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

UK 100 Index called to open -55pts at 7390, starting the week on the back foot, albeit well off its worst levels of 7320 where it encountered shallow rising support. Bulls need a break above 7400 to close the overnight gap-down and foster recovery. Bears require a break below 7370, to reverse this morning’s breakout, if lows are to be revisited. Watch levels: Bullish 7400, Bearish 7370

Calls for a negative start derive from Friday’s sharply lower close on Wall St flowing into Asia last night (Japan -2.5%, Australia -1.5%) after the strongest US wage growth in over 8.5yrs heightened fears of hotter inflation may push the US Federal Reserve to hike rates more/faster than expected.

This added fuel to a bond market sell-off, pushing US 10yr Treasury bond yields closer to the magic 3% level (unseen since 2013) which will only increase borrowing costs for corporates following years of cheap financing, thus ushering equities further from recent highs.

The US Dollar may well be off its best levels, helping commodities like Gold and Copper, but Oil remains under pressure and a weaker GBP is offering little UK Index benefit, nor late-week M&A with Vodafone in early talks with Liberty Global about acquiring European assets and US Broadcom planning to boost its bid for Qualcomm.

Corporate news this morning: Randgold Resources reports lower Q4 YoY profits growth due to lower sales and production, raises dividend, to engage with DRC on new mining code. Tesco trading in-line,  expects £1.58bn pre-exceptionals operating profit in FY 2018; Declares final dividend of 2pl Booker deal to close 5 March.

Trinity Mirror says talks to buy Daily Express owner Northern & Shell continue. Ryanair Q3 customers +6%, revenues +4%, PBT +12%, margins +1pt; to buy back €750m shares. Wizz Air revenue per passenger KM +24.2%, passengers +21%, capacity +24.8%, load factor -0.3%.

US equity markets closed sharply lower (down 2-2.5%) with the Dow Jones down a devilish 666pts (sixth biggest points drop in history), lead lower by an Energy sector reacting to disappointing results from Chevron and Exxon Mobil as well as the week’s Tech sector updates, hawkish comment from the Fed’s Kaplan and US political fun and games.

Crude Oil benchmarks are under pressure, with a stronger USD and higher bond yields helping both back from failed attempts at fresh highs. Note Brent ($68.3)below a trendline of rising support going back to June while US Crude ($64.9) remains above support going back to October. Gold is back below $1335, with a stronger USD overriding any rush to the yellow metal as either a safe-haven port in a storm or hedge for inflation.

In focus today will be January PMI Services from Europe (8-9.30am) and US (2.45pm), with improvements expected across the board for the former while the stateside print delivers a small pullback. Eurozone Retail Sales (10am) growth likely slowed up after a strong December.

US ISM Non-Manufacturing (3pm) may echo European PMIs with an improvement, however, the components (Prices, New Orders and Jobs) may garner more attention.

Thereafter there is sure to be much fierce discussion about Friday’s strong market sell-off, with equities and bonds falling further, and bonds yields continuing to rise, which is likely to increase borrowing costs.

This week’s main events include another round of Brexit and German coalition talks, a monetary policy update from the Bank of England, as well as results from BP, GSK, Ryanair, Rio Tinto from this side of the pond and GM, Twitter, Viacom from the other.

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