– With the UK and US markets out overnight it was a fairly uneventful trade but there were still some big news that might move markets in the days and weeks ahead.
– First out of the blocks were the results of the European election which showed that besides Angela Merkel in Germany and Renzi in Italy, the mainstream parties across the EU performed poorly while those on the left in Spain and Greece and those on the right in Britain and France did very well. The beef of the voters is clearly the intransigence of Brussels and its inability to get growth going. What that means for markets is that the chances of an ECB easing and move toward quantitative easing next week on June 5 have just increased materially and must now be odds-on.
– Indeed, speaking overnight, ECB boss Mario Draghi said that in order to fight the threat of deflation “more pre-emptive action may be warranted”.
– So add an ECB easing next week with a solid win in the Ukrainian election for new President Poroshenko and we have a recipe for a rally in stocks on the continent. The DAX was 1.28% to 9,893, the CAC rose 0.75%, while stocks in Milan fairly soared, rising 3.61%. In Spain, the IBEX rose 1.22%.
– Keep an eye on Donetsk though, as there is a battle raging for the airport this morning and while the Russians have warned the new President about the use of force, he has pledged to crush the terrorists – in hours!
– Locally on the ASX futures market overnight, the SPI 200 June contract rose 7 points in concert with the European rally. That’s quite a small move in context of stellar European gains but this really just highlights it’s Asia and the US markets in particular which drive Australian markets.
– On local bond markets overnight, there was virtually no moves as they too look to US markets for a lead. 10-year bonds are largely unchanged at 96.25 (3.75%) bid this morning while the 3-year bonds are also largely unchanged at 97.19 (2.81%) bid.
– On Asian markets yesterday, it was another solid day for the Nikkei as its recovery continued. At the close, the Nikkei rose 141 points or 0.97% to 14,603. The Hang Seng was unchanged while stocks in Shanghai were 0.32% higher. On the data front, there is another vacuum in Asia today so expect the USDJPY moves to dominate trade in Tokyo and the rest of the region to be fairly quiet but with a topside bias.
– On Currency markets, the questionable lifestyle choices of euro traders came into question once more as it rallied against the US dollar. Personally I think I will sell some soon because at 1.3645 and with an ECB easing coming and an unstable outlook for the EU, I’d rather be short than long. The pound was also a little higher and sits at 1.6842, while USDJPY is off its highs and back at 101.92. For the Aussie, the lack of downside has seen some buyers enter the market once more but trade is light and at 0.9242 is hardly changed from yesterday in any real sense.
– On Commodities, Gold is unchanged at $1,291, likewise Silver at $19.37, Nymex Crude $104.18, and Copper is back at $3.19. Wheat fell 1.02% while Soybeans fell 0.21% and Corn rose 0.26%.
On the data front, it is another slow day. There is nothing material until Swiss GDP this afternoon before French and Italian consumer confidence and BBA mortgage approvals in the UK. Tonight in the US, Durable Goods will be important as will the Case Shiller house price data, consumer confidence and Richmond and Dallas Fed manufacturing indices.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
When the budget confirmed plans for a Medicare co-payment, Sonic gapped below the intermediate trend channel that had contained the share price since late February. Analysts are forecasting that a co-payment will have a negative impact on Sonic’s pathology revenue.
However, after hitting a low of $16.94, the stock has returned to the zone of resistance defined by the bottom of the trend channel as well as the 20 and 40 day moving averages. This follows uncertainty about whether the Medicare co-payment will actually make it through the Senate. Chartists will be watching for signs that the latest minor rally starts to fail around current levels.
If this happens it will look like the classic re-test, a sign of weakness that leaves in play the possibility of an eventual decline to the major channel support and 200-day moving average around $16.50.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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