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

UK 100 Index called to open flat at 7435, holding yesterday’s 7430 breakout and still in an uptrend from Monday’s 7360 trough. Bulls need a break above 7450 to clear shallow falling highs and open the door for a run to 7515. Bears need a breach of 7430 to endanger the uptrend and enable a retrace to 7360. Watch levels: Bullish 7455, Bearish 7430.

Calls for a flat market open comes as investors adopt their usual cautiousness before a US Fed policy update and the Dollar Index rallied toward Friday’s highs. Bullishness may have waned overnight (USD bounce, oil off highs) after US and Asian equities rallied (S&P record high), fuelled by corporate results and Oil >$50, but Bulls are reassured by equities holding their ground.

No change to Fed policy is expected this evening (not without a press conference and recent data hardly supportive), but the statement language may offer clues on the outlook for inflation and future hikes, and of course when it plans to begin unwinding its QE-bloated balance sheet.

UK Index corporate news includes Hammerson H1 profits inching up on record leases despite retail sector troubles. Antofagasta production rises, costs in-line with expectations. Fresnillo maintains FY production guidance. GKN posts higher earnings and offers upbeat 2017 outlook. ITV ad revenues and profits slide less than consensus; FY guidance unchanged; div +5%. Tullow Oil capex cut, 3yr cash cost savings target revised up. 3i Q1 NAV +4%, generated £107m from asset sales. Compass Group sees FY17 trading in line with views.

Australia’s ASX has outperformed thanks to Energy and Miners benefiting from higher copper (2 year highs; China optimism) and oil prices (Saudi/Russia export cut pledges), while a weaker AUD helps after lower than expected inflation. Japan’s Nikkei is posting respectable gains thanks to Energy and Financials, and fresh USD strength delivering some welcome Yen weakness to fuel exporters.

US equity markets closed higher across the board yesterday as the S&P500 closed at a fresh record high. Another strong session for earnings helped both the S&P and Dow Jones rally sharply, Financials, Energy and Materials rallying on the former, while top and bottom line beats for Caterpillar and McDonald’s helped lift the Dow higher, offsetting disappointing numbers from 3M. The Nasdaq closed just above break-even ahead of major Tech stocks reporting on Wednesday.

Note, Telecoms giant AT&T’s shares rallied 3% in aftermarket US trading as its Q2 earnings beat analysts’ expectations. US companies reporting today include Dow components Boeing and Coca-Cola, while social media leader Facebook, car-making behemoth Ford, payments processor PayPal and the world’s third largest asset manager State Street also report.

The Crude Oil price rally has taken another leg higher overnight as the American Petroleum Institute reported its largest drawdown since September. The private industry measure of US stockpiles saw a 10.2m barrel fall last week, helping global benchmark Brent crude regain a $50 handle for the first time since early June and rally close to $51 before falling back to $50.50. Its US equivalent briefly traded above $48.50 before cooling on profit taking.

Gold has fallen ahead of this evening’s Fed update as the US dollar rallies overnight, helped further by US equity markets touching fresh record highs as earnings season moves from strength to strength. The precious metal has broken its rising channel, falling below $1250 support as a result, and is approaching intersecting supporting at $1243 ahead of the key central bank update.

All eyes today will be on the US Federal Reserve’s monetary policy update (7pm). Whilst no changes to headline policy are expected - not without a press conference to explain - traders will be closely scrutinising the statement for any clarity on the start of the Fed’s balance sheet trimming, whilst still trying to decipher whether a Sept or Dec rate hike is still on the cards.

Data-wise, preliminary UK Q2 GDP (9:30am) tops the billing, with headline annual growth expected to fall from Q1’s equal best since Q2’15 (1.7% est. vs 2.0% prev.) while quarterly growth accelerates marginally from Q1’s slowest since Q1’16. Index of Services prints (~80% of GDP) may show slower growth in May, but acceleration for the latest 3-months sequentially. UK BBA Mortgage approvals are expected to extend their 5-month decline.

This afternoon, US New Home Sales (3pm) are looking to escape the same fate as disappointing Existing Home Sales on Monday, with expectations of a marginal uptick in June. DoE Weekly Oil Inventories (3:30pm) will, as always, add spice into late proceedings, as it looks to emulate the overnight API report which showed the biggest drawdown since September.

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