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

UK 100 Index called to open -10pts at 7325, still in its June downtrend, testing December rising support, but also still holding above 7300 7-week support. Bulls like the bullish break above 7320 to escape yesterday’s bearish narrowing pattern but they really need to overcome falling highs resistance ~7350. Bears look to pounce on any test of recent lows ~7300 to open the door for downside towards 7250 (200-day MA) at the very least. Watch levels: Bullish 7335, Bearish 7315.

Calls for a muted open come after a weak US finish (biggest S&P drop since mid-May) that spilled into Asia overnight. This follows another bond market sell-off that again proved contagious for equities, investors digesting hawkish ECB minutes and prepping for further withdrawal of easy money policy; tapering of ECB QE, unwind of Fed’s balance sheet. Maybe even a UK rate hike.

A bearish oil price turnaround hasn’t helped either, denting Energy names. This after much better than expected US Oil inventory data was overshadowed by higher US production, almost taunting OPEC and ‘friends’ who continue to struggle to deliver meaningful production cuts to get Oil prices higher. Note a USD rebound overnight offering some support for UK Index +DAX via weaker GBP+EUR.

In Asia overnight, Australia's ASX underperforms (as weak as US) as financials sold off and Energy digested the oil price drop. Note Miners posting gains as base metals copper and iron rise. Japan’s Nikkei is lower (but less so thanks to Yen weakness), led by industrials and consumer staples, but Energy weighing too.

Major US bourses closed sharply lower on Thursday as large-cap Tech stocks were subject to a sharp sell-off, while oil prices pared overnight gains to hurt Energy names. The Nasdaq underperformed peers, falling 1% to highlight the weakness in Tech, while the S&P500 was not far behind, down 0.9% as the Energy sector compounded losses. The Dow Jones fell by 158 points as Disney and Apple provided the most losses, offsetting a positive performance from DuPont.

Crude Oil prices have fallen overnight, paring gains made immediately after the release of US EIA data. Despite showing a much larger than expected drawdown in inventories, investors reacted negatively to the EIA’s output figures, which showed the largest uptick since January to offset the optimism from the stockpile draw. Both Brent and US benchmarks have found 2-week rising lows support, however the latter remains subdued below $45.

Gold has dropped to the bottom of its weeklong $1218-$1230 trading channel after the sell-off in global bonds has spilled over into other safe-haven assets, while Silver was subject to a dubious ‘flash crash’. Hawkish central bank rhetoric emerging from both the Fed and ECB minutes has seen investors move away from non-yielding assets such as precious metals, however Gold remains underpinned by continuing US dollar weakness.

Dominating the calendar today, as is the case every month, will be the US Jobs report (1.30pm), especially after Wednesday’s Fed minutes suggested that allowing unemployment to fall too low could result in the economy overheating and produce financial excesses. Note ADP missed expectations yesterday and the prior month was revised lower. Wage growth may take centre stage given the recent slowdown for both that and inflation, while the Fed keeps hiking interest rates.

UK Halifax House Prices (8.30am) will be looked to for clues as to the health of the UK housing market and read across to Housebuilders. UK Industrial and Manufacturing production (9.30am), is expected to show a seasonal rebound in May, further helped by GBP weakness.

The Fed’s semi-annual monetary policy report (4pm) is now being released a whole five days before Fed Chair Yellen testifies before Congress. Rather than being released alongside, the change allows both lawmakers and the public more time to review the findings.

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