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

UK 100 called to open -45pts at 6550, having taken another leg lower overnight after US President Obama sounded the bugle authorising airstrikes against Islamist militants in Iraq to protect US personnel. This only went to intensify existing risk aversion from an already tense geopolitical backdrop and offset very strong China trade data.

US markets had already closed lower (Dow Jones lowest since April, S&P below 1900) after a weak European close due to strong rhetoric from NATO warning Russia against troop movements along the Ukraine border while there were reports of Ukrainian aircraft being shot down and Russia preparing more sanctions, this time focused on Industry.

Note the US Treasury saying it was prepared to implement further sanctions on Russia if it does not alter its course on Ukraine, however, the US likely has less to lose than Europe in terms of lost trade.

Overnight sentiment soured quickly on news of US airstrikes in Iraq, sending Asian stocks sharply lower, all that is except Hong Kong and China which benefited from much stronger than expected Chinese trade data, which blew consensus expectations right out of the water. Without such a diverse backdrop of conflict this would normally see global markets rally on the prospect of the world’s #2 economy on a recovery path.

In focus today we have French Industrial and Manufacturing Production which will be closely watched given the weakness out of neighbouring Germany and the fragility of the Eurozone recovery. The UK Trade Balance is seen improving, then it’s all quiet until the week closes with US Wholesale Sales & Inventories which are both seen growing as, if not more, quickly than May.

The UK Index has maintained its southerly course looking like it wants to go all the way to 6500 Mar/Apr lows, making it a 5.7% correction from May highs. Our bearish flagpole pattern from recent 6835 highs would complete in the 6500-6550 region. As with yesterday resistance potentially at yesterday’s highs (6600), then 6650. The DAX has made it to March lows, but the Dow Jones has only just breached May lows so could have further to run.

A reminder that week-ends can bring about risk-off mentality (you never know what could happen before Monday) which could limit progress in the absence of any positive newsflow.

Gold continues to benefit from risk aversion, getting above $1320 to a 3-week high. Those bullish on the yellow metal will be eyeing July highs of $1345, while support has now likely moved up from $1300 to $1310.

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