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

UK 100 Index called to open -20pts at 6480, having fallen yesterday to the key 6450 breakout level for last week’s double-bottom pattern. There is potential for this to serve as support again, however, with recent 6580 highs being lower than those of 8 Jan, this leaves us in a downtrend with a falling resistance dating back to Dec 8 still to overcome. Watch levels: Bullish 6510, Bearish 6440.

The negative opening call comes in the back of a negative US finish despite the US Labour Market conditions survey rising and European equities finishing higher amid volatility (note the VIX volatility index on the up) fuelled by much ECB QE talk/speculation. Oil maintaining its downtrend, taking another leg lower appears to be the driver, with the Fed’s Lockhart reiterated dovish commentary brushed aside but William’s talk of a June rate rise a hindrance.

Even news that China’s Trade Balance beat expectations (smaller drop in surplus), suggesting the nation on a more solid footing hasn’t buoyed markets with exports accelerating and import contraction slowing. Too much focus on the oil prices ahead of US earnings season and Europe’s woes and desire for stimulus via all out QE at the next ECB policy meeting (Jan 22).

Hopes for ECB QE too high? Or nailed on? Could it just be talked up for following month awaiting Greek election outcome? A worsening in German Wholesale Price inflation this morning data adds to the raft of disappointments and deflationary threats of late and adds fuel to the market and ECB debate. Contraction in UK BRC Shop Price Sales (weakest Xmas since 2008) adds to the rate rise/inflation/wages debate in the UK.

Asian bourses mixed and muted, with Japan’s Nikkei (after a holiday) taking lead from negative US close and held back by a stronger JPY overnight from improved trade balance/current account data and with the Finance Minister saying falling oil prices might be a negative for the BoJ’s inflation target but no for the economy. Hong Kong benefiting from China Trade Balance data although no boost as might be expected for Australian equities hindered by a strengthening in the AUD and collapsing oil price.

In focus this morning we have UK Consumer Price Inflation data seen recovering in December but slowing over the past 12 months. Although the core reading is expected to tick up, both annual measures remain well below target as the rate rise timing discussion continues. UK Producer Price Inflation is forecast to show input prices falling further and out prices contracting, while UK House Price growth cools.

In the afternoon, in the US, Small Business Optimism is anticipated to gain ground although IBD/Tipp Economic Optimism and JOLTS Job Openings are likely to be stable on the prior month.

Gold has extended gains to its highest levels in a month touching $1240 and to test falling resistance from levels of late 2012 as investors assess US economic strength amid leaking oil prices and the impact this could have on inflation and interest rate hike timing (more expecting delays), along with less petro-dollar pressure and global central bank policy divergence. Equity declines also helping in terms of safehaven demand.

Oil has maintained its southerly course overnight, despite strong China trade balance data, with US Light Crude $44.6/barrel and Brent $46 after Goldman Sachs and SocGen slashed short-term price forecasts, Gulf producers showed no interest in curbing output and worries over rising US stockpiles dent sentiment. Are we headed all the way back to late-08/early-09 levels? Race to the bottom?

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

• UK                          BRC Sales                             Miss, deteriorated
• China                     Trade Balance                    Beat consensus, but surplus fell
• China                     Exports                                 Beat, accelerated
• China                     Imports                                Beat, contraction improved
• Germany             Wholesale Prices              Deteriorated

See Live Macro Calendar for full data line-up, incl. consensus expectations

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

• Morrisons says CEO to go after Christmas sales fall
• Ashmore assets under management fall to $63.7 bln in Dec
• Michael Page posts 12.9 pct rise in recruitment fees
• ASOS sales growth accelerates over Christmas
• Cairn Energy to shift 2015 focus to Senegal
• Greggs sees year ahead of expectations after strong Christmas
• Debenhams quarterly sales fall but Christmas shows promise
• UK Mail says Q3 trading in line with expectations
• Sound Oil says withdraws offer for Antrim Energy
• Rio Tinto to Outshine Rival BHP as Oil Continues Slide