MARKETS SPECTATOR: ECB bond buying to spark markets

With the pressure valve of 'risk-on, risk-off' finally relieved by the ECB, markets soared overnight. Expect a similar reaction this morning.

'Don't fight the Fed' is the adage that comes to mind, although it should probably include the European Central Bank as well, judging by what happened overnight. Outside of oil and copper, it was a genuine night of 'risk on' as markets reacted to ECB President Mario Draghi's announcement of unlimited bond purchases. From a markets point of view, the Euro Stoxx 600, which is the broadest measure of European stocks was basically flat for the week ahead of the open of last night's session. On the open, most European indices moved higher to trade around the plus 0.8 per cent - 1 per cent mark ahead of the announcement. Upon the release, markets surged higher across the board, which was interesting in that it likely means there was more in the announcement than the market had been expecting. Many believe this was the fact that the program was 'unlimited'.
Over to the US session and unsurprisingly, markets gained strongly during the morning hours before tracking sideways for the afternoon. Although traders were also buoyed by stronger-than-expected US economic data, it was encouraging to see no serious selling into the close, especially ahead of tonight's US non-farm payrolls release. Again, this could be interpreted as an encouraging signal as participants believe the latest European solution will go a long way in helping to improve the situation.

So, what does this mean for the Australian market? We did see some pretty solid gains yesterday but there will almost certainly be more on the open this morning. They are likely to more broad-based than yesterday judging by the strength across the board in the US session, especially the buying seen in the recently weak materials names.

According to overnight SPI futures action, the S&P/ASX 200 index is called to open up 50 points at 4363, about a 1.2 per cent gain on the open. From there, there isn't a lot in the way of news releases due during the Asian session, although US President Obama is speaking at the Democrats Conference at noon. Given it's a Friday and there is some event risk this evening with the release of the US non-farm payrolls report, there is always the possibility of some typical Friday afternoon profit taking.