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

  UK 100 called to open -15pts at 6420, with European equity markets seen continuing their southerly drift ahead of this week’s long awaited FOMC meeting (Weds) and potential tapering of QE3, combined with thinner pre-Christmas volume exacerbating things.

 This is after a mixed/breakeven close in the US on Friday and a negative start in Asia following disappointing macro data related to business outlook in Japan (improved, but missed expectations) and Manufacturing PMI in China (3-month low).

 Markets still concerned about the prospect of recent US data (jobs, GDP) and political calming leading the Fed to begin the process of reducing its exceptional policy of monthly asset purchasing stimulus (QE3) of buying long term US government debt (Treasury bonds) and MBS (mortgage backed securities) to bring down interest rates/borrowing costs to encourage investment.

 Consensus may however have shifted back to favouring a delay until January, with potential for political hurdles returning should the Republicans start asking for too much following the budget deal, leading to another debt-ceiling stand-off early next year which may see the Fed hold off from any big decision.

 Over the weekend Germany’s SPD party agreed to the proposed grand coalition with ministerial appointments being made. The ECB’s Asmussen has been named the state secretary in the labour ministry and will leave the central bank.

 There is an FT story that this implies ECB President Draghi having lost a key ally in policy promotion. Note Draghi is speaking this afternoon. The WSJ’s Hilsenrath wrote that the FOMC has a real debate on its decision. Slovenia’s bailout-risk is not off the table.

 In focus today we have final PMI Manufacturing/Services from France, Germany and the Eurozone, with France still seen in contraction, but the others still growing. The US Empire State Manufacturing and US PMI Manufacturing are expected to have rebounded and US Non-Farm Productivity improved. US Industrial data and capacity use also expected better. Could US data add further to the expectations of or the Fed’s case for tapering?

 The UK index has made another test lower, potentially making a breakdown from another bearish flag pattern that we highlighted on Friday afternoon. We do note support at 6400 but the trend is still very much down. As we have repeatedly said, no reversal yet.

 In FX, the USD dollar index is back of highs of 80.4 but holding 80.2 as consensus may have shifted back to another taper delay. GBP/USD off recent 1.645 highs, but back at recent support 1.63. EUR/USD still off 1.38 highs of last week. Support 1.37.

 In commodities, Gold sideways around $1235 Back from recent highs $1270, but off recent lows $1212.

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