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

UK 100 called to open -20pts at 6765, despite moderate gains taking US markets to new records helped by corporate results (especially banks), more deal talk, optimism that US monetary policy will stay accommodative and despite some mixed US economic data (housing and inflation beat, production missed).

Speaking twice in two days, Fed Chair Yellen but softened her fears that equities were overvalued, seeing no ‘alarming signals’ whilst the US Beige Book supported the Fed’s improving but modest growth outlook, while Dallas Fed President Fisher said the Fed may hike rates early next year or sooner and he was willing to briefly see inflation rise above 2% target first. He also said Fed nearer goals on jobs/inflation than many think.

Overnight, Asian stocks mostly lower, giving up earlier gains, with caution prominent as investors await new drivers with macro data thin after China’s growth update yesterday and talk of a second Chinese bond default (a construction company) highlighting the nation’s debt burden. Australia’s ASX is bucking the trend, clinging to a near 6-yr high helped by miners and Chinese Q2 growth data.

While Geopolitical risk has become the norm of late, note German Chancellor Merkel saying that EU leaders were set to discuss additional sanctions on Russia due to the lack of progress regarding the situation with Ukraine. The FT reports that the US has added some of Russia’s biggest companies to its sanctions list over the Ukraine crisis. Russian President Putin responded within an hour saying ‘sanctions have a boomerang effect’.

On the US results front, eBay, which reported after the US bell, delivered a mixed bag – beating consensus EPS, but missing on revenues. Paypal looks the saving grace with revenues growing very strongly and helping overcome increasing competition. Yum Brands beat expectation helped by improving margins in China.

 In focus today we have Eurozone Consumer Price Inflation (CPI) which is seen returning positive in June, with the annual rate confirmed at a paltry 0.5% and 0.8% for the Core reading. The pressure is on Morgan Stanley, the next US bank to report Q2 results following peers which have delivered positive surprises. Note IBM, Schlumberger and Google report Q2 results after the US close.

In the afternoon, US Jobless Claims are forecast pretty much unchanged while Housing Starts/Building Permits should have improved a touch in June. The Philly Fed Business Outlook reading is expected to have given up a couple of points in July. Given the shenanigans in Portugal, ratings agency S&P has downgraded Espitrito Santo and what Portuguese finance minister Albuquerque has to say will likely be closely followed.

In commodities, Gold is back above $1300 after the recent drop below triggered buying interest and there are signs of physical demand in China and India (the world’s largest consumers). The slightly softer tone from Fed Chair Yellen likely also helped in terms of investors pricing in a US rate hike. Note Palladium at a 13yr high.

In Oil, WTI rose for a second day after US stockpiles fell more than expected as refiners boosted processing to the highest level in almost 10 years. It is hoped that now back above $100/barrel that this serves as support for any subsequent weakness given the uptick in seasonal demand. Brent is steady around $107/barrel despite the myriad geopolitical risks.

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