While traders in the US were out of the office for the long weekend Europeans markets jumped higher on comments from ECB president Draghi that the central bank can buy government bonds with maturities of 2-3 years without breaking EU treaties. This has sent Spanish and Italian bond yields sharply lower and the Euro higher against the dollar.

Also notable from Europe is that Moody’s cut its outlook on the EU’s medium and long term AAA bond ratings from stable to negative. This was done to reflect Moody’s negative outlook on Germany, the Netherland, France, and the UK.

Next week the German Supreme Court will rule on the legitimacy of the ESM. German finance minister Schaeuble said that the German government had carefully reviewed the treaties and could find nothing in contravention with the German constitution (Reuters). Nonetheless the event will likely drive more volatility into the market as the decision approaches on September 12th.

In the US this morning the key data release will be the ISM manufacturing index. Consensus estimates are for a reading of 50.0 after last month’s reading of 49.8. This Friday all eyes will be on the NFP report. If the number is disappointing traders will have heightened expectations of action from the Fed at their meeting next week.