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

UK 100 Index called to open -20pts at 7360 having continued its retreat from Friday’s 7405 highs. The index remains under pressure from a trio of falling highs resistance levels at 7375-7385. Bulls will want to see a challenge and breakout from these levels to revive hope of 7400. Bears hope continued pressure sees support at 7355 give way to resume last week’s downtrend. Watch levels: Bullish 7385, Bearish 7350

Calls for a negative start to the week come after German coalition negotiations failed late last night, sharply reducing the prospect of Angela Merkel beginning her fourth term as Chancellor. The Euro and Germany’s DAX are both trading lower as the prospect of another election only two months after the last vote becomes a real possibility.

The dent in European market sentiment and the negative FX impact of a lower Euro and stronger Pound therefore see the UK’s blue chip index called lower. The stronger US dollar also sees commodities weaker overnight, which could hurt the heavily-weighted Mining sector.

In corporate news this morning Mediclinic International has ruled out the possibility of making another bid for Spire Healthcare after talks break down following its £1.2bn offer made in October. Glencore announces it is nominating three new directors to the Katanga Mine, in which it owns 86%, following the discovery of material weaknesses in the mine’s internal controls. William Hill announces group revenue increased 4% since HY17, bolstered by its U.S. business; on track to deliver £40m of cost efficiencies end-2017 and trading in line with market expectations. Ofgem to investigate the “cheapest tariff” messaging in SSE’s annual statements, assessing whether SSE failed to provide accurate information about potential savings and changing plans. 

US equity markets finished the week lower across the board as concerns continued to linger that Republican Tax Reform plans will not be passed in the Senate. The Dow Jones closed 100 points lower with Wal-Mart leading losers as an element of investor profit taking dragged shares lower, while Utilities weighed on the S&P 500. The Tech-focused Nasdaq outperformed, albeit closing 0.15% lower.

Crude Oil benchmarks have maintain Friday’s breakout from falling highs resistance levels, however have failed to build on gains. Brent Crude trades flat at $62.5, while US crude fails to overcome further resistance at $56.9.  Gold has retreated from Friday’s 1-month highs as US dollar strength in reaction to the weaker Euro weighs. The precious metal is holding above intersecting support at $1290.

In focus today, with the only major macro data release being the US Leading Index (3pm; exp 0.5% vs. -0.2% prev.) and the only event of note being European Central Bank Governors speaking in Vienna (12:30pm) will be a continuation of global market themes.

Political uncertainty in Germany emerged late on Sunday after the failure of coalition talks, putting Chancellor Merkel under considerable pressure to call new elections in order to maintain her mandate as Chancellor for a fourth term. While it looks as though a new agreement with former coalition partner the SDP looks almost impossible, Merkel could choose to lead a minority government, although this too looks unlikely. Expect updates throughout the week as her party calls for stability.

This week also sees the UK Budget, the first such event in Autumn since 1996. Chancellor Hammond over the weekend discussed multiple issues the UK economy was facing, most notably the ongoing housing shortage particularly impacting first time buyers. This is expected to form a major part of Wednesday’s announcement, with infrastructure and science also likely to be covered.

Having promised to pass Tax Reform through the Senate before Thanksgiving (Thursday), the US Republican party will now have to face the prospect of passing the all-important legislation after the market holiday concludes. Treasury Secretary Mnuchin stated that he now expects a bill to be put before President Trump before Christmas, however there is still much more work to be done before that prospect arrives.

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