Mr Market continues to be driven almost exclusively by extreme changes in sentiment on a day to day basis. The recent Euro rally stems from the positive outcome of Spanish and Italian bond auctions yesterday. Both countries we able to place the bonds at considerably lower rates than in recent auctions lifting sentiment and the Euro throughout yesterday and into this mornings trading. Worryingly data just out showed Spanish Banks borrowing almost €140bn from the ECB in December, almost the record high set back in July 2011 and this tugged sentiment back in the negative direction.

Both central bank decisions were tame affairs, neither the ECB nor BOE changed rates or announced any change to existing QE programs. For the Bank of England it seems to be a very much wait and see approach before they announce further asset purchases. Mario Draghi and the ECB can be pleased with the results so far from the LTRO in December. Confidence seems to be improving in the European banking system because investors now feel the ECB stands behind the banks, and this is translating into lower yields for European Government debt.

The positive US data flow of recent weeks came to a halt yesterday afternoon, with retails sales figures lower than estimates. This afternoon’s confidence survey will be very interesting to watch to gauge the state of the consumer given such weak retail sale figures and increasing jobless claims this week. Looking towards next week there is a huge amount of Chinese data to digest first thing Monday. Positive Chinese data is generally seen as bullish for the world economy, and hence US negative, so the release will probably set the tone for sentiment for the early part on the week.