Despite US markets being closed in observance of Washington's birthday, S&P futures spiked during overnight trading, reaching new all time highs before fading some of the gains. Both Asian and European markets traded modestly higher after paring early gains. The U.S. dollar traded in a tight range ahead of a busy week for Federal Reserve events, while the pound rallied the most in more than two weeks ahead of a House of Lords Brexit debate, while South Africa’s rand fell on political turmoil. Oil advanced for a third day and spot gold rose for the fourth session in five.

The relatively benign moves this morning follow what was also a fairly tepid end to the week on Friday in markets. Equity markets in the US did however manage to eke out another small gain with the S&P 500 finishing +0.17% following a late bounce into the close. That means it has closed up in 11 of the last 13 trading sessions although at the same time has now gone 49 consecutive sessions without closing with a move up or down by more than 1%.

Global volumes have been light with U.S. markets closed for the Presidents Day holiday. MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent and back toward a 19-month peak reached last week. Shanghai stocks added 0.9% and expectations of solid economic growth in China kept commodities such as copper and iron ore well bid. Japan's Nikkei closed flat after domestic data showed exports disappointed in January even as imports outpaced forecasts.

With U.S. bond and stock markets shut on Monday for Presidents’ Day, investors are watching developments in Europe. Political risk is in focus after a poll showed public approval for German Chancellor Angela Merkel’s ruling party fell behind the Social Democrats for the first time under her leadership. And in the U.K., some members of the parliament’s upper chamber will seek changes to the draft law that will allow the government to trigger a departure from the EU when it is discussed by the Lords on Monday, Bloomberg reported.

The Stoxx Europ 600 rose and U.S. futures pointed higher even as Unilever slumped after Kraft Heinz withdrew a $143 billion takeover bid. Shares in Unilever fell 6.7 percent; stock remains above level from before Kraft offer was revealed last week.Trading in Kraft and its erstwhile target remains in focus on the back of Friday’s surge in both stocks. People familiar with the talks at the weekend said 3G Capital and Warren Buffett’s Berkshire Hathaway Inc. decided Unilever’s negative response made a friendly transaction impossible.

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Stoxx Europe 600 Index rose 0.2 percent as of 10:43 a.m. in London, with banks bouncing after Friday’s selloff. Telecommunilcation companies outperformed, led by Deutsche Telekom AG following a rally in T-Mobile shares on Friday. Italy's MIB-30 and France's CAC40 have underperformed their European peers as political risk is once again being discounted, following Sunday's announcement that Renzi has quit as leader of the PD, while in France, the latest poll showed Marine le Pen continues to grind higher in the polls, pushing the France-Germany bond spread to intraday wides. 

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Japan’s Topix rose for the first time in three days, reversing an early loss after the dollar strengthened on a Fed official’s comments. Hong Kong shares resumed a rally, closing at the highest since August 2015.

Cleveland Federal Reserve President Loretta Mester said on Monday in Singapore that she would be comfortable raising interest rates at this point if the economy kept performing the way it has. Speculation the central bank could hike as soon as March has generally underpinned the U.S. dollar, though large long positions leave the market vulnerable to sudden pull backs.

Upon returning from holiday, US traders will focus on a bevy of retailers earnings this week, including Wal-Mart Stores, Macy's and Home Depot. The results will be watched for a read on spending as well as for commentary from executives on President Donald Trump's proposal to tax imports. The Fed releases minutes this week from its most recent meeting, possibly giving investors a look into how members see Trump’s policies. Data should show the U.S. housing market perking up a bit at the start of the year. The PMI is expected to rise slightly. PMI surveys for the euro area and its two largest economies this week may show growth momentum is solid, while the Ifo business confidence survey may support that view for Germany. On the interest rate front, no less than five heads of regional Federal Reserve bank are due to speak this week while Fed Board Governor Jerome Powell appears on Wednesday, when minutes of the last policy meeting are also due.

Billionaire Warren Buffett will release his annual letter to shareholders with Berkshire Hathaway Inc.’s earnings. The U.K.’s House of Lords will debate the article 50 bill, the legislation which will allow Theresa May to trigger Brexit. Bank of England Governor Mark Carney will on Tuesday testify before the U.K. Parliament’s Treasury Committee.

In rates, German Bunds slipped, with the 10-year yield rising less than one basis point from Friday. European government bond yield curves all steepened, as longer-dated bonds underperformed on expectations of long-dated syndicated bond sales this week. Unilever bonds cut, but didn’t erase, Friday’s spread-widening move, as the company is still seen as in play

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Asia markets traded mostly higher following another late day rebound on Wall Street on Friday after M&A talk lifted Nasdaq 100. ASX 200 (-0.4%) underperformed amid losses seen in the industrials and energy sectors, with both Oil Search and Santos shares lower by around 2%. Nikkei 225 (+0.1%) was positive with the index lifted by Softbank shares following reports that Softbank is prepared to surrender control of Sprint to Co.'s T-Mobile US to seal a merger of the two US wireless carriers, while a weaker JPY also provided support. Shanghai Comp. (+1.2%) and Hang Seng (+0.5%) traded higher despite the PBoC failing to provide liquidity into the market. 10yr JGBs traded lower with participants seeking riskier assets, with the curve flattening amid underperformance in the short end.

EU bourses likewise opened higher this morning, with Telecoms outperforming after Softbank stated they are prepared to surrender control of Sprint to Deutsche Telekom's T-Mobile US. This is in a bid to seal a merger of the two US wireless carriers, this followed reports that Softbank are to approach the Co. for the potential merger. Financials are also seen higher as the UK treasury devised proposals in which RBS will no longer have to sell Williams & Glyn and as such the Co. have announced provisions of GBP 750m1n to deal with the new proposals. A joint statement from Kraft and Unilever hit consumer staples this morning after both companies amicably agreed to withdraw its proposal for a combination of the two companies and as such Unilever's UK listings shares fell 7% at the open. Fixed income markets remain quiet this morning, but Greece remains in focus as the Eurozone finance ministers get ready for their latest discussions on the county's bailout progress. This meeting is widely expected to be the last major deadline for Greece to meet before their next tranche of cash is to be released. With this, the demand for the 2Y has tailed off significantly sending yields higher once again to around 9.7%.

In FX, the Bloomberg Dollar Spot Index swung between gains and losses to trade little changed Monday while the U.S. holiday weighed on volumes. Sterling was higher versus all its Group-of-10 peers, rising 0.4 percent to $1.2460. South Africa’s rand declined 0.6 percent before a meeting of the ruling African National Congress’ executive committee that may discuss Finance Minister Pravin Gordhan’sposition. GBPUSD will be in focus today as the as the House of lords are set for a second reading debate at 3.30pm GMT and will conclude with a vote tomorrow evening. Although amendments will not be voted on, one thing to look out for is the speeches and any comments to the press as this could give some clues of the mood of the upper chamber. Elsewhere, FX is relatively choppy with the USD fluctuating against its major counterparts ahead of the holiday in the region, while JPY weakened across the board and related-crosses nursing some of their recent losses as USD/JPY reclaimed the 113.00 handle, amid lack of news flow and data to provide clear direction for the market.

In commodities,copper led an advance in industrial metals, rising 0.9 percent to $6,012.50 a metric ton as the deadlock deepened between Freeport-McMoRan Inc. and Indonesia over mining licenses, while Citigroup gave a bullish outlook for prices. U.S. oil futures climbed 0.7 percent to $53.77 a barrel after spending last week in the narrowest trading range in 13 years, as rising U.S. drilling activity threatened to offset OPEC production cuts. Spot gold edged 0.1 percent higher after gaining three straight weeks. Saudi Arabia's crude production was 10.465MM bpd in Dec according to reports in Jodi and crude exports fell to 8mln bpd in Dec vs 8.3m In Nov. This has led WTI and Brent crude to rise by roughly USD 0.30/bbl, also of note the CFTC cot data shows for last week that non commercial net longs have reached a record high. Elsewhere in commodities, precious and base metals are largely trading sideways but we must remember that the US are away due to President's day.

There is nothing on today's US calendar as the nation celebrates Presidents' day.

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DB's Jim Reid concludes the overnight wrap

The French political newsflow continues to build ahead of the April/May elections. Although it's a US holiday, European politics looks likely to be a big topic today. Indeed on Friday we learned that FrenchSocialist candidate Hamon and far-left candidate Melenchon had talked to each other about forming a possible joint candidacy while our economists also noted that Hamon was in talks about forming an alliance with the Greens, all of which adding another potentially interesting twist to the election race. Our colleagues highlighted that one first round scenario is where Macron, Le Pen and Hamon-Melenchon could all poll within the margin of error. This could in theory decrease the chances of Le Pen being in the second round, but at the same time also increase her chances of winning if she did make it to the second round. At the same time it would also increase market volatility around the French Presidential election.

Our economists did however also highlight that an alliance between Melenchon and Hamon would in reality be difficult to form. Melenchon said that only he could be the candidate of such an alliance and in reality it would be very hard for many Socialist members to accept such a bond. Significantly, over the weekend the news suggests that the two candidates are no closer to bridging the gap. In fact Hamon was reported as saying that “I won’t run after Melenchon” and that “I don’t run after anyone”. According to Bloomberg Melenchon also said that Hamon’s campaign was going nowhere and that he would not hitch a ride on Hamon’s “hearse”. Separate to all this, Le Pen has been forced to deny an allegation from the EU fraud office over the weekend concerning a report that she provided aides with fake parliamentary jobs. Meanwhile, Fillon confirmed on Friday that he would continue to run for Presidency even if a formal investigation opens concerning the employment of his family. So plenty to take in. It’s worth noting that 10y OATs (+2.0bps) underperformed relative to Bunds (-4.7bps) and Treasuries (-3.2bps) on Friday.

Meanwhile, over in Italy we’ve had the confirmation that former PM Renzi has quit as leader of the PD, and so triggering a party re-election. Primaries are expected to take place at the end of April or in the first half of May. Our economists also noted in their Focus Europe piece on Friday that an important theme of late has been the increasing probability of a split of Renzi’s PD with the left wing minority apparently intentioned to breakup. They note that if it materialises, the likelihood of a victory of eurosceptic parties at the general election would increase – currently the polls give the PD a small advantage over the 5SM. Hence, markets could interpret a PD split negatively. Indeed our economists’ central case is a break-up of the PD with the consequence being a further increase in political fragmentation by damaging the only large party that remains pro-European. The main question, then, would become how much political support the PD would lose if historical left-wing leaders were to abandon the party. In their view, a split of the PD could open the door to a victory of the eurosceptic parties in the coming election.

Not to be outdone, German politics may also have a role in the spotlight today. A weekend poll by the Emnid Institute and published in the Bild newspaper showed that the centre-left Social Democrats party have widened their lead over Merkel’s CDU party. The poll found that the SPD’s support increased 1% in a week to 33%, while the CDU’s share fell 1% to 32%. The poll also suggests that the SPD’s overall percentage has increased 12% in the last four weeks. That is the 3rd poll that we have found which shows a 1% lead for the SPD over the CDU, although the absolute percentage share for the SPD is the highest in this latest Emind poll. Something else worth watching.

Staying with Europe, today we’ve also got the scheduled Eurogroup finance ministers meeting in Brussels where ministers are due to discuss the Greece’s bailout. Hopes for progress have seemingly stalled until after the upcoming European elections although German finance minister Wolfgang Schaeuble did reiterate his confidence over the weekend that Greece is on the right path and that he also expects the IMF to participate in a third bailout package.

This morning in Asia the overall tone in markets is a fairly positive one to start the week. The Nikkei (+0.16%), Hang Seng (+0.32%) and Kospi (+0.06%) have all edged higher in the early going although moves for the most part are modest. The exception is in China where the Shanghai Comp is up a slightly stronger +0.75% with banks leading the way. In FX the Euro is little changed following the various weekendnewsflow. Meanwhile there’s been some early data out of Japan where the January trade numbers were released. Exports were reported as rising only +1.3% yoy (vs. +5.0% expected) from +5.4% in the month prior, while a bigger than expected surge in imports (+8.5% yoy vs. +4.8% expected) has resulted in a shrinking of the surplus.

Moving on. The relatively benign moves this morning follow what was also a fairly tepid end to the week on Friday in markets. Equity markets in the US did however manage to eke out another small gain with the S&P 500 finishing +0.17% following a late bounce into the close. That means it has closed up in 11 of the last 13 trading sessions although at the same time has now gone 49 consecutive sessions without closing with a move up or down by more than 1%. The VIX (-2.30%) edged back down to 11.49 while markets in Europe were similarly subdued with the Stoxx 600 closing +0.03%.

Meanwhile along with the weakness in OATs, peripherals also struggled in Europe on Friday with 10y yields +3bps to +5bps higher. The FTSE MIB (-0.42%) and IBEX (-0.57%) indices also underperformed. 10y Gilts yields did however rally nearly 5bps while Sterling (-0.62%) was weaker following a disappointing UK retail sales report. January retail sales including fuel fell -0.3% mom compared to expectations for a +1.0% rise while excluding fuel, sales also fell unexpectedly (-0.2% mom vs. +0.7% expected), which in turn helped to push the YoY rate down to +2.6% from +4.7%. The only other data came from the US where the conference board’s leading index rose +0.6% mom in January.

To this week’s calendar now. With the US on holiday for President’s Day (and markets subsequently closed) the data this morning is reserved for Europe where we’ll get PPI in Germany and CBI selling prices data in the UK. Euro area consumer confidence data will also be released. Kicking things off on Tuesday will be Japan where we get the flash February manufacturing PMI. It’ll be all about the PMI’s in the European session too with flash manufacturing, services and composite readings all due. We’ll also get CPI in France and public sector net borrowing data in the UK. In the US we’ll also get the three flash PMI readings. In the Asia session on Wednesday the lone data release is property prices data in China. Over in Germany we’ve got the IFO survey results for February as well as preliminary Q4 GDP for the UK, along with the various growth components. The final January CPI figures for the Euro area will also be watched. In the US on Wednesday the lone data is January existing home sales, while we’ll also get the FOMC minutes from the January meeting. Thursday kicks off with more GDP data, this time the final January report in Germany while we’ll also get confidence indicators out of France. In the US data due includes initial jobless claims, FHFA house price index and Kansas City Fed’s manufacturing survey. There’s nothing of note in Europe on Friday while in the US we’ll get new home sales and the University of Michigan consumer sentiment reading.

Away from the data the Fedspeak this week consists of Kashkari, Harker and Williams on Tuesday, Powell on Wednesday and Lockhart on Thursday. Another focus for markets will be today’s Eurogroup meeting where finance ministers are due to discuss Greece’s bailout situation. Also of note today is the House of Lords commencing a two-day debate on the draft law passed in the House of Commons with a vote due on Tuesday. BoE Governor Carney is also due to testify before UK Parliament on Tuesday.