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

UK 100 Index called to open -15pts at 6470, having slipped below the 6500 level we had eyed as support, as stocks turned cautious/defensive yesterday on a weaker than expected China PMI Manufacturing and a batch of European PMI Manufacturing which fell short of expectations reviving growth worries, coupled with an ECB source saying it would not improve the terms of its TLTRO unless the region took a turn for the worse.

US markets closed little changed, although the DJIA and S&P500 managed intraday highs following a much better ISM Manufacturing, with a pullback in US PMI Manufacturing, Construction Spending and ISM Prices Paid offsetting earlier cheer. Further retracement was had after oil prices slumped on news that Saudi Arabia is to cut crude prices to the US for December, while raising them for Asia and Europe.

The Fed’s Fisher said holding off on a rate rise until late summer 2015 would be too long to wait, and thus expects the FOMC to raise rates earlier than financial markets expect. In Europe, the ECB’s Nowotny said the bank “should hold off on QE this year” on the day that it accelerated its covered bond buying purchases.

In Asia overnight, equities mixed, with Japan’s Nikkei leading the way soaring to a fresh 7yr high >17000 (back from long weekend, off best levels) as a stronger USD/weaker JPY fuelled buying following the BoJ’s surprise expansion of easing measures and Government Pension Fund asset allocation changes last week. Deterioration in Japanese PMI Manufacturing and Vehicle Sales had little effect.

Australian equities higher on stronger Retail Sales and a weaker AUD as interest rates remained unchanged, the September trade deficit widened and unemployment data revised higher. Equities in Hong Kong flirting with negative territory in-line with mainland China performance showing red across the board.

UK results this morning; Persimmon (PSN) says operating profits will rise in H2 thanks to better margins and consumer confidence. Imperial Tobacco (IMT) reported declines in FY revenues (-6%) and profits (-3%), hurt by FX rates and inventory reduction. Associated British Foods (ABF) reported FY earnings + 6% with strong performances from Primark and Groceries, offsetting lower sugar prices. Legal & General (LGEN) revenues +12% with Assets under management +14%.

The UK 100 has fallen back below a trendline of rising support across highs from Oct 10, as well as breakout level 6500. All eyes on whether the trendline of rising lows from 17 Oct holds can keep the uptrend alive, or whether weakness persists. Pause for breath or another leg down? Watch levels: bullish 6520, bearish 6450.

In focus today, the EU Commission releases its Economic Forecasts mid-morning and Eurozone Producer Prices are seen flat in September, although still deflationary on an annual basis. The US Trade Balance is forecast unchanged, while Factory Orders weakness is expected to have stabilised after August’s plunge and Economic Optimism is projected gaining a point.

In commodities, Gold ($1171) sits near its lowest level since 2010 on expectations the US Fed is moving towards its first rate rise in 8 years while peers hold rates low and add stimulus (ECB, BoJ). The strong USD is denting bullion demand, while soft global inflation is negating any need for a stimulus-fuelled hyperinflation hedge and the strength in equities is reducing the need for a safehaven. Central Banks to the rescue, again.

Oil has plunged, with US Light Crude dropping below $78/barrel and Brent Crude below $84/barrel, extending their slide as Saudi Arabia cut prices for crude exports to US customers amid speculation that US stockpiles increased. OPEC continues to resist cutting output as global supplies rise.

For any help you may require placing trades or in terms of market information, put a call in to our trading floor – it’s all part of the service.