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

UK 100 called to open +5pts after US and Asian markets put in negative performances with the initial euphoria surrounding Spain’s bailout proving (as expected) short-lived and the two biggest Spanish banks receiving downgrades from Fitch (Santander and BBVA). As has been so often the case in this financial-turned-sovereign debt crisis, early cheer is often quickly lost. Sceptics would have been right to open the week on a pessimistic note, with worries surfacing regarding the details of the bailout (where is the money coming from, which debt would have seniority in case of a bailout?) and the upcoming Greek re-elections (Sunday).

It was bond markets which took the lead, sending yields on Benchmark Spanish and Italian debt back to worrying levels (>6%), signalling concerns over whether they would get their capital back if Spain has to surrender its sovereignty to international rescue (that sounds like something from Thunderbirds!) and what the potential is for financial contagion to an already troubled Italy. Many are thankful of some quick action on Spain but still see regard the assistance as a sticking plaster (gaining us a bit of time), for an unfortunately festering wound.

Overnight, macro data shows an improvement in UK house price declines, but significantly slower Indian Industrial production than expected, another concern for emerging market followers. Asian are markets lower on the bailout cheer fizzling out and attentions turning east to Greece and Italy. In fact, Italy is auctioning debt on Thursday and with the move in yields yesterday, it will be interesting to see how much it is obliged to pay to borrow in the markets.

Looking to FX and commodities, the decline in sentiment in Europe has seen the Eurozone’s single currency Euro (EUR) pull back sharply in favour of the traditional safe-haven US dollar (USD). This has seen commodities like Gold and Oil (denominate din USD) remain under pressure with Brent Crude remaining below $100/barrel and US Light Crude near recent lows of $81/barrel. Gold has pulled back below 1600/oz after its brief rally as the EUR was bought and USD sold on the bailout (sorry, ‘Financial Assistance’) announcement.

Macro data likely focused on today will be UK Industrial and Manufacturing production and Trade Balance given the recent weak GDP and Bank of England (BoE) holding for on more Quantitative Easing (QE) last week. In the afternoon, the NIESR updates on its UK GDP estimate. Thereafter US Import Export prices may give an update on stateside inflation. The IMF’s Lagarde will also speak in the afternoon, potentially commenting on the Spanish bailout.

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

• UK                    RICS House Price Balance       Better
• Japan               Tertiary Industry Index           Worse
• Japan               Manpower Business Survey    Improved
• Aussie              NAB Business Surveys             Worsened
• France             Non-Farm Payrolls                  In-line
• India                Industrial production              Worse
• See Live Macro calendar for all details

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

• Spirit Pub Q3 managed like-for-like sales up 3.7%
• Xcite says BP ups support under amended sales deal
• Ted Baker says retail sales rise
• BAA says euro zone crisis hit May traffic
• Sainsbury enters e-book market with Anobii buy
• GlaxoSmithKline unit Stiefel buys Basilea eczema drug
• Oxford Instruments full-year adj profit up 60%
• IAG says Qantas taking right steps

Morning Press Selection:

• Chinese bank lending rises in May – FT.com – China http://on.ft.com/N2P7Ka
• Bond buyers should be mindful of history – FT.com – Capital Markets http://on.ft.com/Oi6MdK
• Safe assets: a shrinking pool – FT.com – Lex http://on.ft.com/N5nD6z
• A Eurobond medicine Ms Merkel could swallow – FT.com – Opinion http://on.ft.com/LvJQGX
• Investors and leaders differ over bailout – FT.com – Markets http://on.ft.com/KoTxKv