In a quiet night for markets, in which the top highlight was the Oscar's historic peddling of best picture "fake news" and where "millions" of Academy members seemingly voted illegally, European stocks were little changed after a selloff that pushed them to a two-week low, while the MSCI Asia index fells as Japan’s Topix dropped for third day. S&P futures were unchanged after hitting a a fresh all time high on Friday. Oil futures gained, with the dollar little changed against a basket of major currencies. Priceline, Albemarle and AES are among companies reporting earnings. Dallas Fed manufacturing activity, durable goods sales data due.

European politics once again drove sentiment, this time higher after French electoral polls boosted the country’s bonds and reports of a potential Scottish independence referendum sank the British pound. The dollar was little changed before a key speech from U.S. President Donald Trump.

French bonds gained for a fourth day, with the 10-year OAT yields hitting a one-month low on Monday, pushing other euro zone sovereign yields lower, while a more cautious mood hung over world stock markets and the dollar, both of which struggled for clear direction.

The fall in French bond yields came as polls (everyone knows how accurate those can be) showed centrist Emmanuel Macron would easily beat far-right candidate Marine Le Pen in May's presidential election runoff, relieving some fears that have built up in recent weeks among investors. "Macron gained further support in the polls," said DZ Bank rates strategist Rene Albrecht. "Another important point is that it looks like Hamon and Melenchon won't merge, so there is less of a chance that we will have a left-wing candidate that could outpace Macron or Fillon."

Over the weekend, French press reported that Socialist lawmaker Christophe Caresche has announced that he will now back Macron, calling him the “only solution to counter effectively Marine Le Pen in the second round of the presidential election”. That follows the news of Francois Bayrou publicly announcing his backing of Macron last week and the latest polls from the weekend suggest a boost to Macron following that. An Odoxa Dentsu poll published yesterday showed Macron as gaining 25% in the first round compared to 19% for Fillon and 27% for Le Pen. The pollster highlighted that this is the first time Macron has taken a 6% lead over Fillon in the first round. In a second round runoff the poll showed Macron as defeating Le Pen by 61% to 39%. The other weekend poll is the Kantar Sofres poll for Le Figaro. It showed a similar trend with Le Pen at 27% in the first round ahead of Macron with 25% and Fillon with 20%. A second round between Le Pen and Macron has the latter coming out on top at 58% to 42%.

Following the latest polls, Oddschecker saw Macron gaining, with his victory odds rising above 42%, while Le Pen remained flat at just over a third.

As a result, France's 10-year bond yield fell 2.5 basis points to a one-month low of 0.90%, outperforming euro zone peers. Safe-haven German bond yields DE10YT=TWEB edged higher, narrowing the gap between French peers to around 70 basis points, its tightest level in just over a week.

Furthermore, as discussed last night, sterling weakened against all its major peers after The Times reported Prime Minister Theresa May’s team is preparing for Scotland to potentially call for an independence referendum in March. European stocks fell, tracking a negative day across Asian equities.

It will be another week in which Trump can make or break the recent market euphoria. With elections taking place this year in France, the Netherlands and Germany against a backdrop of rising populism, and uncertainties around Trump’s policies, investors have been hanging on every word from central bank officials and politicians. The next focus is set to be the U.S. president’s speech to Congress on Tuesday, which will be parsed for details on spending and tax plans.

“We are concerned that the markets could be heading for a harsh reality check if the Trump administration fails to meet high expectations as reflected in strong equity gains, including risky assets,” Piotr Matys, currency strategist at Rabobank in London, wrote in a note to clients. “It seems to us that the markets are too optimistic, looking from the glass half full perspective and not pricing enough of the negatives.”

In Europe, the French-led fall in bond yields and tightening of spreads over Germany were the most notable moves at the start of a week in which U.S. President Donald Trump's State of the Union address on Tuesday will loom large. Trump is expected to unveil some elements of his plans to cut taxes in his joint address to Congress.

It was also a mixed bag in stocks. Benchmark European markets were flat, Asian bourses fell and U.S. futures pointed to a slightly higher open on Wall Street. "This morning's moves follow what was a fairly cautious end to the week on Friday for markets," said Jim Reid, markets strategist at Deutsche Bank (see full note below). MSCI's benchmark world stock index slipped 0.1 percent to 444.53 points on course for its first consecutive daily fall for three weeks. On Thursday, it hit a record high of 447.67 points.

The index of the leading 300 European stocks was flat on the day at 1,457 points. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, near the day's lows and following Friday's 0.7 percent fall. The Euro zone's STOXX 600 index was down -0.3% at last check, at 369. Japan's Nikkei closed 0.9 percent lower, hitting a 2-1/2 week low on concerns that a stronger yen would crimp corporate earnings.

Though U.S. stocks clawed their way to a higher close on Friday, major indices spent much of that day's session in negative territory, suggesting increased caution. Yet it was the Dow's 11th consecutive record high on Friday, which is the longest such run since 1987.

In currencies, the dollar was flat on an index basis. The euro was up 0.2 percent at $1.0580 EUR=, but the dollar was 0.1 percent higher against the yen at 112.30 yen and sterling was down 0.3 percent at $1.2430. In addition to Trump's address to Congress, rates and the dollar will take their cue this week from Federal Reserve Chair Janet Yellen's speech on Friday. "In order for the Fed to really have the option of hiking next month, Yellen will have to make a much stronger case relative to what's been said recently," Deutsche's Reid said.

The 10-year U.S. Treasury yield rose 2 basis points to 2.335 percent. On Friday it hit a five-week low of 2.31 percent, and last week's fall of nearly 11 basis points was the steepest weekly decline since July last year.

In commodities, Brent crude rose 1.15% to $56.62 per barrel while WTI was up 0.8% at $54.42 per barrel as a global supply glut appeared to ease.

Market Snapshot

• S&P 500 futures down less than 0.1% to 2,364.5
• STOXX Europe 600 down 0.28% to 368.96
• MXAP down 0.6% to 144.98
• MXAPJ down 0.3% to 466.49
• Nikkei down 0.9% to 19,107.47
• Topix down 1% to 1,534.00
• Hang Seng Index down 0.2% to 23,925.05
• Shanghai Composite down 0.8% to 3,228.66
• Sensex down 0.2% to 28,824.19
• Australia S&P/ASX 200 down 0.3% to 5,724.18
• Kospi down 0.4% to 2,085.52
• German 10Y yield rose 1.5 bps to 0.201%
• Euro up 0.2% to 1.0587 per US$
• Brent Futures up 1.2% to $56.65/bbl
• Italian 10Y yield fell 3.0 bps to 2.195%
• Spanish 10Y yield fell 2.2 bps to 1.676%
• Brent Futures up 1.2% to $56.65/bbl
• Gold spot down 0.13% to $1,256
• U.S. Dollar Index down 0.07% to 101.02

Top Overnight News from Bloomberg

• Last-Minute ‘Moonlight’ Oscar Win Marks Black Film Milestone
• Buffett Stings Hedge Funds Anew Over Their ‘Misbegotten’ Rewards
• AbbVie Gets EMA Panel Nod for Shorter Chronic Hep C Combo Course
• Chevron Says Gorgon Train 2 Resumed LNG Production on Sunday
• Berkshire Hathaway 4Q Oper EPS $2,665, Est. $2,717
• Blackstone, Prudential Said to Win in $16 Billion Loan Sale
• Sasol First-Half Net Income Up 19% to 8.7 Billion Rand Y/Y
• IMI’s Selway Tells FT U.K. Co. Seeking Acquisition Opportunities
• Samsung SDI Supplies Batteries for Energy Storage System in U.S.
• Fortescue, Apollo Said to Bid for $1.5 Billion Wesfarmers Mines
• Proposed Trump Budget Said to Hike Defense Spending, Cut EPA

Asia equities shrugged off last week's positive sentiment and traded with a negative tone despite Friday's last minute record rally on Wall Street as most major bourses in the region traded lower. ASX 200 (-0.3%) was down following weakness in the commodity sector after energy shares were dampened by an initial decline in oil and declines from Friday in which WTI crude futures briefly dropped below USD 54/bbl, while Nikkei 225 (-0.9%) underperformed alongside a firmer JPY. Shanghai Comp. (-0.4%) and Hang Seng (-0.4%) were subdued with participants cautious following another weak PBoC liquidity injection and amid regulatory concerns after the CIRC banned Evergrande Life from stock trading for 1 year, while CSRC Chairman Liu also stated that China is ready for a greater number of IPOs and vowed stricter regulations. 10yr JGBs were higher as the risk averse tone and BoJ presence in the market supported demand for Japanese paper. Furthermore, 5yr yields fell to a 3-month low and the curve flattened amid outperformance in the super long-end.

Top Asian News

• Hedge Fund Joins Tactical Crowd as Trump Clouds Dollar View
• China Will Allow More IPOs to Lure Capital, Regulator Says
• Japan Stocks to Watch: Toshiba, Panasonic, Sumitomo, Mitsubishi
• GLP Committee in Talks With Shortlisted Parties on Proposals
• Noble Group FY Net $8.7m Vs $1.7b Loss Y/y

The European Indices trade in the green this morning with the FTSE outperforming currently up 0.4%, being lent a helping hand by the softer GBP. The main headline grabber has been reports that the potential tie up between LSE and Deutsche Boerse could be off the cards. Insurance names have taken a hit in the UK after the UK chancellor changed the discount rate. Elsewhere in Europe, Intesa (+5%) and Generali (-4%) cancelled a possible merger between the two Co.'s which benefitted Intesa shares. Finally, Unilever trade higher amid shareholder pressure to break the company up. The German French spread has traded below 69bps for the first time in ten days after Macron increases his lead in the first round polls for the French election. Italian paper saw underperformance against that of Spain ahead of this morning's auction and failed to regain any ground in the wake of the results.

Top European News

• Euro-Area Economic Confidence Climbs to Highest Level Since 2011
• LSE Says Deutsche Boerse Deal Unlikely After Year-Long Try
• Deutsche Bank Cuts 2016 Bonus Pool by Almost 80%, FAS Reports
• Macron Extends Lead Over Fillon, Nears Le Pen in French Race
• VimpelCom Boosts Dividend After Italy Deal; to Become Veon
• Agrokor’s Senior Notes Fall to Record Low After Serbian Dispute
• GAM Shares Gain as Investor RBR Seeks Seats on Company’s Board
• UniCredit Unexercised Rights Sold for About EU15.1m
• Anglo Profit Surge Has Little to Do With Commodities Rally
• BTPs Rally, Following OATs, as Italian Bank Stocks Gain Off Open
• U.K. Insurers Fall After Government Cuts Ogden Discount Rate

In currencies, the British pound lost 0.3 percent to $1.2422 as of 10:58 a.m. in London after an overnight report from the Times of London that Theresa May was considering a second Scottish referendum. The euro gained 0.2 percent to $1.0582. The Bloomberg Dollar Spot Index was little changed. The gauge fell 0.4 percent last week, its first drop in three weeks. Thin market conditions as FX trading confined to relatively tight ranges. The early focus has been on GBP where talk of another Scottish referendum on independence — perhaps announced in tandem with the triggering of Article 50 - has once again reminded the market of the destabilising effect of Brexit. Cable has tested down through 1.2400 — both in London and Tokyo — but the selling has been well absorbed as yet. Month end flow pushing EUR/GBP higher has also played its part as the cross rate has pierced through 0.8500, but highs set around 0.8534/5 contain for now. In Europe, French election candidate Macron has made some modest gains in the polls (for the first round), and along with the EUR/GBP flow mentioned above has given EUR/USD as modest bid this morning (edging towards 1.0600). USD/JPY continues to hover above the 112.00 level, with the initial test below the figure finding some support. President Trump's address to Congress tomorrow will put the USD trade 'on hold' for now, with UST yields also basing out for now at some key levels to further prop.

In commodities, WTI crude futures rose 0.7 percent to $54.37 a barrel, near the Feb. 23 closing price, which was the highest since July 2015. Gold was little changed at 1,256.21 an ounce. The metal jumped 1.8 percent last week for its fourth straight weekly advance. Gold continues to hold better levels as the USD remains pressured on the dip in yields. However, the flight to safety has also played its part, with the French (and Dutch) elections having also provide a catalyst for demand for the yellow metal. Elsewhere, hedge funds are said to be positioning for a break higher in Crude prices closer in on the curve. This has helped maintain WTI towards the upper end of the recent USD50-55 range, but the recent test through here was met with strong supply. In base metals, Copper prices stay comfortably below the USD2.70 mark, but finding some support on the session, but Nickel and Tin are showing the stronger gains on the day.

Looking at today's key events, in the US we’ll get a first look at the January durable and capital goods orders data as well as pending home sales and the Dallas Fed manufacturing survey index.

US Event Calendar

• 8:30am: U.S. durable goods orders, est. 1.7% (pr. -0.5%)
• 10am: U.S. pending home sales m/m, est. 1%, (pr. 1.6%)
• 10:30am: Dallas Fed manf. activity, est. 19.4 (pr. 22.1)

* * *

DB's Jim Reid concludes the overnight wrap

Before we kick off properly this morning, tomorrow marks the 10 year anniversary of the EMR. To mark the occasion we'll be doing a performance review of the whole period which hopefully will be interesting as the start of the publication coincided with what we think was the start of the global financial crisis given this was when the US subprime bond market was just starting to disintegrate. We'll also republish the first ever edition from February 28th 2007 if for no other reason than to prevent the touts from trying to sell the first edition on eBay at an exorbitant price.

So 10 years from the origins of the crisis and the truth is that the ramifications are still front and centre in financial markets. Bunds capped a remarkable week by rallying -4.6bps to 0.181bps on Friday (10 years) and -11.7bps on the week. At the short end 2y Bund yields also rallied another -3.3bps to -0.965% on Friday (and a new record low) and so taking the weekly move to -13.4bps and the biggest rally since 2012. A combination of pricing in of political and redenomination risk and a collateral shortage seem to be growing themes. Our European FI strategists think the market is pricing in around a 5% risk of Bunds being redenominated back into DEM. It's a strange market though as French OATs also rallied on Friday and more or less matched Bunds on the week (10yr -11.1bps) and European equities were fairly flat last week (notwithstanding a weak Friday session which we’ll touch on below) with inflows the highest in over a year in the week to Wednesday. So Bunds seem to be the magnet to any systemic fears at the moment with other markets barely recognising much additional risk.

The main news concerning the French election from the weekend is of another endorsement for Emmanuel Macron. French press are reporting that Socialist lawmaker Christophe Caresche has announced that he will now back Macron, calling him the “only solution to counter effectively Marine Le Pen in the second round of the presidential election”. That follows the news of Francois Bayrou publicly announcing his backing of Macron last week and the latest polls from the weekend suggest a boost to Macron following that. An Odoxa Dentsu poll published yesterday showed Macron as gaining 25% in the first round compared to 19% for Fillon and 27% for Le Pen. The pollster highlighted that this is the first time Macron has taken a 6% lead over Fillon in the first round. In a second round runoff the poll showed Macron as defeating Le Pen by 61% to 39%. The other weekend poll is the Kantar Sofres poll for Le Figaro. It showed a similar trend with Le Pen at 27% in the first round ahead of Macron with 25% and Fillon with 20%. A second round between Le Pen and Macron has the latter coming out on top at 58% to 42%.

The other notable weekend news concerns comments from Treasury Secretary Steven Mnuchin. Speaking on Fox News TV, Mnuchin said that at the much anticipated Trump speech this week to a joint session of Congress on Tuesday night the President will be using it to preview some of his sweeping plans to cut taxes and also simplify the tax system. Mnuchin hinted that the President’s budget will not touch social welfare programs such as Social Security and Medicare or cuts to any other big entitlement programs. The Treasury Secretary didn’t give much away on the proposed border tax, saying that he was “still studying very carefully” the proposal. Mnuchin added that “there are certain aspects that the president likes about the concept of a border adjusted tax” and that “there are certain aspects that he’s very concerned about”.

Trump’s speech is almost certainly the main event for markets this week although there’s still a relatively packed data docket to get through with the final PMI’s in Europe to be confirmed on Friday, a second reading of Q4 GDP in the US tomorrow and also an economic outlook speech by Fed Chair Yellen on Friday in Chicago. On that it’s worth noting that the March hike probability did steadily climb last week to 40% on Friday from 34% the week prior based on Bloomberg’s calculator but you’d imagine that in order for the Fed to really have the option of hiking next month, Yellen will have to make a much stronger case relative to what’s been said recently.

Ahead of that, this morning in Asia it’s been a relatively soft start to the week for markets. The Nikkei (-0.94%), Kospi (-0.36%) and ASX (-0.31%) in particular are all in the red while the Hang Seng and Shanghai Comp have also just turned negative after a more resilient start perhaps reflecting the news from China’s securities regulator that it is looking to allow for more IPO’s in China, suggesting increased confidence in the market’s recovery from the 2015 rout. Meanwhile the focus in FX this morning has been on Sterling which has fallen -0.32% after the UK Times reported that PM May is preparing for the Scottish government to call another independence referendum to coincide with the triggering of Article 50 next month. Elsewhere it’s been a fairly quiet start for commodities while Asia bond markets have generally echoed the strength from Friday.

This morning’s moves in Asia follow what was a fairly cautious end to the week on Friday for markets. With an uncertain political environment bubbling away the European session in particular was weak and that was evident through a -0.76% decline for the Stoxx 600 which was the sharpest fall since the end of January. The DAX also tumbled -1.20% while France’s CAC retreated -0.94%. Perhaps also reflecting some disappointment at the lack of details from Mnuchin’s interview on Thursday it had looked like US equity markets might follow a similar route before a late surge into the close helped both the S&P 500 (+0.15%) and Dow (+0.05%)just about hold onto gains. Notably that is now the 11th consecutive record high for the Dow which is the longest such run since 1987. The fairly cautious mood though was still reflected in the strong rally for Gold (+0.61%) while base metals also generally rebounded from losses on Thursday. Like their European counterparts, US Treasuries also had a strong day with 10y yields finishing the day -6.0bps lower at 2.313% and the lowest closing yield since November.

Friday’s economic data didn’t really add much to proceedings. In the US we learned that new home sales in January rebounded a slightly less than expected +3.7% mom (vs. +6.4% expected). The University of Michigan’s consumer sentiment reading was meanwhile revised up 0.6pts to 96.3 in February albeit still a couple of points below its January reading. In France we learned that consumer confidence was stable in February while in the UK the BBA recorded a modest rise in home loans in January.

Before we wrap up, in a report published this morning Wolf von Rotberg on our European equity strategy team highlights the likely winners and losers among European corporates from a US tax reform that would see the introduction of a border tax adjustment in exchange for a lower corporate statutory rate. He finds that such a reform would reduce net profits for the 70 European companies most exposed to the US by an average of 5%, implying a net negative impact of around 1% on Stoxx 600 earnings overall. At the European sector level, he identifies that autos are the biggest losers, while earnings for health care equipment, construction materials and food retail could see a minor uplift.

On to this week’s calendar now. It’s a quiet start to the week in Europe this morning with just February confidence indicators for the Euro area due out. In the US this afternoon we’ll get a first look at the January durable and capital goods orders data as well as pending home sales and the Dallas Fed manufacturing survey index. Tuesday kicks off in Japan where the latest retail sales, housing starts and industrial production data are due. In the European session we’ll get France CPI, PPI and Q4 GDP and the February CPI estimate for the Euro area. Over in the US it’s all eyes on the second reading of Q4 GDP, while core PCE, wholesale inventories, advance goods trade balance, S&P/Case Shiller house price index, Chicago PMI and Richmond Fed manufacturing survey round out a busy day of releases. In Asia on Wednesday the early focus is on the official manufacturing and services PMI’s in China. Over in Europe we’ll then get the final February manufacturing PMI’s followed by CPI in Germany and UK credit and money aggregates data. In the US there is more important data in the form of the January core and deflator PCE readings, ISM manufacturing, construction spending, vehicles sales and the final manufacturing PMI. Thursday looks set to be quieter with just Euro area PPI due in the morning and initial jobless claims in the US. We end the week on Friday in Japan with CPI and the latest employment numbers. China will also release the Caixin services and composite prints. In Europe we get the remaining services and composite PMI revisions for February as well as Euro area retail sales. The final services and composites arethen due in the US alongside the ISM non-manufacturing print.

Away from the data the Fedspeak during the week consists of Kaplan today, Williams and Bullard on Tuesday, Kaplan and Brainard on Wednesday and then a bumper day on Friday headlined by Fed Chair Yellen when she gives an economic outlook speech in Chicago. Fischer, Powell, Evans, Lacker and Mester will also speak. Away from that, arguably the biggest event of the week is President Trump’s address to a joint session of Congress at 9pm ET in the US on Tuesday (early Wednesday morning in the UK). Also worth noting is the House of Lords debate on Brexit where talks are due to start about a more detail examination of the proposed bill.