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

UK 100 called to open -65pts with US markets closing lower (second biggest drop of 2012) in the wake of awful manufacturing data (Philly Fed) which saw sentiment dented yet further following the earlier weak prints from China and Europe.

Sentiment kept in check after the European close when the results of the Spanish banking sector confirmed the sector in need of €62bn. This is shy of the €100bn informal request of 2 weekends ago, and we must now await the delayed July full report (now expected September) for further details, however, for now it appears this provides some stability. Unfortunately banks are not static. Things could easily change by the end of the summer. And if this crisis shows us anything, it is estimates often very shy of reality.

With sentiment already under pressure, Asian market optimism stayed south after Moody’s ratings agency, announcing the results of its global banking sector review (started Feb) after the US close. The fallout is the downgrade of 15 major global banking institutions including all four UK majors (Barclays, HSBC, Lloyds and RBS) and most of the big name in the investment banking world. Ratings cuts range from 1 to 3 notches, adding pressure to the funding costs of the institutions and the questions on their business models.

Overnight Chinese business sentiment data also weak, adding to the gloom not only for Asia but for the global economy and its recovery. If emerging market China can’t help us, who will? Euro crisis still in full flow with uncertainty about how Spain can be helped (where does money come from?), with the new bailout fund (European Stability Mechanism- ESM) seeing approval hurdles in some countries.

Looking to FX, after much strengthening yesterday on the back of the no-money-printing announcement by the Federal Reserve (FED), the US dollar (USD) has steadied versus sterling (GBP), which itself was weak on the prospect of more money printing in the months to come. Euro (EUR) weaker on the on-going crisis and fears over banking downgrades’ impact on the region.

Commodities steadied after their parallel declines with USD, with US Light Crude/WTI bouncing off $78 and Brent Crude bouncing off $89. Gold still under pressure after the USD move and inflationary fears from possible coordinated central bank intervention (currency printing/devaluing).

Macro data this morning focused on Germany’s IFO Survey results, notably after the weak PMI and ZEW survey data of late.

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

• China               MNI June Flash Bus Sentiment           Declines
• See Live Macro calendar for all details

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

• ITM Power signs distribution deal
• GW Pharma’s Sativex gets German boost
• Cobham says UK Voyager aircraft to be converted in Spain
• Max Petroleum sees delays in Nur-1 drilling
• BHP Billiton to invest $845m in Australian coal
• Xcite signs $155m facility, mulls farm-out for extra funding
• William Hill sees completion of US deals June 27
• John Lewis weekly dept store sales up 11.5%

Morning Press Selection:

• Moody’s downgrade hits 15 top banks – FT.com – Banks http://on.ft.com/MmIdgB
• IMF challenges Berlin’s crisis response – FT.com – EU Economy http://on.ft.com/KoixvD
• Inflation risk less, says Weale – FT.com – UK Economy http://on.ft.com/MIy6BS
• Stick replaced by lending carrot – FT.com – UK Economy http://on.ft.com/MIya4P
• Legal move threatens EU rescue fund – FT.com – Europe http://on.ft.com/PzC14D
• RBS suffers blow over branches deal – FT.com – Banks http://on.ft.com/KBUT3p
• Race to save euro will follow ‘Grexit’ – FT.com – Markets http://on.ft.com/MCi6h2