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

UK 100 Index called to open +35pts at 7250, continuing to trade in its shallow rising channel having recovered from a challenge of its channel floor yesterday afternoon but back from overnight highs of 7260. Bulls will be hoping for a further test of the 7260 channel ceiling for a breakout to last week’s highs of 7310. Bears will be looking for a pullback to the 7200 channel floor, hoping a further challenge leads to a leg lower.  Watch levels: Bullish 7270, Bearish 7220

Calls for a positive start come after Asian markets followed US peers higher, with the latter shrugging off a hotter-than-expected CPI print yesterday afternoon, as risk assets bounced sharply from session lows. Financials, Tech and Commodities have led the charge higher, with some Asian markets already winding down for Lunar new year. The US dollar trades 3-week lows, which may hinder the UK Index and DAX by way of stronger Sterling and Euro respectively.

Outperformance for miners down under will lend themselves to the UK Index ’s heavyweight offering, while Gold and Crude Oil at 3-week and 1-week highs respectively will help Gold miners and Oilers alike. Meanwhile, South African stocks may react to President Zuma's resignation overnight

Corporate news this morning: RELX net profit beats (£1.66bn vs £1.38bn exp.), revenues in line; to simplify corporate structure by creating single parent company; announces further £700m share buyback. Convatec swings to full-year profit, however sees decline in EBIT margin in 2018 due to investment; expects organic revenue growth between 2.5%-3%.

AstraZeneca’s  Selumetinib gets FDA orphan drug status, expects second phase trial results later in 2018.  Lloyds’ Scottish Widows to end £109bn investment management deal with Standard Life Aberdeen after 6-month post-merger no withdrawal window expires; the latter will book a £40m impairment charge in 2017 accounts.

US equity markets shrugged off stronger than expected inflation data to close higher, stringing together a 4-day winning streak. The Dow Jones climbed just over 1% with Goldman Sachs leading risers, while Financials and Tech outperformed on the S&P 500 (+1.3%), the latter helping the Tech-heavy Nasdaq to outperform peers (+1.9%).

Gold is trading close to a 3-week high following the US dollar’s sharp fall in reaction to yesterday’s hotter than expected inflation data. The greenback dive has seen the precious metal climb back above $1350 for the first time since 1 February, breaking out from the ceiling of a 1-week uptrend. The dollar will continue to drive sentiment today with another inflation metric, PPI, due out later today.

Crude Oil benchmarks have continued to climb sharply overnight, bolstered by a duo of bullish news. A smaller than expected build in US EIA inventories provided a short-term bullish boost to crude, while the OPEC Secretary General suggesting the group would not exit its current production cut programme further lifted sentiment. Brent crude has broken out from falling highs resistance to trade a 1-week high above $65, while US crude trades back above $61 after its own bullish breakout.

In focus today, hot on the heels of strong US Consumer Price Inflation yesterday and Wages growth data that spooked markets at the beginning of February, will be yet another price growth metric, Producer Price Inflation (1.30pm).

With oil prices having been strong into end-Jan, PPI also has potential for a January pick-up in contrast to a consensus cooling, adding to calls of returning inflation perhaps forcing the Fed (which concentrates on Core inflation) to tighten policy more quickly. Once again, watch how the USD reacts.

Thereafter, both Empire State Manufacturing and Philly Fed (1.30pm) will provide assessments of February corporate confidence in their respective regions. Economists expect the former to extend a 4-month downtrend to the weakest since August, the latter ticking down from an already weak January to revisit August’s 2017 lows.

US Industrial Production (2.15pm) likely slowed in January (0.2% vs 0.9% prev), normalising from a strong December, Manufacturing Production (2.15pm), however, should pick up. Capacity Use (2.15pm) is expected to extend a 4-month climb to its highest in 3 years and the NAHB Housing Market Index (3pm) is seen static in February.

Speakers today include the ECB’s Mersch (8.15am) giving a keynote speech at an Agricultural Exporters meeting in Paris, while the central bank’s Chief Economist Praet (10.45am) is on a panel discussion at a conference jointly organised by the French Treasury and IMF in Paris and Lautenschläger (1pm) gives a keynote speech at Dutch Banking Day 2018 organised by De Nederlandsche Bank in Amsterdam.

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