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City update

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- Spanish yields back above 7.0 per cent - Eyes on the Eurogroup - BAE and Rolls-Royce gain as Farnborough show kicks off
City update

The Footsie rebounded off its intraday lows by Monday lunchtime but was still firmly in the red with Spanish bond yields surging ahead of a Eurogroup meeting in Brussels.

Eurozone finance ministers, otherwise known as the Eurogroup, are to meet this afternoon to follow up on the decisions made at the EU summit. Also in focus will be European Central Bank President Mario Draghi who will speak about economic and monetary affairs to European parliament.

By midday in London, the borrowing rate on a 10-year Spanish Treasury was 11 basis points higher at 7.064%.

“Overall for the start of the new trading week volume is expected moderate at best, with equity markets remaining vulnerable to further sell-offs in light of the dire economic situation in Europe with no major improvement likely in the near future,” said Marcus Huber from ETX Capital.

Investors will also be keeping an eye on the US, where a disappointing jobs report on Friday fuelled concerns over economic growth.

Meanwhile, aluminium producing giant Alcoa kicks off the second-quarter earnings season after the closing bell this evening.

Chinese consumer inflation hit its lowest level in almost two and half years, according to the latest figures from the National Bureau of Statistics. The consumer price index rose by 2.2% year-on-year in June, down from 3% in May.

Huber said that the data certainly gives China room to implement additional stimulus measures.

In other news, the Bank of England’s deputy governor Paul Tucker will face MPs today over his role in the LIBOR fixing scandal, which led to the resignation of Barclays’ Chief Executive Bob Diamond.

After Diamond escaped the Treasury Select Committee last week having revealed virtually nothing new, expectations of an explosive performance by Tucker have been moderated.

FTSE 100: BAE, Rolls gain on contract developments

Defence group BAE Systems was advancing on reports that it could be close to securing a £7.1bn contract with the US Air Force, according to the Sunday Telegraph.

Investors are hoping for more deals to be signed at the 2012 Farnborough Air Show which starts today.

Sector peer Meggitt was also in demand.

Power systems group Rolls-Royce gained after saying that it has signed an agreement with Malaysia Airlines for long-term TotalCare services support for Trent 900 engines that will power its new fleet of six Airbus A380 aircraft.

Luxury brand Burberry was under the weather ahead of a trading update later this week.

All eyes will be on the performance in China, a key growth market for the group.

Mining group Xstrata was lower despite Jefferies saying that it believes potential partner Glencore will raise the terms of their merger. The broker said this morning that it thinks that Glencore will eventually up its proposed merger ratio from 2.8 to at least 3.0 Glencore shares per Xstrata share in order to win the approval of Xstrata shareholders, especially Qatar Holdings, the 10.4% stakeholder that has come out and demanded better terms.

FTSE 250: Miners sink on the second-tier index

Head coal and coke producer New World Resources was a heavy faller after Bank of America Merrill Lynch downgraded its rating on the stock to ‘underperform’.

Kenmare Resources, Centamin and Aquarius Platinum was also firmly out of favour.

Recruitment firm Michael Page dropped after saying it had seen a tough first half and expects more of the same in the third quarter.

House builder Bovis Homes fell despite saying that its first half was in line with expectations with net private reservations sharply higher.

Internet gambling firm Betfair was lower after warning that it is considering legal action against Cyprus after the country banned online casinos and exchange betting.

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