ECB plan still lifts the market but attention now firmly on US jobs report

The ECB inspired rally has continued across Europe this morning, even though it’s at a slower rate than yesterday. Shares across the continent have extended their gains to hit 13-month highs in some cases following the unveiling of the ECB’s bond buying plan yesterday. Investors are also positioning themselves for a potentially strong US Jobs report this afternoon.

President Draghi’s magic seems to be working. He delivered as the market had hoped and a 2% rally for most of the European indices yesterday showed the support for his plan. For the near term at least, things are looking up. The policy is now in place and as a result yields on the 10-year Spanish bond dropped 32 basis points to 5.69%, the first time since June that it is below 6%. In Italy the 10-year government bond fell 25 basis points to 5.05%. The markets are clearly more relaxed for the moment.

Sentiment was further helped with news that German exports have improved unexpectedly in July and also that China, the world’s top commodities consumer, has approved 60 infrastructure projects this week in an attempt to boost their economy. UK industrial production also rose by 2.9% month-on-month in July, its biggest increase since 1987. Manufacturing output rose 3.2% month-on-month.

As expected when risk appetite has returned, the financials and miners showed strength in early trading. Barclays gained 5% in early trading whilst ICAP also increased its value by over 5%. The mining sector was particularly in focus not only due to the increase in risk appetite but also as the focus returned to the Xstrata Glencore merger, which it would appear is back on the table.

Xstrata is currently up 7.4% as it emerged that Glencore’s $34 million takeover bid appeared to be back on as Glencore postponed a shareholder meeting in which it was widely believed they would vote on the faltering deal. A short time later it was announced that Glencore has revised its bid offer higher to 3.05 Glencore shares for each Xstrata share. Glencore is currently down 4.5%.

This afternoon the focus will be firmly on the US jobs report, for which there are expectations of a big rise, given the data on private sector employment showed robust growth last month. What we have seen on some occasions in the past is that strong economic data has caused a slight decline in the markets as the hope of aggressive easing from the Federal Reserve dims. However in this instance it is possible that investors would be happy to continue with risk on trades in the hope of an actual gradual recovery.