29.06.12 Friday Morning

Volume was relatively low in the first half of the week as the market nervously looked towards the EU Summit for enlightenment on tackling the debt crisis. The aim of the crisis talks was to create a roadmap to a status of banking union, to instil public confidence and avoid a run on the banks, and fiscal integration in order to improve sovereign budget control and prevent any future debt debacles. And after the first day of negotiations on Thursday progress was made as EU leaders agreed in principle to President of the European Council Herman Van Rompuy's plan for a single banking supervisor for the EU. This is definitely a firm step towards a comprehensive banking union although details regarding the bank deposit insurance scheme still need to be ironed out. Spain and Italy's 10 year yields dropped and equities also reacted positively to the news on Friday morning turning around a weekly loss to a slight gain as the expectations going into the meeting were rather low. Euro bonds are still the holy grail to kill off this crisis for good although with German Chancellor Angela Merkel hardening her resistance to joint debt liability, progress on the aforementioned seems adequate for now.

Barclays share price plummeted Thursday on revelations traders have been fixing interest rates for personal gain and the scandal also weighed on general sentiment across risk assets. There have been calls by shareholders and MP's for Bob Diamond to resign as Barclays CEO in order for the firm to instigate cultural change although for now he is weathering the tirade of criticism.

JP Morgan was another major bank under the spotlight this week as a report by the New York Times estimated the actual losses incurred by credit default swap trading could be up to $9bn. Both cases with Barclays and JP Morgan do raise the question whether the banks have learned any lessons regarding risk taking and integrity and raises concerns over the effectiveness of added regulations in the wake of the 2008 financial crisis.

Broadly speaking economic data failed to influence the markets as it took a back burner due to the apprehension towards the EU Summit. A highlight was US Durable Goods Orders and Pending Home Sales triggering a rally Wednesday afternoon against a backdrop of a slowing overall growth picture in the States.

President Barrack Obama's success at passing his healthcare bill into constitutional law caused volatility in US stocks on Thursday as investor opinion split over the impact on healthcare stocks. The Republicans will be repealing the Supreme Courts ruling so there could be more volatility in the coming months for this sector.

Equity news hitting the headlines includes the Xstrata/Glencore merger negotiations which have hit a brick wall as a major Quatari shareholder rejected the offer of 2.8 Glencore shares for each Xstrata share in the proposed £16bn deal. Homebuilder Berkeley Group posted an increase in pre-tax profits of 58% to £215m mainly attributed to the firm's £1bn investment in new land and a further £2bn into disconnected communities.

Economic data scheduled for next week includes UK Manufacturing PMI Monday morning and the ISM Manufacturing PMI from the US in the afternoon. On Wednesday morning we have UK Services PMI and Eurozone Retail Sales. Thursday is an eventful day with Spanish and Italian 10 Year Bond Auctions, Bank of England and ECB rate announcements, US Weekly Jobless and US ISM Non-Manufacturing PMI. Finally on Friday we have the hugely influential US Non-Farms.