UK European equities opened higher this morning but the air of optimism quickly evaporated as the bulls struggled to find impetus for another leg higher. Barclays were the primary drag on the UK’s blue chip index, taking 5 points off the FTSE after the Sunday Times ran a story claiming the bank was close to a £4bn share offering, as the board run out of time to find alternative solutions to meet the BOE’s capital requirements. The firm is due to report earnings tomorrow and traders will be watching closely for any comment on their capital plans… Today’s earnings saw Reckitt Benckiser report strong sales and positive guidance on full year numbers, and National Grid report a positive start to the year with upbeat commentary on their investment plans. Both stocks struggled to cling to their early gains however, as the softer market tone took its toll. Aberdeen Asset Management slipped lower after announcing net outflows of £3.4bn during the quarter, though the board’s confidence in the continued improvement in revenue growth has helped stem the tide early on. US The possible creation of the world’s largest advertising agency has dominated the news wires as we found out yesterday of the potential tie up between Publicis Groupe SA and Omnicom Inc, a courtship that is thought to have started some 6 months earlier in Davos at the World Economic Forum’s annual conference. This deal will almost certainly come under scrutiny from the regulatory bodies and has to yet be signed off by shareholders but if completed will create an organisation with a market value in excess of $30 billion. This hasn’t stopped the overall indices from slipping back in early trading as Pending Home Sales figures fell short of expectations which were already set for a big reduction month on month. This follows last week’s 0.1% drop in the S&P 500 which brought to an end its longest streak of weekly gains since the 17th of May. Perrigo Co was one of the equities leading the markets lower as they announced plans to buy Irish drugmakers Elan Corp for $8.6 billion which traders clearly feel is an overvaluation for the potential benefits and synergies created. We expect more than 130 companies from the S&P 500 index to report this week as earnings season becomes a key catalyst for further market moves. We should get further indications as to the strength (or otherwise) of the US economy. FX The Japanese Yen has appreciated today against most other currencies for the third consecutive session, on the back of Bank of Japan Governor Mr Kuroda’s speech this morning where he declared his confidence that the Japanese economy can withstand the planned consumption tax rises from 5% to 8%. Retail sales were also up from last month at 1.6% compared to the previous 0.8%. The greenback is up all round today against the Euro, Sterling and the Australian Dollar as traders position themselves for unemployment data, GDP and the FOMC meeting which begin on Wednesday. Any indication of further improvement in the US economy is likely to see further strength in the dollar this week. Federal Reserve Chairman Ben Bernanke is not expected to comment further on the Fed’s plans for easing as their position is quite clear now with most eyes expected to be on the data. Commodities WTI Crude enjoyed somewhat of a seesaw trading session, after a rise in the European session gave way to a $1 drop as the US markets awakened to the weaker China story. Coffee Robusta prices have dropped off slightly today having risen nearly 12% from their lows in mid-June as the market prices in the devastating impact of continuing rainfall in Indonesia, the third largest producer, where farmers are struggling to dry the beans in the wet conditions.


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