A further shift to socialist government in Spain tempered market enthusiasm spurred by fresh all-time highs for North American shares on Friday night. Rising expectations of a US rate cut saw investors pile into US stocks. Bonds and gold also rallied as more cautious investors shifted back to safety.

The Spanish election results point a further fracturing of European politics. The socialist PSOE party won the most seats and is set to the form a coalition government with far-left parties. However support for far right parties also increased in a damaging development for the traditional and conservative People’s Party. The Euro continues to languish at ten-month lows.

The US quarterly reporting season is approaching the half way mark. Sales growth is matching forecasts, but earnings are running ahead of estimates. The consumer services sector is the stand-out, with earnings growth so far about 18% ahead of analysts’ expectations, pushing seemingly reluctant investors back into shares.

Ongoing US dollar strength and weakness in industrial commodities support indications of a muted start for Asia Pacific markets. Although Japan is on holiday today, the resumption of China/US trade talks and important economic reports this week may see regional markets defy these early indications. China PMIs due tomorrow are a likely market focus.