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

UK 100 called to open +30pts, continuing strong rally of yesterday fuelled by European Central bank (ECB) comments that it would do whatever it takes to preserve the Euro, by keeping sovereign bond yields manageable. Markets took this as sign it could re-launch sovereign bond buying programme, intervening to reduce borrowing costs for Spain and Italy.

The other possibility was that the bank would grant a banking license to the current European bailout fund (EFSF, European Financial Stability Fund), something which expected to be granted to the new bailout fund (ESM, European Stability Mechanism) which awaits ratification (come on Germany, hurry up). The license would allow bailout funds to borrow from the ECB and buy bonds to bring down yields and thus reduce funding cost pressure for troubled nations.

Markets had already rallied strongly in June hoping the last summit would deliver the answer to all the regions problems. It did and it didn’t, as have so many other summits, that’s why we tread water in July.

The timing of Draghi’s comments is key. With the traditional quiet of summer nearly upon us (nothing much gets done on the continent in August), he’s possibly worried the debt crisis may deteriorate further in the very short-term. With politicians off taking a rest, action may be even less forthcoming than usual.

He looks to have taken the bull by the horns, doing the politicians’ job for them (by doing something at least), and pleased/settled the markets, for a while at least. It would be unusual for him to be so specific on borrowing costs and not follow through with some form of assistance.

US markets closed higher, on ECB comments, durable goods orders and jobless figures, although housing was a miss. Corporate results mixed with the likes of 3M and Visa beating but Amazon and Facebook disappointing

Asian equities higher on the coat-tails of Europe and US, and expectations heightened that coordinated central bank stimulus may be near. The US publishes Q2 GDP today. This could influence the US Federal Reserve (Fed)’s policy meeting next week. Add to this the ECB U-turn on rates and now bond-market intervention (really against its mandate), and UK increasing it Quantitative Easing (QE) programme even before an awful Q2 GDP figure.

Overnight macro data also supportive, with Japanese inflation and retail data missed expectations, triggering deflationary fears and offering the Bank of Japan (BoJ) ammo for further monetary easing. Chinese Industrial profits remain under pressure, as does Chinese business sentiment.

All these data negatives could be construed as positives driving central bankers to act to kick-start growth and boost confidence, which would likely give a shot in the arm for risk appetite and risk-assets such as equities and commodities.

Today’s focus likely on US GDP with its potential to be the driver to push the fed into more money printing. Expectations are for a slowdown from Q1, but could it disappoint even more-so, like the UK? Results of interest out this morning include Barclays (looks like a beat, but as always, the devil is in the detail). Italy‘s debt sales (a worry on Wednesday, possibly less so now after ECB comments). Watch for Spanish Unemployment at 8am if you like big numbers.

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

• Japan               Inflation                       Worse
• Japan               Retail Trade                Worse
• China               Industrial Profits         Still contracting          
• China               MNI Business Sentiment         Still in contraction
• See Live Macro calendar for all details

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

• William Hill bullish after H1 profit +13%
• Burberry ends Interparfums fragrance deal talks
• United Utilities says on track for good full year
• Barclays sorry for Libor as profits top £4bn
• Jardine Lloyd says H1 pretax profit + 12
• Pearson’s profit falls in tougher-than-expected first half
• AG Barr says poor UK weather impacted H1 performance
• UBM profit +12.5%, to review Data Services unit
• Carphone Warehouse Q1 sales fall less than feared
• Anglo American H1 profit -38%

Morning Press Selection:

• German scepticism undermines Greek reform – FT.com – Europe http://on.ft.com/NLeuxh
• Markets rally as Draghi pledges support – FT.com – Markets http://on.ft.com/NNXgO6
• Gold braced for renewed haven boost – FT.com – Commodities http://on.ft.com/OKJWco
• Could the ECB join Europe’s Club Neg? – FT.com – Markets http://on.ft.com/SWPRQc
• On-site supervisors a good start for ECB – FT.com – Banks http://on.ft.com/SWPW6j