UK and European stocks have got off to a decent start today despite last night’s double downgrade by Standard and Poor’s and Fitch to the UK economy to AA.

After two days of big losses particularly for financials and house builders we appear to be seeing the first signs of some light buying interest, particular amongst the house builders with Bovis and Redrow rebounding strongly. Redrow was helped by the fact that the company announced that profits would be above the top end of estimates.

Banking stocks are also seeing some interest led by Barclays and Lloyds Banking Group as investors mull the prospect that Italian banks might see some form of capital injection to mitigate some of the financial stress the banking system is under and has helped boost the FTSEMib by over 3.5%.

There is also the fact that having seen a slide of 25%-30% in UK bank share prices in recent days that the market may well be overestimating the potential impact of the uncertainty about the effect of the loss of EU passporting rights.

The pound has also enjoyed a decent rebound after posting new 32 year lows at 1.3120 overnight and while we remain down 12% from the 1.5000 highs seen last Thursday, that is somewhat misleading given that seven days before that the pound was at the 1.4000 level less than two weeks ago, reflecting the extraordinary levels of volatility seen in the last few days.

In the broader scheme of things core European markets have remained in the broad range we’ve been in for most of this year, and are still above the lows seen at the beginning of this year, with the exception of Italian and Spanish markets as concerns about the banks overall resilience in a low growth environment worry investors.

US markets look set to open significantly higher after closing at three month lows yesterday, helped by the rebound in European markets as we look to the final revision of US Q1 GDP which is expected to show an improvement to 1% from 0.8%.

US consumer confidence is also expected to show an improvement in June to 93.2 from 92.6.

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