European stocks ended the day marginally higher following the positive lead from Asia. Losses from Uniliver (-5%) after Kraft Heinz withdrew its $143bn bid for the food-maker, were largely offset by gains in other sectors, particularly telcos and materials with the latter benefiting from a recovery in oil and copper, up 0.6% and 1.85% respectively.

European political risk has also remained a prevalent theme. An overnight OpinionWay poll showed an increase in first round support for France’s anti-euro candidate Le Pen, up 1% to 27% while Macron and Fillion were unchanged at 20%. The Poll also suggested that Macron would beat Le Pen by 58% to 42% in the second round, but his advantage has halved in less than two weeks. So while political uncertainty is only exerting a mild downward pressure on the EUR (last night the currency was essentially unchanged), French bonds have remained under pressure. 10y French government bonds (OATs) ended the day 2.3bps higher at 1.051%, but at one point during the night they did trade as high as 1.135%. Meanwhile the OAT spread to 10y German bonds ended the day at 76.48, close to its ytd high and similar to levels not seen since late 2012.

Greek bonds were also making headlines following news that euro-area finance ministers have agreed to resume talks with Athens on reforms needed for its bailout. 10y Greek government bond rallied 30bps to 7.571% and 2y bonds rallied 58bps to 9.09%.

In currencies the USD is little changed with DXY trading at 100.88, almost exactly at the same level where it was 24hrs ago. USD gains against JPY and SEK were offset with losses against GBP and AUD. GBP was the G10 top performer, +0.34%, recovering a bit of lost ground from Friday’s night sell off and ahead of the House of Lords 2 day Brexit debate. The pound was also supported by better that expected data with the UK CBI industrial orders index jumping to 8 in February from 5 previously (Export orders however were at -10 from -9 in January).  The AUD continues to find support around the 0.7650 area and it is currently trading at 0.7686 following another solid night in commodities. Iron ore in particular gained +2.2% and closed the day at $92.3.Meanwhile USD/JPY has crawled its way back above ¥113 following the marginally softer trading tone in 10y UST futures

Coming Up

Australia’s weekly consumer confidence is the first cab off the rank followed by the RBA February Meeting Minutes, due out at 11:30 am (Sydney time). Since the Statement on Monetary Policy was released over a week ago and we have also heard from Governor Lowe, the Minutes are unlikely to reveal anything we don’t already know, essentially that the Bank is quite relaxed about Australia’s growth outlook and that inflation is expected to slowly return to target.

Also this morning Japan gets its Manufacturing PMI followed by its All Industry Activity Index in the afternoon. In January, Japan’s manufacturing PMI rose for the eight consecutive month and printed above the 52 mark for a second month in a row, so it will be interesting to see if this momentum has been maintained in February. Meanwhile a negative surprise in retail sales appears to be the main reason the expected decline in industrial activity in December (-0.2% exp. vs 0.3% prev.).

French PMIs have been rising in recent months, but given the increase political uncertainty as evident by the widening in French sovereign bond spreads against German bunds it will be interesting to see if that upward momentum has been maintained in February. German PMIs are also due for release and market expectations are for both the manufacturing and services sectors to remain in solid expansionary mode (56 and 53.6 respectively).

On the other side of the Channel, the UK gets is public finances figures for January and Governor Carney speaks in Parliament.

The US also gets its PMI readings for February and both the services (55.8 vs 55.6) and manufacturing (55.3 exp. vs 55) indices are expected to edge a little bit higher.

Fed Kashkari (voter), Harker (voter) and Williams (non-voter) are on the roster today. Based on recent appearances and publications we know that Fed Kashkari is a solid dove and has made his case for holding rates steady. Meanwhile, Fed Harker is probably one of the most hawkish voter on the FOMC this year and Fed Williams is somewhat in the neutral camp although early in February he noted that three hikes was a “reasonable perspective to have as a base case”.

Overnight

On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +0.00bp to 2.41%. In commodities, Brent crude oil +0.59% to $56.14, gold-0.0% to $1,237, iron ore +2.2% to $92.34, steam coal +0.3% to $80.10, met.coal +0.0% to $161.50. AUD is at 0.7685 and the range since yesterday 5pm Sydney time is 0.7659 to 0.769.

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• Markets Today: 21 February 2017 (PDF, 114kb)

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