European stocks rose again with S&P futures higher, while Asian stocks were mixed. The dollar rose jumped on hawkish comments by Philly Fed's Harker, oil rose following optimistic OPEC comments, while gold dropped. Markets have largely ignored the negative result by financial heavyweight HSBC, which posted its largest fall since mid-2015 after reporting a 62% plunge in pretax profit, weighing on UK financials, with the FTSE 100 modestly underperforming.

The Bloomberg Dollar Spot Index rose the most in more than three weeks after a Federal Reserve policy maker reinforced the chances for a U.S. interest-rate increase as soon as next month. The U.S. currency advanced against most of its major peers after Philly Fed President Patrick Harker told MNI in a Friday interview he “would not take March off the table at this point.” Recent comments from policy makers have leaned on the hawkish side. A voting member of the rate-setting Federal Open Market Committee this year, Harker had said Feb. 15 that he sees three 25-basis point rate increases as appropriate for 2017.

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In Europe, mining stocks climbed as surging commodities prices boosted corporate earnings even as HSBC fell the most since August 2015 after its profit missed estimates. Gold slumped and oil climbed toward $54 a barrel. As a result the Stoxx 600 climbed 0.2% as gains in mining companies overshadowed HSBC Holdings Plc’s results. Financial heavyweight HSBC has posted its largest fall since mid-2015 after reporting a 62% fall in pretax profit, weighing on UK financials, with the FTSE 100 modestly underperforming. Elsewhere, mining names have seen a lift with BHP returning to profitability while Anglo American results beat analyst expectations. However, despite the early softness, equities saw a turnaround amid better than expected PMI figures for the Eurozone and Germany. Germany’s DAX rose 0.5 percent, with automakers including Daimler AG and Volkswagen AG among the top gainers.

A closer look at HSBC Holdings which today reported a 62% slump in annual pre-tax profit that fell way short of analysts' estimates as the British bank took hefty writedowns from restructuring and pointed to brakes on revenue growth. For the quarter, HSBC reported a $3.4 billion fourth-quarter loss, against analysts' expectations for a profit, on a $3.2 billion impairment in its private banking business as the lender's accounting valuation of the unit caught up with years of declining performance. HSBC CEO Stuart Gulliver said the restructured private bank is now viable as a slimmed-down operation providing advice to wealthy clients referred from the lender's other business lines.

"What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us," Gulliver told Reuters.

As a result, HSBC shares slid more than 6 percent after the company reported revenues fell by a fifth from 2015, underscoring the challenge it faces to boost returns amid low global interest rates and slowing economic growth in its core markets of Britain and China. Europe's biggest bank by assets generated profit before tax of $7.1 billion in 2016 compared to $18.87 billion for the previous year, well below the average analyst estimate of $14.4 billion. HSBC also announced a new $1 billion share buy-back, as the lender continued to return cash to shareholders from the sale of its Brazilian business. The bank signaled a number of factors that would pressure its revenues in 2017, including a $500 million increase in regulatory capital costs, lower interest rates in Britain and adverse foreign exchange rates.

"We think weak income trends and significant guided headwinds mean consensus downgrades today," Jason Napier, analyst at UBS, wrote in a research note on Tuesday.

Also in Europe we got the latest PMI data which showed that the Eurozone private sector and manufacturing growth unexpectedly accelerated to near a six-year high in February and job creation reached its fastest since August 2007, propelled by strong demand and optimism about the future, the surveys found. IHS Markit's eurozone flash composite Purchasing Managers' Index, seen as a good overall growth indicator, rose sharply to 56.0, the highest since April 2011, from 54.4 in January, reversing expectations for a slight dip to 54.3. The broad-based acceleration, which showed France's momentum getting close to Germany's, suggests that if sustained, economic growth could hit 0.6 percent in the first quarter, according to Markit.

"The increased momentum is due to demand growing at a stronger rate, but also that upturn becoming more broad-based," said Chris Williamson, chief business economist at IHS Markit. "Importantly, what we now have is France joining the party. It's been a laggard in the region, and a drag on the euro zone upturn for a few years ... and there are finally signs the drag is easing."

Also of note in Europe, we saw Greek bonds rally, with 2y yield dropping 115bps to 8.31%, while 10y falls 25bps to 7.25%.The positive sentiment emerged after creditors agreed on Monday for auditors to resume talks in Athens over steps needed to continue bailout of nation. The Greek government accepted to legislate reforms that will be implemented starting 2019 under the prerequisite that they are fiscally neutral, a Greek govt official said in e-mail to reporters, speaking on condition of anonymity. Greek bond strip, the most liquid bundle of the country’s government bonds issued after its last restructuring, is up 1.39c to 68.27c

Asian stocks rose, with South Korea’s benchmark climbing 0.9 percent to the highest level since July 2015. Hong Kong’s Hang Seng slipped 0.8 percent, the most in more than a month. Japan’s Topix index, which reached a peak at the start of the year, is trading within a range of about three percentage points over the past 49 days -- the narrowest since 1988.Bourses in Japan are riding high perhaps reflecting the decent flash manufacturing PMI print in the country which saw the reading bounce 0.8pts to 53.5 and to the highest since March 2014. Elsewhere the Hang Seng and Kospi rose while in China the Shanghai Comp is +0.4%. There’s a story going around on Bloomberg suggesting that Chinese authorities may be considering easing limits on foreign ownership of life insurers, which may also be helping the positive tone.

Global equities continue to trade near a record as hopes the Trump rally will continue to generate optimism in economic growth amid signs of an inflation pickup. Yet there remains caution in the markets, with the dollar trading below this year’s highs and investors clamoring for detail on spending plans under Trump’s administration.

In global rates, the yield on 10-year Treasuries advanced four basis points to 2.45 percent. German 10-year yields rose three basis points after better-than-expected PMI euro- area manufacturing data. The yield on the equivalent French benchmark climbed four basis points. Default insurance on HSBC’s subordinate bonds increased one basis point to 140. The smaller-than-expected buyback could boost the bank’s senior bonds as it implies a less-leveraged balance sheet.

The Fed releases minutes this week from its most recent meeting, giving investors a look into how members see Trump’s policies. Data should show the U.S. housing market perking up at the start of the year. The PMI is expected to rise slightly. It’s International Petroleum Week in London and top OPEC, government and company officials are attending.

Market Snapshot

• S&P 500 futures up 0.2% to 2,353.00
• STOXX Europe 600 up 0.2% to 371.90
• MXAP up 0.01% to 145.16
• MXAPJ down 0.05% to 466.90
• 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
• German 10Y yield rose 1.8 bps to 0.314%
• Euro down 0.6% to 1.0552 per US$
• Brent Futures up 0.9% to $56.68/bbl
• Italian 10Y yield fell 0.6 bps to 2.184%
• Spanish 10Y yield rose 0.8 bps to 1.617%
• Brent Futures up 0.9% to $56.68/bbl
• Gold spot down 0.6% to $1,230.84
• U.S. Dollar Index up 0.5% to 101.40

Top Overnight News from BBG:

• HSBC Shares Fall After Missing Profit Estimates on Revenue Drop
• Burger King Owner Said in Advanced Talks to Buy Popeyes Chain
• Buffett Takes His Own Advice in Walking Away From Unilever Bid
• Fed’s Harker Not Taking March Rate Rise Off the Table, MNI Says
• Fed Minutes May Show Inflation Confidence, Discuss Balance Sheet
• Telefonica to Sell Telxius Stake to KKR for $1.35 Billion
• InterContinental Hotels Rises After Announcing Special Dividend
• Qualcomm Says Samsung Scandal Weakens Korea Antitrust Ruling
• Trump Picks Outspoken Army ‘Rebel’ as National Security Adviser
• China Said to Draft Rules to Rein in Asset Management Risks
• Canadian Court Approves InterOil Transaction With Exxon Mobil
• Uber Taps Eric Holder to Investigate Discrimination Claims
• Iron Futures Extend 2017’s Rally to 33% as BHP Warns on Outlook
• BlackRock Says Space Images Can Help Monitor Chinese Companies

Asia equity markets traded mixed with Wall Street closed the day prior, with Nikkei 225 (+0.7%) outperforming amid a weak JPY with USD/JPY holding firmly above 113.00. ASX 200 (-0.1%) recovered most of its early losses after declines seen in the gold and utilities sectors weighed the index. Shanghai Comp. (+0.4%) was boosted by retail names and the telecoms sector, despite a weak CNY 100bIn liquidity injection by the PBoC, while Hang Seng (-0.8%) underperformed after HSBC reported disappointing FY16 earnings and index heavyweight Tencent shares saw losses of over 1%. Finally, 10yr JGBs were flat despite a strong enhanced liquidity auction, while the 40yr yield printed 11-month highs

Top Asian News

• China Said to Mull Easing Foreign Stake Limits in Life Insurers
• Chinese Banks’ Off-Book Wealth Products Exceed $3.8 Trillion
• Ambani’s Jio to Start Charging for Services as Rivals Cry Foul
• China Retailers Surge as CICC Lauds Alibaba’s ‘New Retail’ Model
• China Said to Mull Easing Limits on Foreign Life Insurers
• Over Twinkies and Tweets, China Seeks Clues on Trump Policy
• Hong Kong Developers Advance Ahead of City’s Budget Speech

European bourses rose after a soft start with price action dictated by the latest batch of earning updates. Financial heavyweight HSBC has posted its largest fall since mid-2015 after reporting a 62% fall in pretax profit, consequently weighing on UK financials, with the FTSE 100 modestly underperforming. Elsewhere, mining names have seen a lift with BHP returning to profitability while Anglo American results beat analyst expectations. However, despite the early softness, equities saw a turnaround amid better than expected PMI figures for the Eurozone and Germany. Across fixed income markets, peripheral debt is outperforming led by Greece with markets somewhat positive over talks between Greece and its creditors yesterday with the 2-yr yield falling 140bps. Elsewhere, GE-FR spread has dropped back below 80bps after yesterday hitting its highest level since mid-2012 following the continued narrowing between Le Pen and her opponents in the French Presidential polls.

Top European News

• Euro-Area Economy Picks Up Speed as Orders and Optimism Surge
• Le Pen Advances in French Polls as Security Concerns Sway Voters
• Citigroup Agrees $5.4 Million Fine to Settle Rand Collusion
• Rosneft to Buy Crude Oil From Kurdistan Amid Expansion in Iraq
• U.K. Posts Record Surplus in Pre-Budget Boost for Hammond
• Brent Oil Holds Gain as Citigroup Lifts Short-Term Price Outlook
• Vucic Clears Hurdle to Serb Presidency as Incumbent Steps Aside

In currencies, the USD is pushing higher, but the drivers are a little mixed as UST yields show modest gains on the day as yet. The key 10yr rate is still around 2.45%, still well inside the recent 2.30-2.55% range, but the modest gains have been enough to put USD/JPY back in the upper 113.00's. The Bloomberg Dollar Spot Index gained 0.5 percent as of 10:30 a.m. in London. The greenback rose after Market News International cited Harker, who votes on policy this year, saying a rate move next month is not “off the table at this point.” That followed hawkish congressional testimony last week from Fed Chair Janet Yellen. The moves look tentative as yet, but with the equity markets on a stable footing, near term JPY weakness may well extend a little further before the selling intensifies. The BoJ is showing no signs of letting up on its reinflation process, maintaining 'the line' that the exchange rate is not the target of policy measures currently in play. For EUR/USD, the downside is just as much a consequence of the gaining popularity of Le Pen as it is the broader USD view, with French-German yields widening to the detriment of the EUR across the board. The lead spot rate is now refocusing on the lows seen last week, when we hit a 1.0521 base, but EUR/JPY and EUR/CHF now also pressured as sellers target all currencies.

In commodities,oil advanced as Citigroup Inc. raised its short-term price outlook, citing good OPEC compliance with its output-cut agreement and growing demand in Asia. West Texas Intermediate gained 0.6 percent to $54.04 a barrel and Brent added 0.7 percent to $56.85. Oil prices continue to hold familiar ranges - notably WTI inside USD50.00-55.00. Growing inventory levels offset by strong cooperation with the OPEC agreed cuts, but ongoing scepticism keeps the upside contained despite hedge funds holding significant long positions in both WTI and Brent. Copper prices lead the way for base metals, fighting against USD based weakness near term as supply concerns emanating from the industrial action in Chile support. Industrial metals dropped, partially reversing their biggest gain in a week as funds were seen selling. Aluminum fell 0.4 percent to $1,893 a metric ton and copper lost 0.4 percent.Gold declined 0.7 percent to $1,229.65 an ounce as the dollar advanced before the U.S. Federal Reserve releases minutes that may give indications of the pace of interest-rate increases. The yellow metal has tested back down to USD1230.00, this from pre USD1245.00 highs. Support remains into USD1,200 in the near term, as the risk perspective maintains an element of caution. Buyers of Silver partially reflects this. U.S. natural gas extended its decline into a third day due to forecasts for warmer-than-normal weather across the east coast. Futures fell 2.4 percent to $2.765 per million British thermal units, the lowest level in three months.

In the US calendar we’ll also get the flash PMI’s where the consensus is for a 0.3pt pickup in the manufacturing print and 0.2pt pickup in the services reading. Away from that there’s some Fedspeak due today with Kashkari (8.501m GMT), Harker (12.00pm) and Williams (3.30pm) all scheduled.

US Event Docket

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

DB's Jim Reid concludes the overnight wrap

One of the reasons why volatility remains so low in the face of increasingly elevated political risk is that global growth numbers have held up so well in recent weeks and months. Well today's flash PMI numbers in the face of fresh supportive polls for Le Pen in France are a good test of this stand-off. Indeed yesterday’s OpinionWay poll in France revealed that support for Le Pen in the first round of the presidential election has crept up 1% to 27% with support for Macron and Fillon unchanged at 20%. More significantly though, the second round polling revealed that Macron would defeat Le Pen by a score of 58% versus 42%, a tighter margin than the 60% versus 40% in results from the same pollster just four days ago. In fact if you go back to the start of February, the gap was actually as wide as 65% versus 35%. Yesterday’s poll also revealed that a second round contest between Fillon and Le Pen would have the former coming out on top at 56% versus 44%, a tighter gap compared to 57% to 43% four days ago and 61% versus 39% at the start of the month.

Those results did come prior to the news yesterday that Le Pen’s Party headquarters was raided over the probe concerning whether Le Pen had used European Parliament funds to pay for fictitious jobs, so we may have to see if that has an impact at all, but the positive momentum in the polls for Le Pen is significant nonetheless. While the polls are also suggesting a tightening in support in favour of Le Pen versus Macron and Fillon, the implied probabilities based on bookmaker odds tell a similar tale. In the PDF today we show a graph showing the recent trend in the implied probabilities with the main takeaway beingthat the range between the 3 candidates is hovering around the lowest – at 8% - over the last month. Indeed the implied probabilities stand out 37.8% for Macron, 34.2% for Le Pen and 29.5% for Fillon. That probability for Le Pen is up from 25.5% about a month ago while the probability for Macron has fallen from a high of over 50%. It's fair to say that these numbers reflect a weight of money staked and that the market sees nowhere near as high a probability of a Le Pen victory. Nevertheless it's the recent trend that's interesting.

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In what was an otherwise quiet day in markets given the US holiday it was the underperformance in French assets which stood out. In equities the CAC ended with a modest -0.05% decline but that compared to a decent +0.60% bounce for the DAX while the Stoxx 600 finished +0.22%. It was the moves in bonds which caught most investors’ eyes though. While 10y Bund yields edged down -0.5bps to 0.293%, 10y OAT’s finished the day up +2.3bps at 1.051% but, more notably, were up as much as +10.0bps at one stage following the poll, touching a high of 1.129% and coming close to the high mark this year of 1.156%. The spread between Bunds and OATs finished at 76bps (and just off the 4 and a bit year high of 77bps) but did blow out as wide as 84bps intraday at one stage and the most since August 2012.

The other notable price mover yesterday was Greek bonds. 2y yields rally nearly 70bps and dropped to a one-week low after the Eurogroup meeting yesterday to discuss Greece’s bailout suggested some progress was being made. Eurogroup president Jeroen Dijsselbloem said that the meeting was “very positive and a good step” and that the EU and IMF will soon return to Athens to continue with discussions, including laying out the more specific details around reforms. Greek finance minister Tsakalotos also confirmed that important progress had been made yesterday and sufficient for bailout auditors to continue talks.

Aside from that there wasn’t a huge amount more to report in markets yesterday. Gilts (+1.7bps) and the FTSE 100 (0.00%) also underperformed a bit yesterday. The House of Lords draft law debate kicked off with Bloomberg reporting that 30 amendments have so far been proposed. That’s far less than the 250 submitted by the House of Common’s but the lack of a Conservative majority in the upper house does raise some risks for PM May. The general debate is due to continue today but the more substantive discussions are not expected until next week.

This morning in Asia we’ve seen most markets get off to another positive start. Bourses in Japan in particular are riding high (Nikkei +0.68%) perhaps reflecting the decent flash manufacturing PMI print in the country which saw the reading bounce 0.8pts to 53.5 and to the highest since March 2014. Elsewhere the Hang Seng is +0.12% and Kospi is +1.06% while in China the Shanghai Comp is +0.26%. There’s a story going around on Bloomberg suggesting that Chinese authorities may be considering easing limits on foreign ownership of life insurers, which may also be helping the positive tone. Meanwhile US equity index futures are up about +0.20%.

Moving on. There wasn’t much to report on the data front yesterday. In the UK the CBI industrial trends survey for February revealed an increase in the output diffusions index by 7pts to 33 which is a level matched only once in the last 16 years. The proportion of firms expecting selling prices to rise increased further too with the index up 4pts to 32 and to the highest since April 2011. Elsewhere in Germany PPI in January was up a much higher than expected +0.7% mom (vs. +0.3% expected) while the flash consumer confidence reading for the Euro area in February fell 1.4pts to -6.2 (vs. -4.9 expected) and so putting it back at November levels. Finally we also got the latest CSPP holdings data at the ECB. Total holdings as of last Friday totalled €64.97bn which implies net purchases settled last week of €2.05bn or an average daily run rate of €409m, which is a little bit more than the average €367m since the program started.

Looking at the day ahead, this morning in Europe the main focus will be on the release of the February flash PMI’s which the market is expecting to remain relatively stable compared to the January figures. Also due out will be the final CPI revisions in France as well as public sector net borrowing data in the UK. In the US this afternoon we’ll also get the flash PMI’s where the consensus is for a 0.3pt pickup in the manufacturing print and 0.2pt pickup in the services reading. Away from that there’s some Fedspeak due today with Kashkari (1.50pm GMT), Harker (5.00pm GMT) and Williams (8.30pm GMT) all scheduled. BoE Governor Carney and Chief Economist Andy Haldane will speak at a Treasury Select Committee hearing on the UK February inflation report.