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

UK 100 called to open flat, with futures having traded in a tight range since the physical market closed on Friday. This followed a very strong rally on Friday afternoon following a re-interpretation of European Central Bank (ECB) President Draghi’s Thursday speech regarding measures to help with the sovereign bond crisis and mixed US employment data being seen as unable to avoid quantitative easing by the US Federal Reserve (Fed) next month.

There was also talk that Spanish Prime Minister Rajoy might ask for sovereign assistance at the weekend (already asked for help for banks) saying refinancing in markets difficult. He has since said he would wait to hear the specifics of Draghi’s new measures before making a decision. Italian Prime Minister Monti has also said that it is not close to asking for help, saying it would be mad to do so before Spain.

Draghi has said that the ECB will help bring down borrowing costs, if the countries request assistance which would involve strict quasi-bailout conditionality/supervision. With Spain having already done so much, the question is what would be demanded on top. Greece shows how hard things can be with austerity. Ireland shows that things can get better.

Overnight Asian markets positive, reacting to Friday’s European and US rally, helped also by US jobs report (good as more jobs added, but also good in that unemployment worse which may push the Fed to act). There have also been hopes raised that China will announce fresh stimulus (see below). Japanese macro data mixed. UK employment Index improved from very depressed levels.

Looking at FX, GBP off its worst levels vs EUR, USD off its worst levels vs GBP, EUR off its best levels vs USD. In Commodities, oil (Brent and US crude) prices flattish after their spike up on Friday. Gold, maintains its rally from Thursday. Silver flat from Friday afternoon.

Today’s focus (within a very limited calendar) likely on US Fed Chairman Bernanke’s speech, this after he disappointed markets last week by failing to announce new/enhanced monetary stimulus measures. After mixed US Non-Farm Payrolls (NFP) on Friday (jobs added better, unemployment rate worse), all eyes will be on whether his rhetoric changes at all.

For the rest of the week, investors are hoping for more “bad news is good news” in the form of worse than expected macro data spurring central bankers in to action. European Industrial Output figures is set to show continued weakness. UK seen weak, after additional national holidays. Even Germany has begun to slow up. China is seen bouncing back, however, from its worst month in 3 years. China also publishes inflation and retail sales data. Weak figures could help push the People’s Bank of China (PBOC) towards more accommodative policy which would likely please markets in the absence of moves by the Fed and ECB.

The Bank of England (BoE) publishes its quarterly inflation report, and markets are looking for a cut to both inflation expectations and growth. Both figures would, like with China, influence further monetary easing.

Overnight Macro Data: (Source: Reuters/DJ Newswires)

• UK                    Lloyds Employment Confidence         Improved
• Aussie              TD Securities Inflation                                    Mixed
• Japan               Leading Index                                      Worse
• Japan               Coincident Index CI                             Better
• See Live Macro calendar for all details

UK Company Headlines: (Source: Reuters/DJ Newswires)

• Ageas first-half insurance buoyed by UK business
• Insurer Catlin back in profit as catastrophes ease
• Mediterranean Oil & Gas positive on Italian drill ban
• Telecity H1 earnings rise 26.6 pct, says confident
• Heritage Oil sees OLM deal completed in H2; deal financed by bridge facility, rights issue
• Xstrata says Qatar ups interest to 11.282 pct
• Russia’s Mail.Ru to pay $795 mln in special dividend
• EasyJet July traffic up 8 percent
• WS Atkins awarded Cardiff re-signalling contracts

Morning Press Selection:

• Italy ‘mad’ to seek bailout before Spain – FT.com – Europe http://on.ft.com/NVqtLy
• The silent Rajoy is deaf to the Spanish emergency – FT.com – Opinion http://on.ft.com/N7CJqC
• Cyber finance takes its collateral thinking test – FT.com – Columnists http://on.ft.com/N7BRCz
• Wall St eyes protection against euro exit – FT.com – Financial Services http://on.ft.com/PZ4ApL
• If funds lack conviction it’s their own fault – FT.com – Financial Services http://on.ft.com/Nj8Lg3
• Investors hope data will spur action – FT.com – Capital Markets http://on.ft.com/Nj8NEC
• Merkel’s man becomes the Becket of the Bundesbank – FT.com – Comment http://on.ft.com/MVcntM
• Zen and the art of central banking – FT.com – Editorial http://on.ft.com/OFW0O3
• Few bright spots in Europe’s banking arena – FT.com – Banks http://on.ft.com/Mm6gZs
• Volatile swings push central bankers – FT.com – Capital Markets http://on.ft.com/Nj93Uj