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

UK 100 Index called to open -20pts at 6920, in a downtrend from yesterday’s 6950 highs. However, 1-month intersecting rising support at 6910 keeps the longer-term uptrend towards all-time highs alive and well and the Bulls smiling. Bears are watching for a break of 6900 to fuel hopes of a reversal and meaningful retrace towards 6600, and while the overbought daily RSI has turned over it has yet to break below 70 to deliver a sell-signal. Bullish 6930, Bearish 6915.

Opening calls for a down day in Europe come after a red session in Asia, equities failing to derive inspiration from another Wall St trifecta of all-time highs. FX moves are to blame with a further reduction is expectations of a Fed rate hike this year (see below). The dent to the USD has, however, only served to strengthen the Yen, in turn hurting Japan’s exporters and seeing the Nikkei underperform. This in spite of growing expectations the BoJ will boost stimulus next month - traditionally a currency-weakening event.

Australia’s ASX is just above breakeven in spite of Energy benefiting from the August oil price bounce on production freeze hopes while Chinese stocks are also hovering around neutral after yesterday’s strong  gains. M&A news (US Industrial Gas maker Praxair bidding for German Linde) failing to help.

US bourses got back to their record highs yesterday with all three major indices closing in virgin territory. A weak US Dollar helping commodities saw materials stocks lead gains while the oil price continued to rally, all this helping market sentiment that’s already buoyed by the fact there’s no alternative for investors that actually want returns.

The San Francisco Fed’s Williams spoke during the US session, and actually said something fairly useful in highlighting the limitations of monetary policy in dealing with economic downturns.

He argues that there isn’t enough room for central banks to cut interest rates when both rates and inflation are already very low - low rates should engender an increase in inflation. He also said that fiscal policy (tax cuts, increased public spending by governments) should play their part too. This served to weaken the US Dollar as hawkish expectations receded.

Crude prices have retreated slightly on profit taking, but hopes remain buoyed by that OPEC chatter about artificially supporting the oil price instead of letting the market decide. Energy analysts are torn between taking this seriously and seeing it for what it really is - worthless hot air that will peter out in due course.

Gold has finally started to move as the USD sells off on Williams’s dovish commentary. It’s now back above its 200-hour moving average with $1350 the level to clear before bulls will jump in to ride the advance at least as far as $1355. A drop back below the major moving averages to $1340 would surely require a resurgence in USD strength - so look out for anything that might cause that.

In focus this morning, UK Inflation is seen falling back negative in July for the first time since January. This despite a weaker GBP in the wake of the UK’s referendum result on EU membership slamming the pound and thus rendering imports more expensive. The core measure is nonetheless expected static which will quell deflation fears. For the moment at least.

ZEW Surveys in contrast are seen improving in continental backbone Germany with the Expectations read returning to positive territory and the Current Situation edging up to 50.

In the afternoon, US Housing Starts and Permits are seen largely flat while Industrial and Manufacturing Production may have slowed. Headline inflation from over the pond is also forecast to have pulled back a bit last month, but with the Core measure unchanged.

There may in fact be more focus on Average Real Earnings growth - given its links to consumer confidence - as well as what the Fed’s Lockhart has to say on monetary policy outlook ahead of the Fed minutes on Wednesday.

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

• Antofagasta flags lower spending, reports rise in H1 profit
• AstraZeneca completes agreement with LEO Pharma
• BHP Billiton updates on outlook, slumps to record statutory attributable loss of $6.39 bln
• Balfour Beatty awarded $697m U.S. caltrain contract
• Infosys falls on RBS decision
• Weak oil prices hurt Wood Group's first – half core earnings
• John Wood Group awarded $700 mln contract by Tengizchevroil in Kazakhstan
• Unilever to acquire Blueair
• Polypipe posts 29% Rise in 1H Pretax Profit, Hikes Dividend
• Cairn Energy Posts Sharply Narrowed Loss for First Half
• Britain's May expresses wish to enhance trade and cooperation on global issues with China
• BP may delay planned US Atlantis Field work, says trader citing report
• London copper hovers near one – month low
• Oil prices dip as traders cash in on two – week price rally