Daily Pivots: (S1) 112.84; (P) 113.03; (R1) 113.29; More...

USD/JPY recovers today but remains bounded in range of 111.58/114.94. Intraday bias remains neutral first. Corrective fall from 118.65 could extend lower through 111.58. But we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, above 114.94 resistance should confirm completion of pull back from 118.65. In such case, intraday bias will be turned back to the upside for retesting 118.65.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

USD/CAD has posted gains in the Tuesday session. Early in North American trade, the pair is trading at 1.3130. On the release front, there are no Canadian events on the schedule. The US will release Flash Manufacturing and Service PMIs. On Wednesday, Canada releases Core Retail Sales, with the markets expecting a strong gain of 0.8%. In the US, the Federal Reserve will publish the minutes of the January policy meeting.

Canadian indicators started the week on a positive note, as Wholesale Sales in December jumped 0.7%, above the forecast of 0.3%. More good news is expected from Core Retail Sales on Wednesday, with an estimate of 0.8%. The week wraps up with CPI, which has posted two straight declines, as inflation levels remain weak. However, the markets are expecting a 0.3% gain in the January report. If these key indicators match or beat their estimates, the Canadian dollar could get a boost against the greenback.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, "bad for business".

Dollar surges broadly today as US markets are back from holiday. There is finally some support from hawkish Fedspeaks. Philadelphia Fed president Patrick Harker is quoted today saying that he would "not take March off the table" for rate hike. He maintained that three hikes this year is "appropriate" depending on developments. Cleveland Fed president Loretta Mester said the trend in inflation is "moving up". And, she's "comfortable" that inflation is moving towards Fed's target. And, it the economy keep on with the currency way, she's "comfortable" for a rate hike at this point. Technically, EUR/USD is heading back to 1.0520 temporary low and break would drag the pair lower. That would correspond to 101.60 resistance in dollar index.

Eurozone PMIs beat expectations

Eurozone PMI manufacturing rose 0.3 pts to 55.5 in February, above expectation of 55.0. Eurozone PMI services rose to 55.6, up from 53.7 and beat expectation of 53.7. Germany PMI manufacturing rose to 57.0, up from 56.4, above expectation of 56.0. Germany PMI services rose to 54.4, up from 53.4, beat expectation of 53.6. France PMI manufacturing, however, dropped to 52.3, up from 53.6, below expectation of 53.5. France PMI services rose to 56.7, up from 54.1, above expectation of 56.0. Markit noted that "the pace of Eurozone economic growth improved markedly to hit a near six-year high in February." And, "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."

Also from Europe, UK public sector net borrowing dropped to GBP -9.8b in January. Swiss trade surplus widened to CHF 4.73b in January.

Japan PMI manufacturing hit 3-year high

Japan PMI manufacturing rose to 53.5 in February, up from 52.7 and beat expectation of 52.1. That's also the highest level since March 2014. Markit noted that "Japan's manufacturing engine shifted into a higher gear during February, as faster increases in output, new business and employment were reported." And, "encouragingly, with backlogs of work accumulating for the first time in 14 months, the added pressures on capacity should ensure growth will be maintained at a solid pace during at least the first half of this year." Also from Japan, all industry activity index dropped -0.3% mom in December, below expectation of -0.2%.

RBA minutes: cautious over subdued household consumption

RBA minutes for the February meeting contained little news. Indeed, it reinforced our view that the central bank would leave the monetary policy unchanged for the rest of the year. The market currently prices in further rate cut this year, followed by rate hike in 2018. The central bank acknowledged the -0.5% GDP contraction in 3Q16. While attributing most of the weakness to temporary factors including 'disruptions to coal supply and bad weather', policymakers also warned that 'slower growth in consumption had also been a factor'. However, they assured that such weakness should not have continued into 4Q16. On the growth outlook, the central bank suggested that 'GDP growth was expected to pick up to around +3% in year-ended terms later in 2017, and to remain above estimates of potential growth over the rest of the forecast period'. More in RBA Minutes: Cautious Over Subdued Household Consumption

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0597; (P) 1.0615 (R1) 1.0627; More.....

EUR/USD drops sharply today but stays above 1.0520 temporary low. Intraday bias remains neutral first and outlook is unchanged. With 1.0713 minor resistance intact, we're holding on to our bearish view. That is, corrective rise from 1.0339 has completed at 1.0828 already. Below 1.0520 will target 1.0339 first. Break will extend the larger down trend to parity. However, above 1.0713 will dampen our view and turn focus back to 1.0828 instead.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

Daily Pivots: (S1) 1.0597; (P) 1.0615 (R1) 1.0627; More.....

EUR/USD drops sharply today but stays above 1.0520 temporary low. Intraday bias remains neutral first and outlook is unchanged. With 1.0713 minor resistance intact, we're holding on to our bearish view. That is, corrective rise from 1.0339 has completed at 1.0828 already. Below 1.0520 will target 1.0339 first. Break will extend the larger down trend to parity. However, above 1.0713 will dampen our view and turn focus back to 1.0828 instead.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

It's been an interesting start to trading on Tuesday, following a lacklustre session at the start of the week driven largely by the Presidents day bank holiday in the US.

European equity markets have been buoyed this morning by a selection of PMIs for the eurozone, Germany and France which pointed to much stronger growth in the region than was expected, particularly in France which has for a long time been a drag on the region. It would appear that confidence in the euro area economy is finally on the rise and growth could finally pick up from the rather subdued rates we've seen in recent years, which is particularly surprising given that we're entering a period of heightened political uncertainty.

The uptick in the French services sector was both welcome and surprising given that we're only a few months away from an election in which the current front-runner - albeit only in the first round of voting - wants to withdraw the country from the eurozone and threaten dismantling the project altogether. While sentiment may be ease as we approach the election itself and possibly beyond, it's certainly encouraging as it would suggest that the foundations may well finally be in place for a stronger recovery in the region should it overcome the political hurdles facing it in 2017, not including Brexit which will likely persist for much longer.

Despite the boost from the data this morning, the euro is coming under pressure this morning, particularly against the US dollar which has been given a boost itself by an increase in hawkish commentary from Fed officials which has forced investors to re-evaluate their expectations for the March meeting. Expectations for a rate hike at the meeting remain quite low but they have picked up considerably and recent comments from Patrick Harker who claimed a rate hike in March is not off the table - echoing similar views of other officials including Chair Janet Yellen last week - are driving these moves. We'll hear from three Fed officials throughout today's session - including Harker who is due to speak again this afternoon - which may shed further light, particularly on the March meeting. Of the other two officials, Neel Kashkari is also a voter on the FOMC this year while John Williams will be in 2018.

Gold has been surprisingly resilient to the moves in the dollar so far this month despite the usual correlation between the two but it would appear the relationship may have strengthened once again today. Gold failed to break above its 2017 highs in recent days which may be a sign that the trend is weakening and with the dollar now responding positively to the Fed's position on interest rates, the path of least resistance for the yellow metal may well be lower with a key test below coming around $1,216.40.

Oil on the other hand is rallying again today in spite of the moves in the greenback and looks likely to seriously test the upper end of the trading range that it has been bound by for most of the year so far.

Given its ability to largely shrug off the substantial inventory builds over the last couple of weeks, it perhaps shouldn't come as a surprise that we're seeing these upper bounds being tested, particularly coming on the back of reports of high levels of compliance on the production cut which was agreed at the back end of last year.

The deflated Dollar was instilled with inspiration on Tuesday following hawkish comments from FOMC member Harker that rekindled expectations of a March interest rate hike. Harker's hawkish rhetoric has resonated with a growing chorus of Federal Reserve officials who have not ruled out taking action in spring and simply encouraged Dollar bullish investors to propel the Greenback above 101.50. Although the current March hike madness theme could uplift the Dollar higher in the short term, the visible lack of commitment to a timeline in raising US rates may swiftly cap upside gains. While the overall improving economic data and bullish sentiment towards the U.S economy could uplift the Greenback further, the ongoing Trump uncertainties and lack of clarity from the proposed fiscal policies could entice sellers to enter the scene.

Sterling struggles above 1.2400

Sterling has been gripped by political risk and further downside pressures should be expected once the formal Brexit negotiations commence. Bearish investors were on the offense on Tuesday after BoE Carney suggested that the rising inflation was solely attributed to a weak Pound. With the Brexit uncertainty being the main cause for Sterling's painful decline, a sharp rise in inflation that has little to do with improving economic fundamentals may quell expectations of BoE raising UK interest rates anytime soon. The Sterling/Dollar remains under pressure on the daily charts and a breakdown below 1.2400 could open a path lower towards 1.2300.

Euro slides on political instability

The Euro found itself under renewed seller pressures during Tuesday's trading session as investor anxiety over the rising Eurozone political instability heightened. Concerns continue to mount over Eurosceptic parties destabilizing the unity of the Eurozone and this has haunted investor attraction towards the currency. The threat of politician Marine Le Pen winning the upcoming election in late April has sparked jitters which continue to fuel the EURUSD parity dream. As of writing, the EURUSD has declined over 70 pips with bears currently eyeing 1.0500. From a technical standpoint, this pair is under extreme pressure on the daily charts and a breakdown below 1.0500 could encourage a further selloff lower towards the next relevant support at 1.0350.

Commodity spotlight - WTI Crude

Oil markets received a welcome boost this week with prices edging to seven-week highs as optimism over the output cuts boosted attraction for the commodity. The signs of OPEC remaining in compliance with the global pact to cut production continue to fuel hopes of the oversupply woes coming to an end. While oil prices could edge higher amid the supply cut optimism, the concealed concerns of U.S shale boosting oil production and negatively impacting OPEC's efforts could create some headwinds in the future. WTI Crude exploded into gains on Tuesday as prices broke above the stubborn $54 resistance. If the momentum is sustainable, then the previous $54 resistance could transform into a support that opens a path higher towards $55.

Tuesday February 21: Five things the markets are talking about

The 'mighty' dollar is trading firmer across the board following a hawkish set of comments from Fed voter Harker. The Fed member from Philadelphia reiterated that next months March 14/15 meeting should be on the table for the next rate hike, adding that the Fed is not behind the curve, that the U.S economy is healthy, and that jobs growth is steady.

Note: Later today Minneapolis Fed's Kashkari and San Francisco Fed's Williams are due to speak.

Earlier, Europe's single unit came under pressure from concerns that France's far-right candidate Marine Le Pen would the win upcoming French presidential elections, putting more pressure on eurozone solidarity.

1. Equities produce mixed results

In Japan, stocks rallied overnight as a weaker yen (¥113.71) helped overall sentiment. The Nikkei climbed +0.7%, while the broader Topix rose +0.6%.

Note: Trading volumes were low as a holiday stateside left investors short of the usual leads.

Elsewhere, South Korea's Kospi index jumped +0.9% to the highest level since July 2015, while Hong Kong's Hang Seng slipped -0.8%, the most in more than a month, while China's Hang Seng China Enterprises Index lost -0.4% and the Shanghai Composite Index increased +0.4%.

In Europe, equity indices are trading mixed. The FTSE 100 is slightly underperforming, weighed down by shares of HSBC after the company released their FY16 results; major banking stocks trading generally lower across Europe. Elsewhere, commodity and mining stocks are trading mixed.

U.S equities are set to open in the black (+0.2%).

Indices: Stoxx50 +0.1% at 3,319, FTSE -0.3% at 7,279, DAX +0.4% at 11,879, CAC-40 +0.1% at 4,869, IBEX-35 flat at 9,523, FTSE MIB +0.5% at 19,068, SMI +0.4% at 8,548, S&P 500 Futures +0.2%.

2. Oil rallies to top of range as OPEC cuts output, gold falls

Oil prices have rallied overnight as data showed that hedge funds placing record bets on North Sea and U.S. crude as OPEC production cuts tightened supply.

Brent futures are up +50c at +$56.58 a barrel, while U.S. light crude (WTI) is up +50c at +$53.90.

Note: OPEC has agreed to cut output by almost -1.8m bpd during the first half of 2017, with industry data showing that most producers are sticking to the deal (+93% compliance).

Despite this, inventories remain bloated and supplies high, especially in the U.S. Last week's EIA report showed that crude and gasoline inventories soared to record highs as refineries cut output and gasoline demand softened. Crude inventories rose +9.5m barrels, while gasoline stocks rose by +2.8m barrels.

Gold (-0.2% to +$1,235.08 per ounce) prices eased slightly amid a firmer dollar as investors waited on clues on the timing of U.S. interest rate hikes in a host of speeches by Fed officials this week.

Note: The heads of five regional U.S. Federal Reserve banks are scheduled to speak this week

Elsewhere, iron ore futures have soared +3.2% after BHP Billiton warned that iron ore is at risk of declining in the near term after the component used to make steel jumped +34% this year.

3. French debt suffers Euro periphery spread problem

Investors are again selling the bonds of Europe's peripheral economies amid political concerns. This time around, France has joined the club.

Investors are worried that France will elect Marine Le Pen as its president, a candidate that has promised to take the country out of the eurozone. A poll yesterday showed Ms. Le Pen comfortably in the lead for April's first round of the presidential election - French 10-year bonds yields have jumped to +1.064%, while the spread with German bond yields have hit +0.84bps, the highest in more than four-years.

Note: In August, the gap was only +0.22bps.

Also rising are Italian and Portuguese 10-year yields, which are up by around +0.7% versus bunds in the last six-months.

In Greece, bond yields are lower this morning. Yesterday, the EU/ECB and IMF agreed to resume talks on the country's second bailout review for its third program.

Greek 2-year yield were lower by over -100bps and the 10-year was lower by -20bps (+8.30% and +7.05% respectively).

In the U.S, the yield on 10-year Treasuries has advanced +3bps to +2.44%.

4. Dollar finally finds traction

The 'mighty' dollar starts this holiday-shortened week on firmer footing, supported mostly by 'hawkish' Fed comments yesterday (Philly's Fed's Harker).

The EUR (€1.0536) has not been able to benefit from better data in this morning's Euro session - major European PMI Manufacturing Survey (see below) confirmed that growth momentum in region with Germany handily beating expectations and printed a six-year high.

Also, Germany's Bundesbank February Monthly Report yesterday noted that the domestic economy would stay on a strong footing in the coming months thanks to high industrial and construction activity. Nonetheless the ECB is seen to remain "accommodating" for this year.

USD/JPY is up +0.1% at ¥113.47, while GBP/USD is down -0.3% at £1.2431. For the pound, much of the focus is likely to be on the large upward revisions to the BoE's growth forecasts - well above the consensus - and is considered "unrealistically optimistic."

5. Eurozone PMI's stronger than expected

This morning, the composite PMIs for the eurozone in February came in much stronger than expected, jumping to 56.0 from 54.4 in January to reach its highest level in six-years.

Note: Consensus had expected a drop to 54.3.

The pickup seems set to continue over coming months, with new orders also at highs not seen in six years, while businesses hired workers at the fastest pace since August 2007, before the financial crisis.

Also, the ECB will be content that a rise in prices charged by businesses is at t the fastest rate since July 2011.

The Japanese yen is lower in the Tuesday session. Currently, USD/JPY is trading at 113.60. On the release front, Japanese Flash Manufacturing PMI improved to 53.5, beating the estimate of 52.1. This marked a sixth consecutive month above the 50-point line, which separates expansion from contraction. Elsewhere, All Industries Activity came in at -0.3%, shy of the forecast of -0.2%. This ended a streak of five straight gains. There are no major events in the US today. On Wednesday, the Federal Reserve releases the minutes of the January policy meeting.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, "bad for business".

European PMI data fails to inspire Euro currency

Notes/Observations

Major European Feb Preliminary PMI Manufacturing Survey confirmed growth momentum in region (Germany and Euro Zone handily beats expectations to hit 6-year highs

Overnight:

Asia:

PBOC stated it was conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates would be made both upward and downward (**Note: On Jan 20th: China PBoC cut the RRR for its five largest banks on a temporary basis to alleviate seasonal pressures (refers to China Lunar New Year).

China Commerce Ministry (MOFCOM) stated that it expected 2017 consumption growth to remain robust; will evaluate and respond if US changes China tariffs. Trade war should not be an option between China and the US; cooperation was the only way

Bank of Japan (BOJ) Gov Kuroda reiterated view that BOJ was still far from inflation target thus appropriate to continue its powerful easing

Japan Feb Preliminary PMI Manufacturing registered its 6th month of expansion and highest level in 35 months (53.5 v 52.7 prior)

Europe:

Eurogroup's Dijsselbloem: No political agreement on signing off Greek reform review at this time, talks remain complicated with lots of work still needed to be done

Americas:

Fed's Harker (hawk, voter) reiterated view that would not take March hike off the table and did not believe the Fed was behind the curve

Fed's Mester (hawkish, non-voter): Would be comfortable raising rates at this point if economy keeps current pace of performance; Fed not behind the curve on rates - President Trump named General H.R. McMaster as his new National Security Adviser

Economic data

(JP) Japan Jan Nationwide Dept Sales Y/Y: -1.2% v -1.7% prior; Tokyo Dept Store Sales Y/Y: -1.5% v -1.0% prior

(CH) Swiss Jan Trade Balance (CHF): 4.7B v 2.7B prior, Real Exports M/M: -4.0% v 9.7% prior; Real Imports M/M: -5.3% v -0.6% prior

(FI) Finland Jan Unemployment Rate: 9.2% v 7.9% prior

(FR) France Jan Final CPI M/M: -0.2% v -0.2%e; Y/Y: 1.3% v 1.4%e

(FR) France Jan Final CPI EU Harmonized M/M:-0.3% v -0.2%e; Y/Y: 1.6% v 1.6%e

(FR) France Feb Preliminary Manufacturing PMI (miss): 52.3 v 53.5e (5th month of expansion), Services PMI: 56.7 v 53.9e, Composite PMI: 56.2 v 53.8e v 54.1 prior

(DE) Germany Feb Preliminary Manufacturing PMI (beat): 57.0 v 56.0e (27th month of expansion and highest since May 2011), Services PMI: 54.4 v 53.6e, Composite PMI: 56.1 v 54.8e

(HK) Hong Kong Jan CPI Composite Y/Y: 1.3% v 1.6%e

(EU) Euro Zone Feb Preliminary Manufacturing PMI (beat): 55.5 v 55.0e (44th month of expansion and highest since Apr 2011), Services PMI: 55.6 v 53.7e, Composite PMI: 56.0 v 54.3e

(UK) Jan Public Finances (PSNCR): -£26.5B v +£36.3B prior; Public Sector Net Borrowing: -£9.8B v -£14.5Be, Central Government NCR: -£27.8B v £19.3B prior, PSNB ex Banking Groups: -£9.4B v -£14.0Be

Fixed Income Issuance:

(EU) EFSF opened its book to sell 4-year and 39-year bond (duel tranche) via syndicate

(BH) Bahrain to sell $600M in Oct 2028 bonds; yield guidance seen at 6.85%

(ES) Spain Debt Agency (Tesoro) sold total €2.2B vs. €2.0-3.0B indicated rangein 3-month and 9-month Bills

Sold €610M 3-month Bills; Avg Yield: -0.415% v -0.477% prior; Bid-to-cover: 3.56x v 5.13x prior

Sold €1.63B 9-month Bills; Avg Yield: -0.332% v -0.342% prior; Bid-to-cover: 3.12x v 2.39x prior

(UK) DMO opened book to sell £4.0B in 0.125% 2065 Inflation-linked Gilt (UKTi) via syndicate; guidance seen -0.25bps to flat

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,319, FTSE -0.3% at 7,279, DAX +0.4% at 11,879, CAC-40 +0.1% at 4,869, IBEX-35 flat at 9,523, FTSE MIB +0.5% at 19,068, SMI +0.4% at 8,548, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading mixed after a generally positive end to the Asian session overnight; FTSE 100 slightly underperforming weighed down by shares of HSBC after the company released their FY16 results; major banking stocks trading generally lower across Europe; peripheral lenders in the Italian FTSE MIB and Spanish IBEX trading mixed; Energy stocks trading higher as Brent and WTI contracts trade higher intraday; Commodity and mining stocks trading mixed despite this as copper currently trades lower.

Upcoming scheduled US earnings (pre-market) include Advance Auto Parts, AerCap Holding, Cracker Barrel, Crestwood Equity Partners, Ecolab, Fresh Del Monte Produce, Franklin Electric, Genuine Parts, Home Depot, Henry Schein, Macy's, McDermott International, Medtronic, New Media Investment, Quanta Services, Sonic Automotive, Scripps Network, Gentherm, Travelport, Wabtec, Westlake Chemical, and Wal-Mart.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Air France AF.FR +2.0% (analyst upgrade), Galliford Try GFRD.UK +0.9% (H1 results), InterContinental Hotels IHG.UK % (FY16 results), SEB SK.FR % (FY16 results), Wolseley WOS.UK % (agreement to merge Tobler with Walter Meier)]

Consumer Staples: [Kerry Group KYGA.UK % (FY16 results)]

Financials: [HSBC HSBA.UK % (FY16 results)]

Healthcare: [Neovacs ALNEV.FR % (€65M agreement)]

Industrials: [Alstom ALO.FR % (€100M contract), Anglo American AAL.UK % (FY16 results), BAM Kon BAMNB.NL % (FY16 results), John Wood WG.UK % (FY16 results)]

Materials: [BHP Billiton BLT.UK % (FY16 results), Polyus Gold PGIL.UK % (FY16 results)]

Technology: [Eltel ELTEL.SE % (Q4 results), Sage Group SGE.UK % (analyst upgrade)]

Telecom: [Telefonica TEF.ES % (Confirms to sell 40% stake in Telxius to KKR for $1.28B)]

Speakers

EU's Moscovici: Close to an agreement on Financial Transaction tax (Tobin tax); hopes it can be achieved today at EcoFin

Sweden Central Bank (Riksbank) Gov Ingves reiterated view that expansionary policy needed to remain.

Various European officials and Finance Ministers commented ahead of EcoFin meeting in Brussels

Netherlands Fin Min Dijsselbloem:Expected an agreement on fighting tax avoidance and reiterated that saw no liquidity problem for Greece at this time (**Note: In line with yesterday's Eurogroup comments)

Spain Fin Min de Guindos stated that EU Financial Transaction Tax to be discussed in March

Bank of International Settlements (BIS) confirmed Mexico Central Bank Gov Carstens appointment to its top position had been postponed by two months until Dec 1st (**Note: Carstens was expected to stay on in his role in the Mexican Central Bank through Nov 2017 at the request of President Pena Nieto)

BOE Gov Carney with MPC members Haldane, McCafferty, Vlieghe testified at Treasury Select Committee on Quarterly Inflation Report (QIR)

BOE's Haldane (chief economist): There were large two-way risks to interest rate outlook

China official stated that the country had huge excess capacity in coal and steel sectors but added that the domestic economic development was stable

Currencies

The USD remained on firm footing aiding by comments on Monday from Fed's Harker putting the diverging monetary policy as the key driver of price action. Harker on Monday reiterated view that would not take March hike off the table

The EUR/USD could not find any benefit from better data in the session. The major European PMI Manufacturing Survey confirmed growth momentum in region with Germany handily beating expectations and hitting a 6-year high. Bundesbank Feb Monthly Report on Monday did note that the domestic economy would stay on a strong footing in the coming months thanks to high industrial and construction activity. Nonetheless the ECB seen remaining onto its accommodating policy for quarters to come.

USD/JPY holding steady around the 113.50 area

Greece bond yields were notably lower in the session. On Monday during the Eurogroup meeting the EU/ECB and INF agree to resume talks on the country's 2nd bailout review for its third program. Greek 2-year yield were lower by over 100bps and the 10-year was lower by 20bps (8.30% and 7.05% respectively)

Fixed Income:

Bund futures trade at 164.41 down 17 ticks trading towards lows on a rebound in European Indices. Yields have also seen strength on the back of Greek Yields falling on progress in negotiations over the next bailout tranche. A move back towards highs targets yesterday high at 164.68 followed by 164.94. Support remains at 164.05 then 163.62, 163.13, 162.92 followed by 162.44.

Gilt futures trade at 126.06 down 24 ticks tracking Bunds and Treasuries lower. Resistance remains at 126.70 followed by 127.16. Support moves to 125.63 then 125.30. Short Sterling trade flat to down 1bp with Jun17Jun18 inching higher to 13/14bp.

Tuesday liquidity report showed Monday's excess liquidity fell to €1.301T down €1B from €1.302T prior. Use of the marginal lending facility rose to €1.5B from €623M prior. Corporate issuance saw Daimler and parker Hannifin some of the names come to market selling Euro denominated Bonds.

Looking Ahead

(IL) Israel Jan Leading 'S' Indicator M/M: No est v 0.5% prior

(PT) Portugal Dec Current Account: No est v -€0.2B prior

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

06:00 (IE) Ireland Jan CPI M/M: No est v 0.0% prior; Y/Y: No est v 0.0% prior

06:00 (IE) Ireland Jan CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v -0.2% prior

06:00 (TR) Turkey to sell 9.2% 2021 Bonds

06:30 (EU) ESM to sell €1.5B in 6-month Bills

06:45 (US) Daily Libor Fixing

08:00 (RU) Russia announces weekly OFZ bond auction

08:15 (UK) Baltic Dry Bulk Index

08:50 (US) Fed's Kashkari (Voter, dove) in MN - 09:00 (EU) Weekly ECB Forex Reserves: No est v €279.9B prior

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:45 (US) Feb Preliminary Markit Manufacturing PMI: 54.7e v 55.0 prior, Services PMI: 55.7e v 55.6 prior, Composite PMI: No est v 55.8prior

09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)

10:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills

11:30 (US) Treasury to sell 4-Week Bills

11:30 (US) Treasury to sell 3-Month and 6-Month Bills

12:00 (US) Fed's Harker (Voter) on economic outlook

13:00 (US) Treasury to sell 2-Year Notes

14:00 (AR) Argentina Jan Trade Balance: No est v $0.1B prior

15:00 (MX) Mexico Citibanamex Survey of Economists

15:30 (US) Fed's Williams (Non-voter)

EUR/USD has posted losses in the Tuesday session, as the pair trades at 1.0540. After a quiet start to the week, there are a host of events on Tuesday. In the eurozone, Manufacturing PMIs in Germany and the Eurozone continued to indicate expansion. German Flash Manufacturing PMI climbed to 57.0, beating the estimate of 56.2. The Eurozone report followed suit and improved to 55.5, above the forecast of 55.0. In the US, we'll get a look at Flash Manufacturing and Flash Services PMI reports. On Wednesday, the Federal Reserve releases the minutes of the January policy meeting.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, “bad for business”.

Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank's target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and inflation numbers continue to climb, there will be increased pressure and louder voices calling for a tightening in monetary policy.