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

UK 100 called to open +115pts with risk appetite surging on the overnight announcement from EU leaders that they had agreed (after much pressure from Italy and Spain) on action (albeit still short-term) to reduce the on-going crisis anxiety. Merkel is said to have left the summit looking unhappy, having had to give big concessions for the €120bn growth pact to pass.

Agreements centre on restructuring Spain’s €100bn financial assistance request to recapitalise its banking sector by allowing the Europe’s bailout funds (EFSF/ESM) to ‘eventually’ inject capital directly into financial institutions (when new banking  supervisor set up, asked for by year-end – banking union).

This critically removes the need to pass the money via the Spanish state (which requires the country to ask for a bailout) which would also worsen its debt profile and likely see its borrowing costs sky-rocket like with Greece, Portugal and Ireland. The aim is to break the vicious cycle between banks and sovereigns with the former holding much of the latter’s debt, and that debt being seen as increasingly risky in terms getting your money back.

Action also suggests allowing countries to ask for the region’s bailout funds (EFSF/ESM) to purchase sovereign debt (bonds) in order to help reduce elevated borrowing costs (as discussed above), such as those seen by Italy and Spain, without being subjected to strict ‘bailout’ monitoring but having to agree to bailout-like reforms (memorandum of understanding). This purchasing was something the European Central Bank (ECB) was doing, but stopped after the big haircuts on Greek debt.

The reaction to the summit announcement has seen the single currency Euro (EUR) rally strongly, and the US Dollar (USD) weaken, with less demand for the safe-haven  This has seen a positive knock-on to the  commodities space with metals such as Gold and Silver and the oils (US light Crude and Brent) bouncing off yesterday’s lows.

Today’s focus likely to focus on the fallout from the summit (optimism and scepticism) as well as that from the LIBOR interest rate scandal which has hit the banking sector (notably Barclays). Note also that the FSA has this morning said it has reached an agreement with the UK’s big four banks in relation to miss-selling of interest rate hedging products. This after PPI. Here we go again. While banks normally benefit from risk-on type announcement such as that from the Brussels, this news may trim optimism.

Macro data of interest later will be the UK index of Services after GDP confirmed at -0.3% in Q1.  US Personal income and spending always important as sign of consumer confidence. Chicago PMI and Uni of Michigan confidence will close the quarter in terms of data.

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

• UK                    GFK Consumer Confidence     Flat, in-line
• Japan               Jobless                                     Better
• Japan               Industrial Production             Worse
• China               MNI Bus Conditions                Worsens
• Japan               Housing Starts                         Better
• France             GDP                                         In-line
• Germany         Retail Sales                             Worse
• See Live Macro calendar for all details

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

• Dairy Crest gets €430m bid for St Hubert unit
• 3i cuts jobs and offices in bid to improve
• Melrose agrees $2.3bn Elster acquisition
• John Lewis weekly dept store sales +9.9%
• Oxford Biomedica to place £11m
• Cairn Energy agrees to sell 3.5% of Cairn India
• Promethean World warns on profit
• Serco completes sale of unit to AMEC
• Berkely Group profit rises

Morning Press Selection:

• Spain wins restructuring of bank deal – FT.com – Europe http://on.ft.com/OCI8qM
• Banks fear for second half as deals fall – FT.com – Banks http://on.ft.com/LTLJ08
• Libor firestorm engulfs Diamond – FT.com – Banks http://on.ft.com/ME4p2Y