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

UK 100 called to open -30pts after the European Central Bank (ECB) rejected Spain’s idea of recapitalising troubled bank Bankia with €19bn in Spanish sovereign bonds which could then be used as collateral and exchanged for cash at the ECB. The ECB said this went against its mandate of not financing national governments, and it is up to Spain to provide the necessary means to recapitalise the bank, within a very troubled sector saddled with €180bn of bad loans from its burst property bubble.

The trouble is that Spain’s own borrowing costs are now in dangerous territory, with its benchmark (10yr) bond yields having risen to around 6.5%, which is commonly viewed as unsustainable. Remember than Greece, Ireland and Portugal managed no more than a month at 7% before having to ask for rescues. Spain continues to urge the ECB to act as lender of last resort, having done all it can terms of implementing austerity reforms and requests that the European Stability Mechanism (ESM) becomes a bank bailout took. Last night the Spanish central bank governor resigned, a month earlier than planned.

IN a further dent to confidence, much peddled expectations that China is prepared to announce a new stimulus programme to encourage growth in the slowing economy have been denied, impacting risk assets such as equities and commodities.

US markets closed with respectable gains, having been driven by speculation of the ECB announcing a bank recapitalisation programme, something which did not materialise as you will see by the opening calls for European bourses, and hopes of China stimulus. The closing bell saw US indices higher despite some weak macro data in the form of US housing, US consumer confidence and Dallas Fed Manufacturing, but off their highs as emerging ratings agency Egan Jones downgraded Spain at the end of the session.

Overnight macro data saw nothing to move sentiment much. Japan’s Manufacturing PMI remained flat at 50.7, still in growth territory. Australian construction work showed more growth than expected, while its retail sales were weaker than expected, actually contracting.

Asian markets failed to emulate US gains, with European concerns back to the fore on the ECB rejection of Spanish proposals and the nation’s ratings downgrade. These renewed European fears overnight have seen safehaven seeking in the USD, at the expense of the single currency EUR, which has kept any strength in commodity prices in check.

Macro data of interest today is UK Consumer credit and mortgage approvals (how many approved, how much was able to be borrowed). Expectations are for flat lending, but more approvals. Thereafter expectations are for deterioration in Eurozone sentiment by business and industry. US pending home sales are seen flat on the month.

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

• Japan               Markit/JMMA Manuf PMI      Flat
• Aussie              Construction Work Done        Better
• Aussie              Retail Sales                             Worse
• See calendar for all details

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

• Metro sells Makro UK to Booker in $219m deal
• Patagonia Gold says Argentina project on schedule
• Bwin.party invests $50m in social gaming
• AMEC buys Unidel for A$27m
• Premier Oil increases stakes in Bream project
• Glencore welcomes Viterra approval of acquisition
• Centamin updates five-year Sukari gold mine plan
• Severn Trent FY profit beats expectations
• Sportingbet Q3 2012 EBITDA drops to £10.8m
• BG sells interest in Philippines power plants

Morning Press Selection:

• Facebook shares close below $29 – FT.com – US Equities http://on.ft.com/LC4cMc
• BP battles against perception of drift – FT.com – Oil & Gas http://on.ft.com/Jsl9YR

• Energy stocks bear brunt of slide oil – FT.com – Oil & Gas http://on.ft.com/Kb82kN
• Difficult times for miners as costs rise – FT.com – Commodities http://on.ft.com/JMYzvw
• China sends prices into reverse – FT.com – Commodities http://on.ft.com/MVBqLP
• Madrid in ‘game of chicken’ with EU – FT.com – EU Economy http://on.ft.com/Lcc9bX
• China weighs options as growth slows – FT.com – Asia-Pacific http://on.ft.com/KD8QLP
• Warning lights flash red over Spain – FT.com – Capital Markets http://on.ft.com/JSKRFF