A relatively flat session in US trade yesterday has followed through to Europe this morning, with indices just grinding a little lower, led primarily by the usual suspects, such as miners and banks heading up the losers.  The small declines come as yet another rating agency cuts Greek’s credit rating to junk status, but this time the fallout has not been as dramatic as we would expect from such a move.  Equities are holding their own and the euro is not giving up the ghost.  This indicates that the bad news is now priced in and so any future downgrades may not dent confidence significantly.

A little merger and acquisition news in the media sector has helped keep the bulls enthused too, as News Corp raise their offer for Sky TV, so the news flow today is a far cry from what we’ve been used to in the past few weeks.  Gains continue to remain capped though with indices still apprehensive to really push on higher.  Concerns of double-dip recessions are still rife and plague most southern European economies, there is a grey cloud hanging over the UK economy ahead of next week’s emergency budget and some economies are already suffering from their second recession (Finland).

The FTSE in particular is struggling, with BP weighing heavily on the UK benchmark, which is still 11% off its 2010 highs, whereas the German Dax is only 3% off, so many would say the FTSE is looking cheap.

Some good news on the economic data front, for the new Chancellor at least, as UK inflation numbers this morning have come in lower than expected.  This is the first decline in three months, but still above the government’s 3% upper limit.  Inflation should still come under pressure going forward, as higher taxes and anaemic economic growth will continue to dent consumer confidence and keep prices in check.  Today’s figure points to low interest rates for months to come.

Prices have been underpinned by slowly rising petrol prices, now £1.20 a litre at the pump in the UK.  Week after week it costs more to fill up the car and what’s worse is that it won’t get any cheaper.  I dread to think how much will be paying if crude prices head back above $100 or even to their record high around $150.

The German investor confidence survey released this morning has shown a big decline from 45.8 to 28.7, which doesn’t come as a huge surprise, since German pessimism towards the euro zone bailout is as large as the deficits themselves.  This doesn’t reflect the underlying strength of the German economy, which is doing better than any other in the EU, but the prospect of having to pay for their European counterparts and face similar austerity measures has really dented confidence.

FX markets have been swinging around a little, but within relatively tight ranges.  Sterling and the euro are just a little weaker against the dollar, but the euro continues to be supported and is content, for now at least, around the 1.2200 level.  Cable is also maintaining recent gains at 1.4700, so bears will be looking to see if near term resistance levels will keep the currencies under pressure with key levels at 1.2225 and 1.2275 in EUR/USD and 1.4800 in GBP/USD.

Gold is flat this morning despite the downgrade to Greece’s credit rating that would usually mean strength for the precious metal.  Gold started the week strongly, but hasn’t been able to press home its early advantage, so the double top formation still looks like the bulls have run out of steam for now.  If there are further declines we can expect support around the 1200 level.

Crude is back above $75 and commodity traders await this afternoon’s inventory numbers, which are expected to shows declining stocks, so there’s support for oil in early action.