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

UK 100 called to open +15pts after equities in Asia pushed higher on the back of a solid start to the US earnings season with Alcoa, the world’s biggest Aluminium producer, meeting revenues and beating profits expectations for Q4 growth and alluding to growth in 2013 demand for the metal.

This revived sentiment after a negative close for US equities as the euphoria of Capitol Hill’s fiscal cliff fudge gave way to concerns over the next Washington budget fight (fiscal cliff #2, debt ceiling). These fears intensified in late trading despite satisfactory data releases on US Small Business and Economic Optimism and an increase in US Consumer Credit which suggested increased consumer confidence.

Sentiment buoyed overnight by reports that the Bank of Japan (BoJ) is to introduce a 2% inflation target in an attempt to combat the nation’s long-term deflation and the imminent introduction of fresh stimulus to revive the flagging economy. This has maintained downward pressure on the Japanese Yen (JPY) versus the dollar (USD) and thus benefited appetite for equities of exporters.

Still in Asia, heightened speculation that China’s central bank (PBOC) could cut the bank reserve requirement ratio (RRR – how much banks have to hold) in order to help stimulate the economy has also provided some support to appetite although with tight trading ranges yesterday there was also talk (quickly denied) that France had been pre-warned about a credit rating downgrade which dented the single currency (EUR) versus major peers such as the (USD).

Overnight macro data was very light with Aussie New Home Sales growth accelerating in November, however, the UK BRC Shop Price Index of prices showed flat growth missing expectations of faster growth in December while Aussie Retail Sales actually fell in November after a flat reading in October and hopes for a pick-up.

In focus today, amid a thinly populated calendar, will be the German Industrial Production update which is seen recovering some ground in November after a very weak print in October. However, if yesterday’s Factory Orders data is anything to go by an improvement is possible while growth remains under pressure from the global austerity/slowing growth impacting the exporter nation.

The UK 100 found support again overnight at the recent resistance-turned-support level of 6050. This leaves the index in a tight 50pt range after it regained 6105 levels last seen in May 2011 late last week. Appetite for financials still strong after Monday’s news of more relaxed capital requirements from Basel III. After Alcoa’s Q4 results, interest in resources/commodities-exposed stocks may also rise helping the index which has a heavy weighting in both.

In FX, GBP/USD trading around 1.605 as the dollar is favoured over Sterling with the prospect of US QE coming to an end this year, although we note the trend of rising lows from last Friday which offers some support at 1.604. EUR/USD trading around 1.308, off its highs of 1.314 yesterday, as French downgrade speculation dented the single currency. Potentially very close to rising support at 1.307. GBP/EUR still under pressure at with 6-month falling highs. After fall-back from highs at 1.236, EUR still favoured over GBP which many see dented by more QE being on the way. Support at 1.225, then 1.216.

In Commodities, Gold still making advances from last week with a notable test of Monday highs at $1,661. This despite USD demand from prospect of QE ending, although recent unemployment data still suggests QE needed for a good while longer. Next resistance $1670 from prior lows and 6-week falling highs. Oils tried towards recent highs again yesterday, again despite USD strengthening, with US Light Crude making a better effort than Brent.

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

• Aussie              New Home Sales                     Growth accelerated
• UK                    BRC Shop Price Index              Worse – flat growth
• Aussie              Retail Sales                             Worse – growth slowed
• See Live Macro calendar for all details

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

• Greggs 5 weeks to Jan 5 like-for-like sales down 2.9 pct
• Grafton sees 2012 profit above market expectations
• Sainsbury has record Christmas though growth slows
• Intertek acquires engine testing firm
• Centamin Egypt meets production targets despite stoppage
• Galliford Try sees half yr profit above expectations
• Ted Baker posts 21 pct retail sales rise
• Costain joint venture wins network rail contract
• Restaurant Group says FY profit to be ahead of consensus of market forecasts
• Ted Baker names David Bernstein as new chairman
• Hikma Pharma agrees $22.2 mln Egypt deal