Well, that escalated quickly.

It wasn’t hard to predict what would set the tone overnight. Around 7 p.m. EST on Monday evening, the following hit the wires:

• “I would not take March off the table at this point. We’ll have to see how it plays out in the next few weeks,” Market News International cites Federal Reserve Bank of Philadelphia President Patrick Harker in an interview Friday.
• “I don’t think we’re behind the curve now, but it is something I am worried about.”

I don’t think I have to tell you what happened next.

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Needless to say, markets might well be hearing what they want to hear – just as they did on Monday with the Cleveland Fed’s Mester. That said, the explicit mention of March by Harker was unequivocal enough to make it abundantly clear how we were going to trade. 

sets the tone for the overnight session: FED'S HARKER SAYS WON'T TAKE MARCH HIKE OFF TABLE: MARKET NEWS

— Walter White (@heisenbergrpt) February 21, 2017

Meanwhile, in Europe, we got the latest PMI prints and as it turns out, economic activity is running at its fastest pace in six years. Here’s Markit:

The pace of eurozone economic growth improved markedly to hit a near six-year high in February, according to PMI survey data. Job creation was the best seen for nine and a half years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months. Inflationary pressures meanwhile continued to intensify. The Markit Eurozone PMI registered 56.0 in February, according to the preliminary ‘flash’ estimate (based on approximately 85% of final replies). Up from 54.4 in January, the latest reading was the highest since April 2011. Growth accelerated in both manufacturing and services to rates not seen since early-2011, with the goods-producing sector again enjoying the faster rate of expansion.

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And here are the country-specific breakouts for France and Germany:

• Flash Germany PMI Composite Output Index at 56.1 (54.8 in January). 34-month high.
• Flash Germany Services PMI Activity Index at 54.4 (53.4 in January). 3-month high.
• Flash Germany Manufacturing PMI at 57.0 (56.4 in January). 69-month high.

• Flash France Composite Output Index rises to 56.2 (54.1 in January), 69-month high
• Flash France Services Activity Index increases to 56.7 (54.1 in January), 66-month high
• Flash France Manufacturing PMI falls to 52.3 (53.6 in January), 3-month low

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“The latest PMI data are encouraging following the slightly weaker-than-expected preliminary estimate of GDP growth”, Markit said of the German data. “The latest PMI adds to our expectations that economic growth will strengthen in the first quarter.”

Of course all isn’t exactly well in Europe. There’s still the whole “populist uprising that threatens to upend the established political order, rewrite the rules of global governance, and dissolve the EU as we know it” thing.

On that front, it’s the same old story. Here are some of the latest headlines from the political sphere:

• Hamon Says Melenchon Wants to Go ‘All the Way’ in Campaign
• Jean-Luc Melenchon “seems to want to go all the way” in maintaining his French presidential bid, Socialist candidate Benoit Hamon said on Europe1 radio.
• Talks are continuing with ecologist Yannick Jadot about a joint candidacy: Hamon
• French presidential candidate Marine Le Pen says she would restore relatons with Syria’s leader Bashar al-Assad if elected in May and meet with him.
• Le Pen says she wants to meet with Assad and says “I don’t doubt about his intension to fight the Islamic State,” adding that she didn’t know what Assad’s plans are
• Le Pen says she doesn’t have contact with Lebanon’s Hezbollah group
• She says she has no Lebanese funders for her campaign and calls on Lebanese banks to grant her a loan

Good stuff.

Meanwhile, the market is continuing to try and figure out the best way to price French election risk. On Monday, it looked as though traders were seeking to hedge against an outright redenomination event, as 2y OAT-Schatz spreads blew out versus 30y spreads, leading Schatz to richen to new all-time highs:

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(SocGen)

On Tuesday, we got some relief on the front end as French 2Y yields fell ~3bps, but 10s were under pressure and in a sign of the flight to safety bid, Schatz yields pushed to all-time lows at -0.861%. As Bloomberg wrote earlier this morning, “the sector has continued to be one of the main benefactors from safe haven flows in response to weakness in OATs.”

Here’s a rundown of European markets, up to date as of pixel time:

• FTSE 7287.37 -12.49 -0.17%
• DAX 11893.76 66.14 0.56%
• CAC 4878.53 13.54 0.28%
• IBEX 35 9545.80 19.20 0.20%

Ok. Moving on to Asian markets, the Nikkei rose as the yen fell. Investors and traders are still struggling to make sense of the BoJ’s yield curve control and what it means for super-long tenors. “Investors don’t know where the BOJ would come in to support and the central bank also appears indecisive on whether it can let markets push up super-long yields to attract investors without pulling 10-year yields higher,” Takenobu Nakashima, a quantitative strategist at Nomura told Bloomberg on Tuesday. 40-year JGB yields touched 1.08%, the highest since Feb. 24, 2016 while the 10-to-40-year yield spread blew out to its widest since Feb. 29, 2016. 10Y yields were little changed.

Oh, and in case you were wondering, we got this on Tuesday as well:

• KURODA: BOJ IS STILL FAR FROM INFLATION TARGET
• KURODA: IT’S TOO EARLY TO RAISE TARGET RATES

Here’s a wrap of Asian markets:

• Nikkei up 0.7% to 19,381.44
• Topix up 0.6% to 1,555.60
• Hang Seng Index down 0.8% to 23,963.63
• Shanghai Composite up 0.4% to 3,253.33
• Sensex up 0.4% to 28,773.36
• Australia S&P/ASX 200 down 0.07% to 5,791.03
• Kospi up 0.9% to 2,102.93

In the US, we’ll get PMI data and more Fedspeak:

• 9:45am: Markit US Manufacturing PMI, est. 55.3, prior 55
• 9:45am: Markit US Services PMI, est. 55.8, prior 55.6
• 9:45am: Markit US Composite PMI, prior 55.8

• 8:50am: Fed’s Kashkari Speaks on Economy in Golden Valley, MN
• 12pm: Fed’s Harker to Speak on Economic Outlook
• 3:30pm: Fed’s Williams Speaks to Students in Boise, Idaho

US futs and oil are up, gold’s down.