European stocks are modestly in the green as gains in banks and oil companies offset declines in miners. Asian stocks and S&P futures rise with Emerging-market stocks extending their longest winning streak since August on the back of the 5th consecutive daily drop in the USD.

The euro rose to the strongest in six weeks after a French presidential debate eased market concerns about a possible Le Pen win: the first French debate was reportedly won by centrist Emmanuel Macron. For those who missed it, last night saw the first televised debate between the candidates. Those who tuned in may be feeling a little jaded as the debate ended up lasting a whopping three and a half hours. There were plenty of head to head moments between Macron and Le Pen in particular which included much finger pointing and also amusing bouts of sarcasm. Immigration was unsurprisingly a hot topic while the exchanges also moved over to the economy and various policy measures. The general feeling was certainly one of it being lively however. Markets were largely waiting for some sort of conclusion about who came out on top though and following the debate an Elabe poll (covering 1157 respondents) found that Macron was seen as the winner of the debate at 29% with Melenchon second with 20%. Fillon and Le Pen came in joint third at 19% and Hamon came in fifth at 11%. An Opinionway poll showed 25% for Macron; in both polls Fillon and Le Pen were tied at 19%.

"From the point of view of international investors, this is a positive as it keeps France's position in the euro zone secure, or at least not weaker," said DZ Bank analyst Rene Albrecht.

As a result, the average probability of Macron win implied from betting odds climbed 2ppts to over 63%...

... boosting the Euro and peripheral bonds while pressuring Bunds. It’s worth noting that there are another two debates to come prior to the first round election on April 23rd. It's also worth noting that Hillary Clinton was seen as the comfortable winner in all the US Presidential debates.

Taking a cue from the debate polling which showed Macron as the most convincing, German bonds slid from the open, with French election risks seen waning. Losses extended in bunds after stronger-than-expected U.K. inflation data pressured gilts lower, with 10y U.K. yields climbing by around 6bps. MPC-dated SONIA rate jumps to price in almost one full hike by August 2018. The easing of French election risk has firmed rate-hike expectations for the ECB. Euribor strip has bear steepened from the open, with market pricing now showing over 20bps of rate increases priced by Sept. 2018.ECB rate expectations have seen the 5y sector on the German curve underperform, now cheaper by around 2bps on the 2s5s10s fly.French bonds meanwhile opened higher after the debate, with 10y yields dropping as much as 4bps. The move was quickly faded, as has been repeatedly observed in similar bouts of optimism around the French election. OATs now little changed.

The biggest winner, however, was the Euro, which rose to just shy of 1.08, the strongest in more than a month.

“When you consider how many people have been worried about this election and how cheap the euro is, if that risk were to go away then there’s the potential for money to flow into Europe,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley in London. “That would be another form of volatility. There’s always a risk of large moves when valuations are extreme -- and the euro is quite cheap.”

The dollar index fell below 100 for the first time since early February and was down almost half a percent on the day. The currency was on the defensive after Chicago Federal Reserve President Charles Evans reinforced the perception that the U.S. central bank will not accelerate the pace of its interest rate hikes. He said on Monday that two more interest rate hikes this year were likely, disappointing investors who had anticipated rates would be increased more quickly. The greenback is on its longest losing streak since November after the Federal Reserve’s dovish message on the speed of monetary tightening last week.

European stock markets opened higher after a rally in Asia, where MSCI's broadest index of Asia-Pacific shares outside Japan hit 21-month highs. U.S. stock futures pointed to a positive start for Wall Street, which had suffered on Monday as investors worried that President Donald Trump's plan to cut taxes and boost the economy would take longer than expected to realize.South Korea led gains among Asian emerging markets, with the Kospi jumping 1 percent to the highest since July 2011. Hyundai Motor Co. climbed 8.6 percent amid market speculation over a possible stake purchase by Elliott Management. The Stoxx Europe 600 Index added less than 0.1 percent at 9:48 a.m. in London. Banking stocks outperformed, led by Italian and French lenders, as worries over the French presidential election further abated. Mining stocks lost ground, trimming recent sharp gains. Futures on the S&P 500 rose 0.1 percent. The benchmark gauge fell 0.2 percent on Monday.

The 10-year U.S. Treasury yield briefly fell to two-week lows following the comments to 2.461 percent. It last stood at 2.48%. Oil prices rallied on expectations that an OPEC-led production cut to prop up the market could be extended. Prices for front-month Brent crude futures LCOc1, the international benchmark for oil, gained 1 percent to $52.13 per barrel.OPEC members increasingly favor extending the output curb beyond June to balance the market, sources within the group said, although they added this would require non-OPEC members such as Russia to also step up their efforts.

Elsewhere, Deutsche Bank was in focus as the subscription period for a capital raising began on Tuesday.Also today, Nike, FedEx, and General Mills are among companies scheduled to publish results

* * *

Bulletin Headline Summary from RanSquawk

• Sentiment in Europe received a lift from the open as participants reacted to a perceived strong performance from Macron in last night's French presidential debate.
• GBP ramps higher after inflation rises to the highest level since Sep'13
• Looking ahead, focus will Canadian retail sales, API crude report as well as comments from Fed's George and Mester.

Market Snapshot

• S&P 500 futures up 0.2% to 2373.5
• STOXX Europe 600 up less than 0.1% to 378
• MXAP up 0.1% to 149
• MXAPJ up 0.3% to 483.23
• Nikkei down 0.3% to 19,455.88
• Topix down 0.2% to 1,563.42
• Hang Seng Index up 0.4% to 24,593.12
• Shanghai Composite up 0.3% to 3,261.61
• Sensex down 0.3% to 29,432.19
• Australia S&P/ASX 200 down 0.07% to 5,774.62
• Kospi up 1% to 2,178.38
• German 10Y yield rose 2.8 bps to 0.468%
• Euro up 0.5% to 1.0795 per US$
• Brent Futures up 0.9% to $52.06/bbl
• Italian 10Y yield rose 0.7 bps to 2.364%
• Spanish 10Y yield fell 0.4 bps to 1.843%
• Gold spot down 0.4% to $1,229.24
• U.S. Dollar Index down 0.4% to 100.01

Top Overnight News from BBG

• PPG Said to Ready New Akzo Offer After Failed $22.4 Billion Bid
• Fed’s Dudley Says Wells Fargo Shows Bank Culture Needs Improving
• Google Overhauls Policies After Uproar Over YouTube Videos
• Deutsche Bank Said to Face Regulatory Fines Over Currency Trades
• Mideast Airlines Say New U.S. Restrictions Will Force Changes
• BlackRock Likes Property Even After Yellen Calls Prices ‘High’
• BMW Sees 2017 Profit Rising Slightly as Spending Exceeds Target
• Banking Panel Senators Make Bipartisan Call for Growth Proposals
• Baidu’s iQiyi Signs Pact With Warner Bros. on Movie Rights
• Chevron Says New LNG Projects Unlikely in West Australia
• NYSE Says It Has Identified, Fixed Cause of Arca Disruption

In Asian Markets, the major equity indices traded somewhat mixed following a similar lead from Wall St., where financials underperformed and participants were indecisive amid a lack of tier-1 data releases. ASX 200 (-0.1%) was dampened by weakness in telecoms and underperformance in the financial sector, while Nikkei 225 (-0.4%) lagged on return from an extended weekend, although downside was stemmed as USD/JPY nursed losses. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (+0.3%) were kept afloat following the continued liquidity operations by the PBoC which resulted in a 2nd day of net injections. Finally, 10 year JGBs traded higher amid a dampened risk tone in Japan and with the BoJ present in the market for a total JPY 1.15tIn of JGBs ranging from 1-10yr maturities. PBoC injected CNY 50bIn 7-day reverse repos, CNY 20bIn in 14-day reverse repos and CNY 10bIn in 28-day reverse repos

Top Asian News

• SoftBank Is Said to Invest in WeWork at $17 Billion Valuation
• Downer Makes A$1.26 Billion Takeover Offer for Spotless
• McDonald’s China Says It’s Not Affected by Ban on Brazil Meat
• Billionaire Damani’s Avenue Supermarts Shares Double on Debut
• Modi-Backed ETF May Fuel India Sales After $1.4 Billion Haul
• China H Shares Rise to Highest Since 2015; Power Producers Gain
• M1 Bids May Not Come Above S$2.20/Share, Religare’s Jin Says
• India’s HPCL to Use Honeywell Clean-Fuel Technology
• Freeport Indonesia Restarts Copper Concentrate Mill: Spokesman

European risk sentiment received a lift from the open as participants reacted to a perceived strong performance from Macron in last night's French presidential debate. As such European equities opened higher, with Euro Stoxx 50 spending much of the session higher by around 0.5%. On a sector breakdown, financials are among the best performers as Deutsche Bank trades higher on the session after going ex-subscription to their capital raising plans. Elsewhere Akzo Nobel are among the best performers on a stock specific basis as M&A news continues to circulate, with pre-market reports today suggesting PPG is preparing a renewed takeover offer for the Co. The notable data of the session, came in the form of UK CPI, with the higher than exp. reading (Y/Y 2.3% vs. Exp. 2.1%) seeing gilts underperform and sending GBP/USD towards 1.2450. The GBP strength has further exacerbated pressure on the USD, with the USD-index slipping below 100, while the French presidential election saw EUR/USD touch 1.0800. Fixed income markets have been pressured by the aforementioned risk on sentiment, with Bunds down 35 ticks on the session, while OATs saw a paring of some of their initial losses in the wake of reports that PM Cazeneuve asked govt. members not to back Macron.

Top European News

• EU Makes U.K. Wait to Start Brexit Talks as Trigger Date Set
• Macron on Top After First Debate of French Presidential Election
• Porsche SE Posts Profit as Owner Clan Plans to Buy Out Piech
• Swiss Watch Slump Extends Record Decline as U.S. Exports Slide
• Fingerprint Cards Withdraws Dividend Plan as Revenue Plummets
• Abertis Gives Information on Ruling on AP-7 Accounting Treatment
• Swedish Casino Company Takes Breather From Deals to Drive Growth
• Poland Needs Innovation to Catch Up With West, World Bank Says

In currencies, the Bloomberg Dollar Spot Index slipped by 0.2 percent, following a 0.1 percent drop Tuesday. The euro was up by 0.5 percent at $1.0796, while it rose versus all of its G-10 peers. The British pound traded 0.7 percent higher after data showed U.K. inflation rose faster than expected. The main mover of the morning has been GBP, which had been trending higher ahead of the inflation report to trip above 1.2400. In the wake of the release, GBP continued its ascension after CPI beat expectations, subsequently stoking expectations that the overshoot will force the Bank of England to act through potentially hiking rates, as such, a 25bps hike is now fully priced in by Aug'18. Elsewhere, a reassuring performance from Macron in the first presidential TV debate has buoyed EUR, with the currency touching 1.08 against the greenback. RBA minutes from Mar 7th meeting stated that it judged steady policy was consistent with growth and inflation targets and that rising AUD/USD would complicate economic transition. RBA also stated that economic growth is to accelerate gradually to above potential over the next 2 years and higher commodity prices could last longer than first thought given the stronger global demand.

In commodities, West Texas Intermediate oil climbed 0.8 percent to $48.60 before U.S. inventory data on Wednesday and as Libya prepared to restart crude shipments from major ports. Copper slumped 0.7 percent amid signs supplies are returning; disruptions caused the metal to surge last month to the highest level since 2015; prices slipped after reports that the union for workers on strike at the BHP Billiton Escondida copper mine held talks with the company and also coincided with a 4% drop in Dalian iron ore futures during Asian trade. Gold (-0.4%) prices pulled back from 2 week highs after four days of gains, while the softness in the USD index has supported oil prices with Brent futures above USD 52/bbl and WTI above USD 49/bbl ahead of the API inventories after market.

Looking at the day ahead, in the US the diary remains sparse with just the Q4 current account balance reading expected. Away from the data this morning we are expected to hear from the Fed’s Dudley and BoE’s Carney at a bank ethics event in London, while this afternoon we are due to hear from the Fed’s George and then this evening the Fed’s Mester is due to speak. The EU finance ministers meeting will also continue in Brussels this morning.

US Event Calendar

• 8:30am: Current Account Balance, est. $129.0b deficit, prior $113.0b deficit

Central Banks

• 6:35am: Fed’s Dudley, BOE’s Carney Speak at Bank Ethics London Event
• 12pm: Fed’s George Speaks in Washington on U.S. Economy and the Fed
• 6pm: Fed’s Mester Speaks at University of Richmond
• 9:45pm: Boston Fed Rosengren Speaks in Bali at Asia-Pacific Meeting

DB's Jim Reid concludes the overnight wrap

Will France wake up this morning feeling more confident about the upcoming Presidential race? Well last night saw the first televised debate between the candidates. Those who tuned in may be feeling a little jaded as the debate ended up lasting a whopping three and a half hours. There were plenty of head to head moments between Macron and Le Pen in particular which included much finger pointing and also amusing bouts of sarcasm. Immigration was unsurprisingly a hot topic while the exchanges also moved over to the economy and various policy measures. The general feeling was certainly one of it being lively however. Markets were largely waiting for some sort of conclusion about who came out on top though and following the debate an Elabe poll (covering 1157 respondents) found that Macron was seen as the winner of the debate at 29% with Melenchon second with 20%. Fillon and Le Pen came in joint third at 19% and Hamon came in fifth at 11%. It’s worth noting that there are another two debates to come prior to the first round election on April 23rd. It's also worth noting that Hillary Clinton was seen as the comfortable winner in all the US Presidential debates.

Prior to the outcome from that poll the Euro did touch as low as 1.072 overnight versus the US Dollar but bounced post the news and hit a high of 1.078, or up just under half a percent with the market seemingly comforted that the debate failed to yield any further support to Le Pen’s chances. The Euro is now sitting at 1.076 as we go to print. Meanwhile equity markets are once again a bit mixed. Having been closed on Monday bourses in Japan are open again with the Nikkei currently -0.27%. The ASX (-0.16%) is also down however there are small gains for the Hang Seng (+0.31%), Shanghai Comp (+0.19%) and more notably the Kospi (+1.02%). US equity index futures are also up about +0.20% while Gold is -0.57% so suggesting a slightly more positive environment for risk at the margin this morning.

While we’re on France, we thought it would be worth highlighting a report published by our colleagues yesterday in Europe summarising the results of their recently conducted global cross asset survey about investors’ views of asset returns one week after the French presidential election. They summarise that a Le Pen or a Left win is, perhaps unsurprisingly, strongly associated with Negative or Very Negative risk asset outcomes. A Centre win is mainly associated with Positive (but not Very Positive) outcomes, suggesting investors remain cautious about the economic environment, regardless of outcome. Many investors are neutrally positioned, but of non-neutral investors there is a distinct tilt towards long volatility and long hedges. A negative outcome is largely associated with high equity vol and sharp equity falls. In a positive outcome, the majority expectation is for limited equity upside only; however, we highlight a notable tail of expectations in the highly positive scenario, i.e. for very low vol and large equity upside. In rates the dominant expectation is for stable / higher yields regardless of election outcome. FX markets show a more bearish tilt, with EURUSD below parity in a negative outcome. In addition, upside is more limited – only 26% of respondents see EUR/USD above 1.10 in a positive outcome.

Moving on. In what was an otherwise very quiet day for the most part yesterday, it was the chorus of Fedspeak which markets were most concentrated on. Of particular focus was the Chicago Fed’s Evans who made the case for the Fed hiking 2 or 3 more times this year. Evans also said that he expects inflation to hit 2% in 2018 and that things are “much more balanced around the outlook” than they were two years ago. The Philadelphia Fed President Harker also spoke and said that he expects the Fed to overshoot the 2% inflation target “a little bit” and that he would not rule out a faster or slower pace of hikes in 2017 than the three he has projected so far. Finally there was a much more dovish angle to the Fedspeak yesterday too with Minneapolis Fed President Kashkari also speaking. He said that “we do not have a high inflation threat right around the corner” and that ‘I’d be very surprised if core inflation reaches 2% this year”. He also said that “the data are basically moving sideways, so I’m asking, what’s the rush to raise rates”.

Aside from the Fedspeak, there wasn’t a huge amount more for markets to feed off aside from some political related stories. The G-20 news from the weekend came and went however a lot of the focus was on the news that the FBI has confirmed that it is conducting a broad inquiry into a possible link between President Trump’s presidential campaign in 2016 and Russia. Meanwhile here in the UK we got the confirmation that PM Theresa May will trigger Article 50 on March 29th and so officially starting the clock on negotiations. The European Council President Donald Tusk confirmed that he will present the draft Brexit guidelines to the EU27 members states within 48 hours. It’s worth noting also that a provisional plan for the EU to hold a summit on April 6th to discuss early negotiation plans has been pushed back to late April/early May, all of which obviously eats into PM May’s negotiating time frame.

Over in markets the end result of all the Fedspeak and various political related headlines was a very modest risk off start to the week. The S&P 500 ended -0.20% by the closing bell and so confirming a third consecutive daily decline following last Wednesday’s big post-FOMC rally. The Stoxx 600 (-0.17%) was down a similar amount and fell for the first time since last Tuesday. The exception was once again in EM however where the MSCI EM index (+0.70%) rose for the seventh consecutive session. In government bonds 10y Treasury yields dipped 4bps to 2.462% and are now down to the lowest yield since March 6th having touched an intraday high of 2.628% a week ago. In Europe bond markets didn’t really do much although Greek bonds were a bit weaker after Eurogroup head Jeroen Dijsselbloem said at a finance minister’s meeting that “some key issues” still remain to be sorted out between Greece and its creditors and that talks will continue and intensify in coming days.

Moving on. Yesterday’s data was fairly thin on the ground. In the US the sole release was the Chicago Fed national activity index which came in at a better than expected 0.34 in February (vs. 0.03 expected) and in doing so has pushed the three-month average up to 0.24 which is the highest since December 2014. In Germany PPI was reported as rising +0.2% mom in February which was a little less than expected. Meanwhile in the UK the Rightmove index of house prices showed prices as stable at +2.3% yoy in March. The other data concerned the latest weekly ECB CSPP holdings where the average daily run rate last week of €363m more or less matched the average €367m since the program started.

Looking at the day ahead, this morning in Europe the focus will be on the UK where we will get the February CPI/RPI/PPI data (with headline CPI expected come in at +0.5% mom and headline RPI at +0.8% mom). We will also get the February public sector net borrowing data in the UK and then the March CBI industrial trends survey. This afternoon in the US the diary remains sparse with just the Q4 current account balance reading expected. Away from the data this morning we are expected to hear from the Fed’s Dudley and BoE’s Carney at a bank ethics event in London, while this afternoon we are due to hear from the Fed’s George and then this evening the Fed’s Mester is due to speak. The EU finance ministers meeting will also continue in Brussels this morning.