European markets rallied overnight as enthusiasm over the ECB's bond buying program took hold.

A strong session on the European continent (Dax up 1,3 per cent, CaC p 0.9 per cent – FTSE flat though) failed to spill over to Wall Street overnight, although it wasn’t a bad session by any means. The bid in Europe seem to be driven by the excitement over ECB bond purchases, which is probably why we saw further decent fall in bond yields for Spain and Italy.

The Italian 10-year yield for instance was down 17 bps to about 5 per cent, while Spain’s was off about 10 bps to 5.66 per cent. Then again maybe markets are taking some comfort in the softer line, marginally softer line, that European lenders took with Portugal. Budget deficit targets have been relaxed to 5 per cent this year from 4.5 per cent and 4.5 per cent next year from 3 per cent. In this anti-austerity, keep spending, borrowing and printing world, that would be regarded as good news.

Because you can do that forever and if you believe people like Krugman and Bernanke it’s never going to be inflationary – ever!

Cue the US open and stocks did push higher, although even at the peak were nowhere near their European brothers. The S&P at the high was only 0.6 per cent and at the close managed only 0.3 per cent (1433) led higher by energy stocks. That’s not to say crude had a massive session or anything – up 0.4 per cent to $96.9 and gas pushed modestly higher as well. The Dow was then 0.5 per cent higher (13323), although the Nasdaq was flat (3104). As for the SPI, it was up 0.4 per cent to 4340.

Commodities elsewhere were mixed with gold a couple of bucks higher at $1734, copper a bit higher as well (smalls) although the CRB index itself was down about 0.5 per cent.

The worst news for the session, depending on your view – good for importers, retailers and most of the country – is that the Australian dollar shot higher. It was up almost a big figure or 85 pips to 1.0433 and before all usual chumps come out this morning and say that’s because the RBA has interest rates too high, these people might want to note that euro also shot higher – 90 pips to 1.2852.

So maybe, just maybe the strong Australian dollar is caused by other factors, like, oh I don’t know, the Fed printing money? Just throwing it out there. Otherwise sterling is at 1.6072 (70 pips higher) and yen sits at 77.77.

As for rates, US treasuries sold off, the 10-year yield pushing 5 bps higher to 1.7 per cent, while the 5-year was 3 bps higher to 0.67 per cent. The 2-year sits at 0.25 per cent. As for Australian futures, they were off 5 and 4 ticks on the 3s (97.485) and the 10s (96.935).

Bits and pieces otherwise. The US trade balance was little changed in June rising to $42 billion from $41.9 billion but there isn’t much else. A sharp rise in German wholesale prices in August – 1.1 per cent and a big jump in US economic optimism.

Consumer confidence is the key data for today at 1030 AEST although dwelling starts at 1130 AEST certainly isn’t irrelevant. We saw the impact that all this talk of another downturn and the ongoing push for interest rate cuts had on business confidence yesterday. Down a solid 5 points, so that confidence is well below average. Consumer confidence is already below average and has been weaker since the RBA cut than when rates were higher. The RBA board needs to see and understand.

By all rights consumer confidence should improve. The European crisis has abated somewhat and global stocks are pushing higher. But then there is the economic debate in Australia.

Looking abroad, we see the final estimate of German CPI tonight, the German constitutional court’s ruling on the ESM’s, UK employment numbers and eurozone industrial production. For the US, data is light and confined to wholesale inventories.

That’s about the lot, hope you have a great day…

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.

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