As money managers returned to their desks after the long weekend in the UK and US, neither the European election results nor the increased tensions in the Ukraine dampened their enthusiasm, as equity markets continue to grind higher. Not even the confirmation that Pfizer had thrown in the towel as far as AstraZeneca goes seemed to diminish investors' appetite. The European elections that saw the euro sceptic parties receive nearly 30% of the vote also appeared to have little effect on the euro or the peripheral bond markets.
Interesting article in Tuesday's Financial Times by Wolfgang Munchau in which he describes the muted reaction to the rise in political extremism in Europe as complacency. His view is that the political leaders of Europe will shrug of the weekend results. To his mind this is a mistake, and with the recent scenes of social unrest in Greece and Spain as employment levels continue to show no signs of improving, one would tend to agree.
The euro does not seem to be bringing Europe closer together, but tearing it further apart. Much of Germany begrudges the fact that it is seen as a back stop for the rest of the Europe, and the rest of Europe continue to see many of its problems lie at Germany's doorstep.
The existence of the euro, and the subsequent loss of a nation's ability to influence its economy, and to control its national finances have hindered the ability for individual Eurozone countries to stimulate their own economies. The ECB, who have been shrinking their balance sheet whilst other central banks have been expanding theirs, made overtures at the May rate announcement meeting hinting at further measures to stimulate the eurozone economy. The concern remains, as Mario Draghi also pointed out due to the complicated nature of the euro area, that introducing more aggressive measures to stimulate the euro area economy, perhaps with its own form of QE, is more complicated than in the US for example.
Mr Munchau points out that control of economic and fiscal policy can never be restored as long as countries remain in the euro. He goes on to speculate this may be one day in the future why the euro eventually does not survive. The eurozone and the sick patient analogy comes to mind again, the longer you leave the treatment, the more drastic the action may be needed to restore the patient to health.
On a brighter note the US economic surprise index has been ticking up recently and Tuesday's economic releases were once again reassuring. Durable goods orders, housing data and the services Purchasing Managers Survey all came in ahead of expectations. Consumer confidence came in line with expectations. Despite this continued modest improvement in the US economic data US 10-year bond yields at 2.55% remain stubbornly close to their 10-month lows.