In a relatively quiet session, which may see US traders sleep in a bit after last night’s Superbowl thriller, European and Asian shares rose ahead of Mario Draghi’s testimony at the European Parliament, while US equity futures were fractionally higher (up 0.1% to 2,293) after stocks jumped the most in a week, as traders assessed the trajectory for interest rates while scrutinizing every new Trump tweet.

As Reuters highlights, there was no overarching theme to Monday’s market moves, highlighting how correlations between financial market assets have broken down in recent months as investors sense the era of ultra-loose monetary policy may be winding up. The European STOXX 600 index rose 0.2%, led higher by basics resources shares and after some positive company results. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, with Taiwan .TWII leading the pack by adding 0.9 percent. Japan’s Nikkei rose 0.2%, with banks rising after U.S. Trump meets Japanese Prime Minister Shinzo Abe on Feb. 10 and 11, with trade and currencies likely to be on the agenda. China’s CSI 300 index rose 0.3%, though investors were cautious after the central bank unexpectedly raised short-term interest rates on Friday.

Despite the modest equity upside, caution has crept through European bonds and currencies after prospective French presidential candidate Marine Le Pen unveiled a manifesto pledge to take her country out of the euro, underscoring political risk in the world’s biggest single market, prompting gold, at $1,223, to what would be the highest close since November. The National Front leader on Sunday fired at globalization and monetary integration, calling for a referendum on European Union membership and a limit on immigration. The divergence between French and German bond yields became more pronounced, with the spread at the widest since 2013. Traders are assigning greater risk premiums to European countries where anti-establishment movements are gaining traction ahead of elections.

The euro was among the biggest losers among major currencies. The dollar inched up 0.1% against a basket of major currencies. Data on Friday showed average hourly earnings rose just 0.1 percent, suggesting any pick-up in inflation would be slight.  This led some analysts to conclude the Fed would be in no hurry to raise interest rates. Currency investors are also awaiting details on expected pro-dollar tax and spending initiatives pledged by Trump. However, later on Friday, San Francisco Fed President John Williams said that the central bank can prepare to raise rates this year without knowing the details of any new U.S. fiscal policies.

Oil prices rose, partly due to the dollar’s relative weakness, but also on concern about any extension of new U.S. sanctions imposed on major oil producer Iran over that country’s missile program. Brent crude traded near the highest since 2015 amid fresh sanctions by the U.S. on Iran after a missile test. “The move by the U.S. to impose new restrictions on Iran … does raise the risk of further tensions disrupting (oil) supply,” ANZ bank said. Haven demand sent gold toward the highest close since November.

The Stoxx Europe 600 Index added 0.2 percent, after rising 0.6 percent on Friday. Miners climbed 0.9 percent, bouncing after a selloff on Friday, with Randgold Resources Ltd. gaining following quarterly results.

The yield on 10-year Treasuries lost one basis point to 2.45 percent. The yield difference between French and German 10-year bonds jumped above 70 basis points for the first time since 2014.  French 10-year government bond yields 1.6 basis points to 1.1 percent. German equivalents, the euro zone benchmark, dipped 2 bps to a two-week low of about 0.4 percent, pushing the gap between the two to its widest in four years. “The likelihood of Le Pen winning is unlikely, but the situation in France is certainly raising fears among investors,” said DZ Bank rates strategist Christian Lenk. “French bonds will continue to underperform even though a lot is priced into the market.”

Among the key events this week we’ll see European banks including Societe Generale SA and UniCredit SpA report this week, and Sanofi and GlaxoSmithKline Plc will be among those delivering health-care earnings. Globally, watch out for numbers from SoftBank Group, the Walt Disney Co., Twitter Inc. and the Coca-Cola Co. The U.K. House of Commons will complete its debate on the Article 50 bill on Monday, the triggering of which will start the process of leaving the European Union. ECB President Mario Draghi can cite accelerating inflation, declining unemployment and 15 quarters of expansion as evidence that his stimulus policies are working when he appears before the European Parliament on Monday. He’ll probably also have to point to weak underlying price growth and a turbulent political environment

Market Snapshot

• S&P 500 futures up 0.1% to 2293
• Stoxx 600 up 0.2% to 365
• FTSE 100 up 0.2% to 7205
• DAX up less than 0.1% to 11658
• German 10Yr yield down 1bp to 0.4%
• Italian 10Yr yield up 4bps to 2.31%
• Spanish 10Yr yield up 2bps to 1.7%
• S&P GSCI Index up less than 0.1% to 400.8
• MSCI Asia Pacific up 0.5% to 143
• Nikkei 225 up 0.3% to 18977
• Hang Seng up 0.9% to 23348
• Shanghai Composite up 0.5% to 3157
• S&P/ASX 200 down 0.1% to 5616
• US 10-yr yield down 1bp to 2.45%
• Dollar Index up 0.13% to 100.0
• WTI Crude futures unchanged at 53.83
• Brent Futures down 0.2% to $56.69
• Gold spot up 0.2% to $1,223
• Silver spot up 0.3% to $17.57

Global Top News

• Tiffany Abruptly Drops CEO Just Before First-Ever Super Bowl Ad: Jeweler’s board cites disappointing financial results
• Trump Says Obamacare Replacement Could Take Until Next Year: President speaks on Fox during Super Bowl pre-game show
• Trump Immigration Ban Bound for Supreme Court, Now or Later: Appeals court may decide Monday whether ban can be reinstated
• Apple to Zynga File Legal Brief Against Trump Immigration Order: Brief filed late Sunday in Ninth Circuit Court of Appeals
• Electrolux to Buy Sous Vide Cooker Maker in U.S. Expansion: Acquisition could value Anova at as much as $250 million
• China Dealmaker Said to Get GLP CEO’s Backing in Buyout Bid: Private equity firm competing with Blackstone, Warburg Pincus
• Delek Group to Buy North Sea Explorer Ithaca for $645 Million: Delek already holds 19.7 percent of Ithaca

Asian equity markets traded mostly higher with gains following last Friday’s positive close from Wall. St. where financials outperformed after US President Trump signed an executive order to review Dodd-Frank rules and NFP. This saw financials outperform in the ASX 200 (-0.1%) and Nikkei 225 (+0.3%), although the former failed to hold on to gains after disappointing Retail Sales data. Meanwhile, Hang Seng (+0.6%) and Shanghai Comp. (+0.3%) conformed to the positive tone, despite the PBoC refraining from conducting a liquidity injection, as markets digested the latest China Caixin Services and Composite PMIs which were weaker than the prior month but remained in expansion territory. 10yrs JGBs traded lower amid the positive risk tone in Japan, with an unexpected inclusion of 5yr-10yr government debt in today’s BoJ Rinban operation only providing brief support, while the curves steepened amid outperformance in the short-end. Continuing the recent tightening trend, the PBoC refrained from injecting funds via reverse repos and added that liquidity in the banking system is at a relatively elevated level.

Top Asian News

• Toyota Braces for U.S. Trade Tension, Raises Profit Forecast: Automaker posts 3Q operating profit that fell 39 percent
• China’s Auto Ambitions Get a Boost as Takata Picks Bidder: Stakeholders split on whether court-led restructuring needed
• Apple Is Getting Pushed Around in China by Local Phone Brands: Company saw first annual iPhone shipment drop in China
• Vodafone-Idea India Merger Seen Handing Rivals Cheap Spectrum: Two carriers said to weigh options for excess spectrum

European bourses kick off the week in the green, with Euro Stoxx trading modestly higher albeit relatively flat for the session with the economic calendar somewhat light this morning, with the notable highlight due out at 1400GMT where ECB’s Draghi is speak at the European Parliament Committee. In terms of stock specific news, firm earnings has seen Rangold Resources outperform in the FTSE 100. Elsewhere, Ryanair shares slipped this morning after announcing that Q4 net profit fell 8% amid the slump in GBP. Across the fixed income space, FRA-GER 10-yr benchmark spread remains at its highest level in 3-yrs as Marine Le Pen launched her Presidential Campaign over the weekend. While previous favourite Fillon will have conduct a press conference at 4:00 PM, whereby it is largely expected that he will step down from the race after recent investigations and alleged misconduct. However, some reports indicate that he may in fact launch a counter-attack.

Top European News

• Draghi Takes QE Case to Brussels as Politics Keeps Risk High: ECB president will testify at European Parliament on Monday
• Ryanair Cautious on Outlook as Fare Slump Clips Quarterly Profit: Spain, Italy flooded with capacity, discount giant says
• Randgold Profit Increases 76% as Bullion Output, Prices Gain: Miner proposed 52% dividend hike on record production
• Deutsche Bank Purchases Ads to Apologize for ‘Serious Errors’: CEO signs ad, expressing ‘our deep regret’ for conduct
• U.K. Business Says Brexit Already Having a Negative Effect: 58% of FTSE 500 bosses say Brexit a negative: Ipsos Mori
• German Factory Orders Surge Most Since 2014 on Investment: Orders rose 5.2% in December vs. estimated pick-up of 0.7%

In currencies, it has been  quiet morning in FX, with the range bound theme set to extend through the week. Fed speakers are unlikely to add much fresh perspective after the US average earnings took the shine off the headline NFP rise on Friday, and with the backdrop of the lesser than expected Q4 growth stats, Trump induced uncertainty adds to the lack of differential based buying seen from the start of the year. USD/JPY continues to flounder in the mid 112.00’s, but as long as the 111.50-112.50 zone remains intact, we cannot rule out another retest on the 115.00-50 zone. In the same vein, EUR/USD sellers will be growing nervous over the lack of downside momentum ahead of 1.0700. To this end, many remain wary of another test through 1.0800 at some stage, but as we have alluded to above, this looks unlikely in the early stages of this week. The Bloomberg Dollar Spot Index rose 0.1 percent as of 10:40 a.m. in London, after earlier dropping 0.1 percent. The gauge on Friday completed a sixth weekly decline for its longest stretch of losses since August 2010. The euro dropped 0.4 percent to $1.0736, while the pound was flat. AUD, NZD and CAD all trading in tight ranges today, and will continue to do so. USD/CAD is pressed in towards 1.3000 with Oil prices ticking higher, but AUD and NZD standing pat as the RBA Tuesday and RBNZ Thursday suggest caution at these extended levels.

In commodities, oil prices back in the limelight with US-Iran tensions on the rise again. The new sanctions on Iran, in response to the ballistic missile testing, do not seem to have had too radical an effect on WTI, but prices modestly higher to reflect some risk premium. Trading a little over USD54.00, WTI remains in comfortable territory, with only a move through USD55.00 likely to raise eyebrows. For base metals, the China return has failed to bring about the renewed demand —outright or from hedging requirements — with Copper back under USD2.70 again, but prices have recovered a little at thestart of the week. Nickel and Zinc gains had also stalled at recent highs last week, but look to be holding up a little better. Gold has pushed back above USD1200.00, as USD softness shows no signs of abating. USD1230.00 the next resistance level of note, but clearly USD performance dictates from here.

Turning to today’s calendar, we’re kicking the week off this morning in Germany where we got December factory orders data which soared 5.2% on expectations of a 0.5% rise, above the -2.5% in November, before we got the Sentix investor confidence reading for the Euro area, which printed in line with the 17.4 expected. It’s the usual post payrolls lull in the US this afternoon with no data due out.

* * *

US Government Docket

• President Trump visits MacDill Air Force Base in Tampa, Fla., to meet with service members and U.S. Central Command leaders
• House in session Mon-Tues; Senate in session

DB’s Jim Reid concludes the overnight wrap

One thing seems assured to keep us busy though and that is the various Trump related headlines which continue to dominate much of the weekend press. The latest update is the news that a federal appeals court has rejected the President’s request to reinstate the travel ban, prompting a Twitter attack from the President on the judge’s ruling. In addition to that and in a Fox News interview last night, Mr Trump suggested that a replacement bill for the Affordable Care Act could take until 2018 to come up with, a longer time frame than originally envisaged.

Given the usual post-payrolls lull in US data releases this week Trump might continue to be the biggest influence in markets for now. The most interesting scheduled event this week may be on Friday when Trump is due to welcome Japan PM Abe to the White House. That meeting probably warrants even closer watching now after Trump singled out Japan and China for currency manipulation last week. So it could be interesting. Away from that it’s possible that we also get some follow up to the Dodd-Frank comments on Friday after Trump ordered a review of banking regulation and the easing of some of the Dodd-Frank act. UK politics could also come under the spotlight with the Brexit debate expected to gather some steam in the next few days as lawmakers being a three-day debate over the legislation required to trigger Article 50.

Meanwhile the ongoing political saga in France never seems to be too far from the front pages at the moment. Over the weekend the National Front’s Le Pen unveiled a 144-point programme at a two-day meeting in front of her supporters. Le Pen confirmed that a National Front government would take France out of the eurozone, hold a referendum on EU membership, impose taxes on imports and limit immigration amongst a host of other measures. These comments come as one of her main rivals, Francois Fillon, continues to see his campaign suffer from revelations about his wife and family’s use of public funds in their employment. A BVA poll released on the weekend had Le Pen winning 25% of the first round voting, compared to 21% for Macron, 18% for Fillon and 16% for Hamon. A second round vote between Le Pen and Macron has the latter coming out on top by 66% to 34% and a second round vote between Fillon and Le Pen has Fillon coming out on top at 60% to 40%. The risk now perhaps for markets is the first round vote with the overall margin between Hamon, Fillon and Macron at just 5%. In reality with polling sample errors the difference is even lower and a potential risk is the possibility of a Hamon versus Le Pen second round vote. The spread between 10y Bunds and OAT’s hit 67bps on Friday and is approaching the 3-year wide of 72bps in 2014.

To the latest in Asia now where markets are starting the week on the front foot and largely continuing the positive momentum from the gains on Wall Street on Friday. The Hang Seng (+0.62%), Shanghai Comp (+0.47%), CSI 300 (+0.38%) and Kospi (+0.22%) are all higher while the Nikkei and ASX are unchanged. A close eye is being kept on the JGB market too although it’s been a much calmer session compared to that on Friday. The 10y yield is currently hovering around 0.095%. There’s been some early data out in China too where the Caixin services PMI was reported as falling 0.3pts in January to 53.1. Together with the manufacturing reading last week, the composite level has dropped to 52.2 versus 53.5 in December and to the lowest level since September.

Moving on. For those that missed it, much of the focus on Friday was on the release of the first US employment report of 2017. Headline payrolls printed at 227k in January which, while ahead of the consensus 180k reading, was probably closer to the whisper number following the decent ADP reading earlier in the week. The print was also the highest since September and had the effect of raising the three-month moving average to 183k from 148k. However, while the headline number was strong other elements of the report were a bit more mixed. The unemployment rate increased unexpectedly by one-tenth to 4.8% after the participation rate jumped to 62.9% from 62.7%. Meanwhile, hours worked were steady at 34.4hrs after the December reading was revised up, while the most notable miss was average hourly earnings which were reported as rising a lower than expected +0.1% mom (vs. +0.3% expected) and so having the effect of lowering the YoY rate to +2.5% from +2.8%.

That softer earnings data quickly overshadowed the strong headline payrolls print and sent Treasury yields lower with the 10y touching an intraday low of 2.424% having hovered just shy of 2.500% prior to the release. However that move was then reversed later in the day following some fairly hawkish comments from San Francisco Fed President Williams. Speaking in an interview with Bloomberg TV, Williams said that all meetings, including March, are live and that three rate increases remain a reasonably guess and a reasonable perspective to have as  a base case. Williams also said that “I think there’s a lot of potential that this economy is going to perhaps get more of a boost than the base case”.

That comment likely helped 10y Treasury yields climb back to 2.466% by the close and finish the day more or less unchanged. The US Dollar index also chopped and changed but ultimately finished -0.06%. Meanwhile, President Trump’s comments about the potential unwinding of Dodd-Frank saw risk assets close the week on a high. The broader S&P 500 index closed +0.73% for its third best day of the year, while the financials component alone returned +1.99% and had its best day since November 14th. Unsurprisingly the big banks led the way with the likes of Morgan Stanley (+5.46%), Goldman Sachs (+4.57%), JP Morgan (+3.06%) and Citigroup (+3.18%) all leading the charge. Credit indices also had a strong finish to the week with CDX IG closing 2bps tighter by the closing bell.

The employment report wasn’t the only data released on Friday. The ISM nonmanufacturing for the month of January edged down 0.1pts to 56.5 (vs. 57.0 expected) with the details revealing a 2.1pt fall in the new orders index but also a 2pt rise for the employment component. Meanwhile the services PMI was revised up to 55.6 from 55.1 at the final count which had the effect of raising the composite to 55.8 and the highest since November 2015. The other data in the US on Friday was the December factory orders numbers which rose a better than expected +1.3% mom (vs. +0.5% expected).

The PMI’s were the big focus during the European session on Friday and the data made for an overall fairly positive read-through. Both the services and composite readings for the Euro area were revised up 0.1pts to 53.7 and 54.4 respectively. That reading for the composite is consistent with +0.5% qoq GDP growth which, assuming unchanged for the rest of Q1, presents some upside risks to our economists more moderate growth outlook of +0.3% qoq for both Q1 and Q2. There wasn’t a huge amount of surprise in the country level details although there was a notable fall in the services PMI in the UK (-1.7pts to 54.5; 55.8 expected). Markets in Europe also generally finished on a strong note on Friday. The Stoxx 600 finished +0.59% and so paring the weekly loss to -0.63%.

Turning now to this week’s calendar. We’re kicking the week off this morning in Germany where we’ll get December factory orders data, before we get then get the Sentix investor confidence reading for the Euro area. It’s the usual post payrolls lull in the US this afternoon with no data due out. Tuesday starts in China where we’ll get the remaining Caixin services and composite PMI’s. In Europe we’ve got German industrial production and French trade data while in the US we’ll get the December trade balance, JOLTS job openings and consumer credit readings. China will also release foreign reserves data at some stage. We start Wednesday in Japan where the December trade balance is due. The only data due in Europe is the Bank of France business sentiment reading, while there is nothing of note in the US. Germany gets things going on Thursday when we’ll get the December trade data, while over in the US the data includes initial jobless claims and wholesale inventories and trade sales. Thankfully we’ve got a busier end to the week on Friday. The early focus will be on China where we’ll get the January trade data. During the European session we’ve got industrial production and wages data in France as well as industrial production and trade data in the UK. Over in the US we end the week with the import price index reading for January, monthly budget statement for January and a first estimate of the University of Michigan consumer sentiment reading.

Away from the data the Fedspeak this week consists of Harker this evening, followed by Bullard and Evans on Thursday. ECB President Draghi also speaks today at European Parliament while the ECB’s Smets also speaks this week. The BoJ minutes from the January meeting are due late Tuesday night. Earnings wise we’ve got 86 S&P 500 companies reporting, representing 11% of the index market cap. Those include Coca-Cola, Walt Disney, Time Warner and General Motors. In Europe we’ve got 80 Stoxx 600 companies also reporting including Total, BP and Glaxo. Away from that, the UK Parliament’s lower house is also due to conclude on Wednesday the debate on the bill to trigger Article 50 with a final vote in the evening. The most notable Trump event this week is likely to be his meeting with Japan’s PM Abe on Friday.

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