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

UK 100 called to open -35pts, and sub-5900, with US Fiscal Cliff deadline fears dominating newswires and denting year-end sentiment. Asian markets mixed with Japan just positive, still riding the election wave and anticipating policy easing and government spending. In Shanghai, Chinese equities put in a stellar performance after the HSBC Manufacturing PMI beat expectations and jumped to a 19-month high adding to the recent evidence of an economic rebound by the world’s #2 economy.

Stateside, the upper house (Senate, led by Democrats) adjourned for the day with nothing to show from the extraordinary Sunday session. Both Republicans (who have majority in lower House of representatives) and Democrats remain at stalemate (neither side’s concessions suffice for the other) over a deal to avoid an automatic hike in taxes and cut in spending which could send the world’s #1 economy back into recession, with world-wide repercussions the we could do without given growth’s current absence/fragility.

While all eyes are on politicians being the architects of #1 (the US) falling back into recession, voices in #2 (China) are taking the opportunity to reiterate expectations of GDP growth (7.5% in 2013) and consumer inflation (CPI) of 3.5%, while others suggest the central bank (PBOC) cutting the banks’ reserve requirement ratio (RRR) in 2013 to support growth and widen its currency’s floating rate for more flexibility. Other overnight macro data included an improvement by the Lloyds Business Barometer which ticked up.

Having had a good go at the 6000 figure yesterday on Thursday, UK 100 futures backtracked significantly on Friday and again overnight. We have fallen back out of the recent rising channel and back below some significant trendlines of prior support. Is this the start of a bigger correction? Or just a bump in the road. Incidentally, 5900 is where we forecast the index closing the year essentially making no progress. Politicians have a lot to answer for it would seem.

With the deadline for a deal now just hours away, today’s focus will be the US Fiscal Cliff and the electorate will be hoping that it has not just a New Year to usher in but also some thanks to give to its politicians for finally seeing the light and coming to an agreement. Otherwise, the official Chinese Manufacturing PMI tomorrow morning will be of interest from an emerging economic rebound perspective. Similar improvement expected to the HSBC figure. Will it too beat consensus?

In FX, GBP/USD found resistance at 1.618 after a rally from 1.606. Interestingly, despite the fiscal cliff deadline being so close risk aversion not as strong as before. EUR/USD again under pressure after a rally/recovery on Friday to 1.323. Support still available at 1.317. GBP/EUR bounced of 1.216, making a new 3-month low, although unclear whether this is the bottom. Still under pressure.

In Commodities, Gold still trying to get back above its 200-day moving average at $1665, although note that the average is still rising. Trading in tight range, with USD weakness/strength from risk-on/off election directing play. Support still in place thanks to trendline of rising lows from mid-May. As for the Oils, both US Light and Brent Crude remain in 1-month uptrends, but off their Thursday/Friday highs at $91.5 and $111.5 respectively likely impacted by USD safehaven demand.

It leaves me to offer you my best wishes to you and your family for the New Year 2013.

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

• UK                    Lloyds Business Barometer    Improved
• Aussie             Private Sector Credit               Worse
• China               HSBC Manufacturing               Better
• See Live Macro calendar for all details

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

• Tricor says co may be placed into liquidation
• Gasol reports first-half loss of 1.7 mln stg
• ViaLogy reports first half loss of 2.8 mln stg
• Bumi confirms Nalin Rathod will step down as CEO on Dec. 31
• Heritage Oil: Shoreline Power Buys 30% In Shoreline Natural for $100M
• Hochschild Mining PLC Update on Offer to Acquire Andina Minerals

Max Petroleum Makes Discovery at Eskene North