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

UK 100 called to open -30pts as US Federal Reserve (Fed) Chairman Bernanke’s testimony to congress overshadowed China’s earlier rate cut (first cut since late 2008). After equity markets had rallied on the Chinese move, gains were kept in check by Bernanke’s comments giving no explicit hint as to further policy easing in the US (despite other Fed members recently talking favourably) and putting the ball back with congress to take action on fiscal policy.

After the initial euphoria, of a move following European Central Bank (ECB) and Bank of England (BoE) inaction, investors now questioning whether China’s decisions is in fact a move to counter weak macro-economic data of late which may be showing signs of persisting – a worry to the world economy given the lack of growth in Europe on account of its sovereign debt crisis.

Fitch ratings agency added its tuppence by downgrading Spain by three notches, to just two above junk status, citing the cost of restructuring and recapitalising the country’s burdened banking sector (€60-€100bn). This followed a good debt auction, with the country selling 10 year paper at just above 6%, on good demand, negating the nations finance’s ministers recent comments that its door to financial markets was closed.

While commodities rallied on the Chinese move, Bernanke’s speech alluding to no new Quantitative easing (QE) saw the US Dollar (USD) strengthen back again, putting pressure back on the metals and oils. Gold fell back below $1,600/oz, while Brent Crude Oil slid back below $100/barrel.

Overnight, macro data mixed, with better Japanese GDP, but worse Trade Balances and Surveys. Germany saw a rise in its trade balance but a fall in both exports and imports (big decline in the latter). Asian markets declined on disappointment from US fed Chairman’s speech.

Macro data today will focus on UK Producer Price Inflation (PPI) as well as US Wholesale Sales and Inventories for any more clues on the health of the nation’s economic strength, given Bernanke’s lack of hints at action yesterday.

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

• Japan               GDP                                         Better
• Japan               Trade      Balance                         Worse
• Japan               Eco Watchers Survey              Worse
• Germany         Trade balance                         Better
• Germany         Imports/Exports                      Worse
• See Live Macro calendar for all details

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

• Augean trading still ahead of original expectations
• SThree H1 profit up, says markets getting tougher
• Eros puts planned NYSE listing on ice, blames market conditions
• Ultra Electronics wins $49m US navy sonar deal
• William Hill says Nevada recommends licence     
• PLUS Markets defends disposal plan
• Oxford  Biomedica’s manufacturing facility approved
• Rolls-Royce buys out Aero Engine Controls partner Goodrich
• Bellway reports 9% increase in reservations
• EasyJet load factor +3.9% in May
• Frontier Resources raises £436K through private placing
• Hornby FY sales rise, sees boost from London games
• African Copper  says Mowana plant resumed operations on June 5

Morning Press Selection:

• How EU politicians can learn from football (FT)
• The banks that are too complex to exist (FT)
• Eurozone crisis may benefit dollar (FT)
• Lex: China’s slowdown: graduate gripes
• China faces stimulus dilemma (FT)
• Beijing cuts rates as fed waits (FT)
• City safeguards set up for fresh EU battle (FT)
• Short View: Central banks forced to sit and wait (FT)