on the data front it will be the ZEW Surveys for Germany and Europe which are the main releases with improvements expected for German and Eurozone economic sentiment but a slight pull back for German current situation. Spain is auctioning 12 and 18-month debt. In the afternoon, with the fiscal cliff so dominant, an update on the US Trade Balance will likely be watched especially with a slight widening in the deficit expected.

In FX, GBP/USD recovered from yesterday’s lows on possibility that the US fed announces more stimulus measures tomorrow. Has support emerged around 1.60? Could September highs of 1.625 be achieved with a QE4 announcement? EUR/USD also bounced off 1.29 lows although is a tug of war between the USD printing money and Italy passing its sickness to Europe with a new leader undoing the work of Monti. Recent early Dec highs were 1.31. GBP/EUR off its highs after a strong run from mid-last week, however, support may kick in now at 1.24, as Eurozone uncertainty weighs more than more QE from the BoE. Sept/Nov highs of 1.255-1.260 achievable.

In commodities, Gold off its highs of $1717 to trade at $1705 after the USD’s strengthening of yesterday. Nonetheless, the break of 2-week falling highs is a positive move and more QE could see the metal benefit back end-Nov highs around $1750. In Oil (US Light Crude and Brent Crude) has tested recent end-Nov lows of $85.5 after the USD’s strengthening yesterday. Brent Crude retains support around $107.

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

• China               New Loans                               Worse
• Japan               Manpower Survey                   Improved
• UK                    RICS House Price Balance       Worse
• China               Manpower Survey                   Worse
• Aussie              Business Conditions                Unchanged
• Aussie              Business Confidence               Deteriorated
• France             Non-Farm Payrolls                  In-line
• Germany         Wholesale Prices                           Worse
• See Live Macro calendar for all details

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

• Victrex full-year profit up marginally
• Domino Printing profit falls 10 pct, expresses caution on market conditions
• Whitbread Q3 underlying sales up 3.3 pct
• Ovoca Gold to sell Olcha licence to Polymetal
• Ashtead posts record first half profit
• Carpetright meets H1 expectations, on track for year
• Diageo ends long-running talks on Cuervo
• IG Group H1 revenue down 14 pct on subdued markets
• Polymetal to acquire deposit in Russia from Ovoca
• Akers Biosciences wins breath alcohol tubes order
• ASOS maintains heady rate of sales growth
• Tullow Oil says Jubilee phase 1a production starts
• Tullow to buy Norwegian explorer, selling N.Sea gas assets