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

UK 100 called to open -5pts at 6670 following yesterday’s strong sell-off, having found a modicum of support overnight thanks to some dovish Fed-related talk and NATO saying this morning that Russia had withdrawn a large number of troops from Ukraine which should help appease some geopolitical worries.

The tepid start reflects trader nerves after the surprise slowing in Eurozone PMI Manufacturing and Services which keeps the ECB under pressure, the US move to limit tax inversions hurting EU and US healthcare names which had benefited from M&A hopes and the first strikes against the Islamic state in Syria.

US markets finished bloodied with healthcare and small-caps suffering, but less weak than European peers thanks to a stable US PMI Manufacturing reading and improved Richmond Fed, as well as the dovish Fed-related talk.

Fed speaker Kocherlakota suggested inflation sub-2% for the next 4 years and his main worry is raising rates too quickly. Colleague Bullard said he supported keeping the ‘considerable time’ language in the latest FOMC statement. WSJ Fed watcher Hilsenrath expects Fed member changes next year to reduce interest guidance.

Major Asian bourses mixed overnight after the weak close on Wall Street as geopolitical worries took hold again, Eurozone macro data weighs on global growth sentiment and the Fed’s George said rates must start normalising now. Note gains limited to Hong Kong and China thanks to the IMF saying it expects China GDP well above 7% in 2015, however, Goldman Sachs has cut its China forecast from 7.6% to 7.1%.

The UK 100 index has retraced a considerable 200pts over the past 2 days to find support overnight at 6650, however, there is still a chance that this is just a pause, the weakness persists and we see a pullback all the way to Apr/Aug lows around 6500-6525. We note the daily RSI suggesting the index close to oversold.

In focus today, we have German IFO Business Surveys seen echoing the weaker European PMI readings yesterday, while US New Home Sales are seen rebounding in August, although remember US Existing Home Sales were weak on Monday.

In commodities, Gold is holding above $1220 and above the trendline of rising support from $1210 early on Monday morning. Traders still weighing escalating tensions in the Middle East against a potential calming in Ukraine and expectations for higher borrowing costs in the U.S.

In Oil, US Light is back up close to $92/barrel although still near its 16-month low ahead of US stockpile data while Brent remains steady around recent lows $96. An easing of tensions in Ukraine could weigh on the latter.

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