European shares and S&P futures are modestly lower this morning, dragged down by fresh geopolitical concerns out of North Korea which last night fired 4 ballistic missiles, by renewed political jitters out of France where Alain Juppe announced he would not run in the presidential election, from Deutsche Bank whose aggressive equity offering has weighed on local stocks, and from China's announcement over the weekend in which it modestly cut its economic outlook. Risks were magnified following concerns of political stability in the US after President Trump's accusation that his predecessor Barack Obama wiretapped him overshadowed a flurry of M&A activity in Europe.

As a result, caution has rippled through equity markets while metals slumped on Chinese growth prospects and the French presidential race continued to roil the euro.

The Stoxx Europe 600 index was down 0.4% dragged by miners and banks as Deutsche Bank announced it was reversing course with an overhaul to raise capital. Deutsche Bank shares slumped 6% after Germany's biggest lender said it needs to issue more shares to raise 8 billion euros of capital. "The question is whether this will be the last capital hike or whether the bank will need more yet again in a few years," said Stefan de Schutter, a trader at Frankfurt-based Alpha, referring to Deutsche. "Until now, none of the restructuring measures have borne fruit."

Deutshce pressured European banking stocks and weighed on broader indices, offsetting a rise in shares of asset management firms after Aberdeen and Standard Life set the terms of their 11 billion pound tie-up. Both stocks rose more than 6 percent.

The FTSEuroFirst index of 300 leading shares and Germany's DAX fell as much as 0.7 percent, both hit by the slide in Deutsche Bank. The European banking index was down 1 percent.

MSCI's benchmark global stock index was flat on the day. U.S. stock futures pointed to a fall of around 0.5 percent at the open on Wall Street which would take some of the shine off last week's rally to fresh record highs, particularly the Dow's leap above 21,000 points. Japan's Nikkei lost 0.5 percent, but that was the outlier in Asia. MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan rose 0.4 percent, recovering from Friday's 1 percent fall, its biggest this year.

The euro erased earlier gains and German bonds rose after former prime minister Alain Juppe said he won’t step in to replace Francois Fillon on the Republican ticket in France’s frenetic presidential election. As a result, European markets unwound Friday’s Juppe-motivated risk-on, with Bund futures rallying, core curves bull flattening and peripherals dropping with French bonds. Local press reported over the weekend Juppe would decline to replace Fillon, prompting early risk-off moves; bund futures rose to session highs as Juppe confirmed he won’t run just after 10:30am CET.France-German 10y spread wider by around 5bps; credit spreads widen and European stocks slid. Elsewhere, the German 10Y yield declined -3bps at 0.33%; March bund futures were +40 ticks at 164.38; Italy +3bps at 2.12%, France +2bps at 0.96%, Spain +3bps at 1.70% in a parallel risk on/risk off move.

The bigger picture is that markets appear to be rolling over recent all time highs, as investors anticipate in a near-certain March U.S. rate rate next week. Chinese Premier Li Keqiang warned of larger challenges ahead during his work report to the annual National People’s Congress gathering in Beijing. In Europe, the agenda is being set by politics, according to Pictet Asset Management. “The ‘pothole’ is a political one with far right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”

Risk appetite also took a hit on rising geopolitical tensions in East Asia. North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defense deepened. Trump's accusation that his presidential predecessor Barack Obama wiretapped him during the late stages of the 2016 election campaign also cast a shadow over U.S. stocks. Some investors view Trump's confrontational style as distracting the president from his economic agenda.

And then there is the Fed: investors opened the trading week almost certain that the Federal Reserve will raise U.S. interest rates next week. Fed Chair Janet Yellen on Friday all but confirmed market expectations, barring any sharp deterioration in economic conditions. U.S. money market futures are pricing in about a 90% chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September. But much of the market's move towards this level of certainty was made early last week, meaning it was already largely in the price of the dollar and U.S. bond yields.

Attention will now shift to the U.S. employment report for February on Friday, while investors are also awaiting more detail on Trump's fiscal plans.

"The rally (on Wall Street) has been mainly driven by promises made by President Trump to lower taxes, increase spending on infrastructure and the military," Rabobank analysts wrote in a note on Monday. "The importance of such pledges has increased as the Fed intends to raise rates further. What could possibly go wrong?"

Both the dollar and Treasury yields slipped on Monday, as investors took some profit from last week's moves and squared positions ahead of the expected rate hike. The Bloomberg Dollar Spot Index added 0.1 percent, after slipping 0.7 percent on Friday to halt a five-day rally. The euro edged up to $1.0640 having dipped below $1.05 last week, and the dollar fell a third of one percent against the yen to 113.60 yen. China's yuan was little moved, fetching 6.8920 yuan per dollar in offshore trade after China cut its growth target for this year to 6.5 percent, compared to its 2016 goal of 6.5-7 percent. Growth in 2016 was 6.7 percent.

In rates, the yield on the benchmark 10-year Treasury note declined one basis points to 2.47 percent. German bonds were Europe’s best performers, as 10-year yields dropped three basis points to 0.33 percent. French benchmarks declined, pushing the yield of debt due in a decade up two basis points to 0.96 percent.

Oil prices fell on concern over Russia's compliance with a global deal to cut oil output and China's lower growth target. International benchmark Brent futures fell 0.8 percent to $55.45 per barrel. Figures released last week showed Russia's February oil output was unchanged from January, casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year

Key events in the coming week include the ECB's meeting on Thursday in which Mario Draghi is expected to keep things unchanged even though headline inflation reached its 2% target in February. He’s expected to keep QE going until the end of the year with underlying price pressures muted. Other economic highlights of the week are industrial output for Germany, France and the U.K., and German factory orders. The biggest economic event in the US will be the February jobs data on tap for Friday. Employers probably added around 190,000 workers to payrolls, in line with the average over the past six months and a sign of steady job growth, economists forecast. A big negative surprise may derail the Fed's plans for a rate hike.

Bulletin Headline Summary from RanSquawk

• European equities begin the week on shaky ground, trading lower this morning by around 0.5% in major indices as sentiment is weighed on by concerns regarding Deustche Bank
• Limited outright movement in the USD this side of the weekend, with mixed flow suggesting focus on its major counter-parts
• Looking ahead, highlights include US Factory Orders, Durable Goods and Fed's Kashkari (not set so speak about monetary policy)

Top Overnight News from RanSquawk

• Standard Life Agrees to Buy Aberdeen in $4.7 Billion Stock Deal
• Peugeot Maker Agrees to Buy GM’s Opel in $2.3 Billion Deal
• Juppe Says He Won’t Be a Stand-In Candidate in French Race
• Deutsche Bank Reunites Traders With Bankers in Cost-Cut Mission
• CSX Said Near Deal to Name Harrison CEO as Soon as Next Week
• Japan Goes to Highest Alert Level After North Korea Missiles
• Wells Fargo Executives May Face Criminal Charges, Reuters Says
• Russian Hackers Said to Seek Hush Money From Liberal U.S. Groups
• Trump’s Travel Ban Threatens to Deter Foreign Tourists From U.S.
• U.S. Oil Industry Becomes Refiner to the World as Exports Boom
• Bird Flu Found in Tennessee, Near Top U.S. Chicken States (1)
• ‘X-Men’ Sequel ‘Logan’ Tops Box Office With Biggest 2017 Debut
• Banks Set to Win Derivatives Relief in New EU Trading Rules
• Exelixis Granted FDA Orphan Drug Status for Cabozantinib

Market Snapshot

• S&P 500 futures down 0.2% to 2,375
• STOXX Europe 600 down 0.5% to 373.29
• MXAP up 0.5% to 144.51
• MXAPJ up 0.5% to 463.97
• Nikkei down 0.5% to 19,379.14
• Topix down 0.2% to 1,554.90
• Hang Seng Index up 0.2% to 23,596.28
• Shanghai Composite up 0.5% to 3,233.87
• Sensex up 0.8% to 29,062.68
• Australia S&P/ASX 200 up 0.3% to 5,746.51
• Kospi up 0.1% to 2,081.36
• German 10Y yield fell 3.7 bps to 0.319%
• Euro down 0.3% to 1.0595 per US$
• Brent Futures down 0.5% to $55.60/bbl
• Italian 10Y yield fell 3.9 bps to 2.1%
• Spanish 10Y yield rose 1.5 bps to 1.693%
• Brent Futures down 0.5% to $55.60/bbl
• Gold spot down 0.2% to $1,231.81
• U.S. Dollar Index little changed at 101.58

Asia stock markets saw a mixed session after having shrugged off the early cautious tone triggered by events over the weekend in which China lowered its GDP growth target and North Korea launched 4 missiles into the East Sea. This pressured ASX 200 (+0.1%), and Nikkei 225 (-0.5%) in early trade, although Australian stocks recovered led by commodity names amid prospects of further Chinese capacity reductions in the steel and coal sectors. Shanghai Comp (-0.5%) and Hang Seng (+0.2%) saw mixed performance with choppy price action amid the weaker Chinese growth target, as hopes for future stimulus measures increased while there were also several positive profit alerts by several firms ahead of the upcoming blue chip earnings. 10yr JGBs were flat despite the weakness in Japanese stocks with demand dampened amid the absence of BoJ in the market, while the curve flattened amid outperformance in the super-long end.

Top Asian News

• China AVIC Helicopter Said to Mull Stake Sale in Civil Unit
• Rich Gen-Y Asian Kids Pool Family Fortunes to Build Venture Fund
• China’s Li Walks Knife Edge on Growth as ‘Graver’ Risks Loom
• Papua New Guinea Grasps at Its Own Gas as LNG Exports Surge
• China Beats Stability Drum as Fed Outlook Risks Yuan Decline
• Sway of Geopolitics Lurks Under Cover of South Korea’s Markets
• Most-Traded Indian Sovereign Bonds Drop as ‘Repo Squeeze’ Eases
• Lone Star Bids for Astro Japan’s Real Estate Worth $736 Million

In European bourses, equities begin the week on shaky ground, trading lower this morning by around 0.5% in major indices as sentiment is weighed on by concerns regarding Deustche Bank. Friday saw the initial reports of an EUR 8bIn capital increase from the Co., and as further details have emerged over the weekend Co. shares now trade lower by 5.8%. Elsewhere, the UK has seen the notable M&A news of the day, with Standard Life and Aberdeen Asset Management agreeing a GBP 11 bIn tie up, to see both Co.'s share price higher this morning by 6% and 5% respectively. Amid the risk off sentiment, Bunds trade higher by 50 ticks with periphery spreads wider against the core due to safe haven flow. Reports that Juppe reiterated that he will not run in the French Presidential election saw FR/GE 10Y spread also widen, with Fillon appearing to many as having little chance at a notable presidential challenge.

Top European News

• Juppe Says He Won’t Be a Stand-In Candidate in French Race
• Deutsche Bank Reunites Traders With Bankers in Cost-Cut Mission
• BT Pays $1.5 Billion to Keep Champions League Soccer in U.K.
• Prime London Office Values May Fall 20% This Year on Brexit
• OMV Buys Uniper’s Russia Field Stake to Cement Gazprom Ties
• Hungarian Central Bank Reduces VP Nagy’s Responsibilities

In currencies, limited outright movement in the USD this side of the weekend, with mixed flow suggesting focus on its major counter-parts. EUR has been a beneficiary of latest developments in the French elections, with reports that the Republican are set to meet to address some of the damage suffered in recent weeks. EUR/USD has rallied to 1.0600+ levels, but with the prospect of a March Fed rate hike on the table, USD demand kicked in ahead of 1.0650. This has yet not materialised in USD/JPY, which continues to struggle below the 114.00 mark, but a large expiry at the figure level may be influential near term. Upside EUR pressure has pushed the GBP cross rate into the heavy selling zone from 0.8650-00, but progress here very slow, but GBP weakness looks to have been transferred since into Cable. The spot rate is now testing sub 1.2250 levels again, but we saw good demand ahead of 1.2200 last week.

In commodities, focus has been dominated by the performance of the Chinese economy, and to that end, the modest downgrade to growth forecasts may have prompted some weakness in base metals. Losses across the board are somewhat mixed, with Zinc the under-performer today, falling over 2%. Against this, Nickel has proved a little more resilient, though still down on the day, but finding some support from the Philippines considering a ban on exports of raw materials. Precious metals still moving in tight correlation to the USD/Treasuries, with a modest up-tick seen in the yellow metal, as there has been in Silver. WTI still trading comfortably inside, the USD50-55 range, with last week's focus on non OPEC compliance taking the shine off Oil prices. China's lowering of growth targets also seen to have had a modest impact this side of the weekend.

It looks set to be a quiet start to the week with factory orders and final durable and capital goods revisions in the US this afternoon.

US Event Calendar

• 10am: Factory Orders, est. 1.0%, prior 1.3%; Factory Orders Ex Trans, prior 2.1%
• 10am: Durable Goods Orders, est. 1.0%, prior 1.8%;Durables Ex Transportation, est. 0.1%, prior -0.2%
• 10am: Cap Goods Orders Nondef Ex Air, prior -0.4%; Cap Goods Ship Nondef Ex Air, prior -0.6%

DB's Jim Reid concludes the overnight wrap

A little over a week out from the start of the two-day FOMC meeting and it now feels like a rate hike is a done deal. What a difference a week makes. Indeed Fed Chair Yellen effectively ratified a hike on Friday following her comments in Chicago. The most significant part of her speech was the one in which she said that “at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate”. The Fed Chair also added that “given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016”.

The end result was another slight tick up in the probability of a rate hike next week to 94%, as per Bloomberg’s calculator (which slightly overstates), from 90% a day prior. It was last late on Tuesday when we saw pricing really start to swing to reflect a much higher probability of a tightening after Dudley and Williams set the wheels in motion. Indeed we’ve seen the probabilities steadily rise each day last week from 52% on Tuesday, to 80% on Wednesday and then 90% on Thursday before rising further on Friday. In terms of the actual moves on Friday, 2y Treasury yields peaked as high as 1.341% just as Yellen spoke (about +3bps on the day) which is the highest this year and the highest since June 2009. However bonds actually strengthened a bit into the close and finished unchanged on the day at 1.305% reflecting perhaps the fact that a move is already pretty much priced in or further reconfirmation from Yellen that further tightening is still likely to be “gradual” in pace even if at a quicker pace than 2015/16. 10y Treasury yields peaked at 2.520% as Yellen spoke before also retracing that entire move into the close to finish at 2.478%. It’s worth highlighting that 2y yields ended up rising 16.2bps last week which is the biggest weekly move since February 2015. Interestingly after all the chatter about Bund yields hitting record lows, 2y Bunds also near enough kept up with the moves for Treasuries and finished last week up 14.1bps at -0.814%.

With all that said, this week’s main event data wise is almost certainly the February employment report in the US this Friday. Normally payrolls would be a focal point when the Fed is close to considering an imminent hike but given everything last week one would imagine that it would have to be an extraordinarily weak number to change the Committee’s minds now. The market consensus is for a 190k print and our US economists have pegged a 200k print so we’re not expecting any big negative surprises.

Before we get to the rest of the week ahead, over the weekend the most notable macro news has been in China following the start of the National People’s Congress. The headlines are dominated by the news that the government is now targeting “GDP growth of around 6.5%, or higher if possible in practice”. While that compares to last year’s growth target of 6.5% to 7.0%, our economists in China think that it is still the same indication from the government that they do not want real GDP growth to fall below 6.5%. The government is also targeting a deficit-to-GDP ratio of 3% (the same as last year), a lower M2 growth target but not one that suggests meaningful tightening, a focus on containing and reducing financial risks, reduction in steel and coal production capacity and further liberalisation of the RMB exchange rate. Our economists also highlighted that another surprising part of the work plan is that discussions on the property market were still brought up in the context of “cut excess urban real estate inventory” which doesn’t seem to suggest much further policy tightening for the property market.

Markets in China have generally started the week on the front foot with the Shanghai Comp (+0.37%) and CSI 300 (+0.46%) both higher. The Hang Seng (+0.30%) is also up as is the ASX (+0.23%). However the Kospi is little changed and the Nikkei (-0.38%) lower following the news that North Korea has fired four missiles into the Sea of Japan including three which fell into Japan’s exclusive economic zone according to the Japanese government. The Yen (+0.20%) has reversed earlier losses following the report. Bond markets are generally little changed this morning.

Moving on. French politics is never far from the focus of markets and over the weekend there has been further confirmation from Fillon that he has no intention of standing down in the presidential election race following a rally in Paris. Much of the chatter on Friday was of Alain Juppe possibly replacing Fillon as the conservative candidate. Juppe is supposed to be making a statement this morning but has previously said that he will refuse to stand unless Fillon chooses to withdraw. In fact the newspaper L’Obs reported late last night that Juppe will announce that he is to decline running for president even if Fillon steps down, just to complicate matters further. We have actually had a couple of polls in last few days including Juppe in the running. The latest was a Kantar Sofres Poll (from March 2nd-4th) which showed that in the first round as things stand Le Pen would come out on top with 26% versus 25% for Macron and 17% for Fillon. Replacing Fillon with Juppe however showed that Juppe would take 24.5% versus 20% for Macron and 27% for Le Pen. Another poll released on Friday (Odoxa covering 1st-2ndMarch) revealed that Juppe would come out on top in the first round with 26.5% versus 25% for Macron and 24% for Le Pen. Notably then this poll shows Le Pen as not reaching the second round with Juppe replacing Fillon. It’s worth keeping an eye on Juppe this morning to see if that press report is confirmed as being true.

Quickly wrapping up Friday’s session. As we noted at the top the dominant story was that speech by Yellen which effectively ratified a rate hike this month bar a big surprise in this week’s employment report. Vice-Chair Fischer also spoke but it was pretty much a non-event while Lacker (a non-voter) said that the Fed should hike to thwart a sudden and uncontrollable acceleration in inflation. We’ve noted the moves in rates while in equities the S&P 500 managed to recover from some early modest losses to finish just about onside with a +0.05% gain. It means that the index also closed up +0.67% for the week and so capping the sixth week in a row that the index has closed up. Markets in Europe were a bit more mixed. The Stoxx 600 ended -0.10% and the DAX -0.27% but the CAC (+0.63%) was buoyed by that poll (Odoxa) which suggested that support for a potential Juppe presidency diminished Le Pen’s chances, while the Italian FTSE MIB (+1.15%) also had a strong session. Away from that it was interesting to see the Dollar index (-0.65%) suffer its worst day in nearly 2 weeks despite Yellen’s comments, although perhaps more reflective of the strength in the Euro given those French election developments.

Away from the obvious focus on the Fedspeak there was also some economic data to take note of on Friday. Across the pond the US ISM non-manufacturing came in at 57.6 for February which was 1.1pts up on January’s reading and also well ahead of expectations for no change. It was also the best reading since October 2015 while the details revealed that the new orders index rose 2.6pts to 61.2 and the best since August 2015 while the employment component rose to 55.2 and back to last year’s November level. Away from that the Markit services PMI was revised down at the final count by 0.1pts to 53.8 which left the composite at 54.1 for the month of February.

Over in Europe there were no great surprises in the final PMI revisions either. The composite print for the Euro area was confirmed at 56.0 – unchanged versus the flash - after the services reading was revised down 0.1pts to 55.5. Regionally there was some strong numbers in the composites for Italy and Spain, driven by the services sector. The composite for Italy was confirmed at 54.8 and up 2pts from January while the composite for Spain rose 2.3pts to 57.0. Contrast that to the UK where the composite was revealed as falling from 55.4 to 53.8 in February. That is the lowest reading since August and so painting a sudden slightly divergent picture of growth between the Euro area and UK.

Moving now to the week ahead. It looks set to be a quiet start to the week with just the Sentix investor confidence reading for the Euro area due this morning followed by January factory orders and final durable and capital goods revisions in the US this afternoon. Tuesday kicks off in Germany with the January factory orders data, before we then get the Q4 GDP report for the Euro area. Over in the US tomorrow data includes the January trade balance and consumer credit prints. Wednesday starts in Japan where the final Q4 GDP revisions are due before we then get February trade numbers in China. During the European session we will get Germany industrial production and France trade data. In the US the focus will likely be on the February ADP employment change print, while Q4 nonfarm productivity and unit labour costs along with wholesale inventories and trade sales data is also due. Kicking off Thursday is China where the February CPI and PPI prints are due. In Europe we’ll then get business sentiment data in France before all eyes turn to the ECB meeting just after midday followed by Draghi’s press conference. Over in the US the data includes the import price index and initial jobless claims. We end the week on Friday in Europe with trade data in Germany and industrial production data in France and the UK, along with trade data in the latter. Over in the US we’ve then got the February employment report including the all important payrolls print.

Fedspeak this week is light with just Kashkari due to speak today. Away from that BoE Governor Hogg speaks today while Germany’s Schaeuble speaks on Thursday. Other important events to keep an eye on this week include the House of Lords completing its scrutiny of the Brexit bill on Tuesday and UK Budget on Wednesday. An EU summit of country leaders also starts on Thursday.