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Here are the latest developments in global markets:

FOREX: The dollar index was gaining ground, while the euro was on the defensive following a cloud of uncertainty after Sunday’s elections in Italy. The aussie and the kiwi were also recording notable losses versus the greenback on the back of rising trade tensions.

STOCKS: US markets closed mostly higher on Friday, even despite the rising probability of a tit-for-tat trade war between the US and its major partners. The Nasdaq Composite surged 1.1%, while the S&P 500 rose 0.5%. The Dow Jones, on the other hand, declined 0.3%. The turbulence in equity markets seems to be far from over, as futures tracking the Dow, S&P and Nasdaq 100 are all currently well into negative territory, signaling a negative open today. Asian markets continued to underperform amid heightened trade concerns. In Japan, the Nikkei 225 and the Topix pulled back by 0.7% and 0.8% respectively, while in Hong Kong, the Hang Seng plunged 2.2%. In Europe, futures tracking most of the major benchmarks were flashing red today, indicating that these indices may extend the losses they posted on

COMMODITIES: In energy markets, oil prices were trading a little higher on Monday, with WTI and Brent crude both rising a little more than 0.1%. The gains are being attributed to supply disruptions in Libya, as well as optimism that a meeting between OPEC ministers and US shale firms later today will help to address oversupply concerns. In precious metals, gold was 0.3% higher on Monday, last seen near the $1326/ounce mark. The precious metal has managed to regain some ground lately as investors focused on the prospect of a retaliatory trade war hurting the global economy, and could well extend its gains if such worries intensify further.

Major movers: Euro declines on Italian political uncertainty; yen continues to gain; antipodeans retreat, hurt by trade concerns

The eurozone’s common currency was losing ground after initial results from Sunday’s Italian elections showed no clear winner, pointing to a hung parliament. Populist-perceived parties did have a strong showing though, and this is perhaps another reason – besides the uncertainty – for the euro’s decline.

The German Social Democratic Party’s (SPD) decision to support a “grand coalition” with Chancellor Merkel’s conservative bloc is seen as euro-supportive, but still it wasn’t enough to prevent the currency from recording losses.

Euro/dollar was 0.3% down at 1.2282, while the single currency extended its losses versus the yen following considerable declines during the week that preceded. Euro/yen was 0.6% down, trading not far above a fresh six-month low of 129.33.

Meanwhile, American tariffs continue to weigh on sentiment and this is particularly evident in equity markets. On this front, it is interesting that China said it will host US officials for a new round of talks on trade issues.

Turning to the greenback, the dollar index was 0.25% higher at 90.14, gaining mostly on the back of a weaker euro as the US currency kept retreating versus the yen. Dollar/yen was 0.35% down at 105.36, close to the near 16-month low of 105.23 hit on Friday. The Japanese currency benefitted last week as BoJ Governor Haruhiko Kuroda made talk of an exit from ultra-easy monetary policies. Despite that being dependent on the Japanese central bank meeting its inflation target, still markets interpreted it as paving the way for policy normalization.

Pound/dollar was 0.1% down with Brexit developments remaining in focus following last week’s speech by UK PM Theresa May on the future relationship between the Britain and the EU.

The antipodeans were recording losses versus the US dollar, with aussie/dollar and kiwi/dollar trading lower by 0.3% and 0.4% respectively. Both Australia and New Zealand rely on commodity exports and it is thus natural for rising trade tensions to act as a drag on their currencies. Australia saw the release of some strong numbers, including on building approvals, earlier on Monday, but still they weren’t enough to halt the currency’s decline.

Day ahead: Italian election results awaited; UK and US PMIs in focus ahead of a busy week

The euro was trading on a softer tone on Monday, as the positive coalition outcome in Germany was not enough to offset the political concerns emanating from Italy. The results of the Italian election are still not official yet, though exit polls and projections point to a hung parliament, i.e. no single party or coalition having gained enough votes to establish a majority. While this should come as little surprise considering that opinion polls suggested as much, what probably caught the market off-guard is the surge in popularity for Eurosceptic parties like the Five Star Movement (M5S) and the Northern League.

Once the results are finalized, attention will shift to the coalition-making process, which promises to be a lengthy one considering that the M5S (that is now the largest single party) previously said it wouldn’t participate in any coalition. Although the euro could remain under some pressure as markets digest the commotion in Italy, the currency’s short-term bias may be decided primarily on Thursday, when the European Central Bank (ECB) meets.

Turning to economic data, in the UK, traders will turn their sights to the release of the services PMI for February, at 0930 GMT. The index is expected to have risen to 53.3 from 53.0 previously, which would signal that the UK’s largest sector gained some momentum during the month. At the time of writing, markets have priced in a 70% probability for the Bank of England to hike rates in May, and a strong services PMI today could push that number higher, potentially helping sterling to recover some of its latest Brexit-related losses.

In the Eurozone, retail sales (1000 GMT) for January are anticipated to have rebounded in monthly terms, and to have accelerated somewhat on a yearly basis.

Out of the US, the ISM non-manufacturing PMI for February is due out at 1500 GMT. The index is projected to decline to 59.0, from 59.9 in the previous month. Interestingly enough, the manufacturing print for the month beat a similar forecast for a decline and instead surged to reach a high last seen in 2004. Thus, investors may look to the non-manufacturing print in order to gauge whether that was an isolated phenomenon, or whether the broader economy indeed picked up some speed in February.

As for the speakers, Fed Board member Randal Quarles (voter) is due to deliver remarks at 1815 GMT. In the UK, Finance Minister Philip Hammond will appear before Parliament to discuss the government’s plans for leaving the EU.

In energy markets, a meeting between major US shale firms and OPEC oil ministers will be closely eyed, amid expectations that the two sides could coordinate in order to prevent another oversupply crisis.

Elsewhere, this will be a particularly calendar-heavy week, packed with central bank meetings. The week begins with a Reserve Bank of Australia gathering on Tuesday, following by a Bank of Canada decision on Wednesday. On Thursday, the ECB gathering will be in the spotlight, while on Friday, the Bank of Japan will announce its own decision a few hours before the US releases its all-important nonfarm payrolls report for February. In China, the annual National People’s Congress kicked off today, with Premier Li Keqiang announcing that the nation’s growth target for 2018 will be 6.5%.

Technical Analysis: Gold looking bullish in short-term as it records 6-day high

Gold has advanced considerably after hitting a two-month low of 1,302.70 on March 1. Earlier on Monday it rose to 1,327.66, this being a 6-day high, while it is currently trading not far below this level.

Technical indicators are pointing to a bullish picture in the short-term: the Tenkan-sen line has crossed above the Kijun-sen, while the RSI indicator is heading higher, having crossed above the 50 neutral-perceived level.

More uncertainty, either on the political front or on trade, is likely to boost the safe-haven perceived asset. In this case, resistance might occur around the current level of the 100-period moving average at 1,330.17.

On the other hand, should political and trade considerations ease, the precious metal could lose part of its allure and record losses. In this case, support could come around the 50-period moving average at 1,324.46. Price action is taking place close to this level with further declines shifting the focus to the Tenkan-sen at 1,321.41.

The Euro stands at the back foot at the beginning of European session on Monday and returned below 1.23 handle, after upside attempts in early Asian trading were rejected at 1.2364.

Fresh easing pressures the top of rising daily cloud (1.2264) which contained pullback from 1.2555 peak and underpinned recovery rally on Thu/Fri.

Recovery stalled on initial attack at important resistances at 1.2350/55 zone (30SMA / daily Kijun-sen / 50% retracement of 1.2555/1.2154 pullback), lacking for now stronger bullish signal expected on break.

Daily MA's are in mixed setup, but 14-d momentum is returning to negative territory and signaling existing downside risk.

Daily cloud top marks key near-term support, firm break of which would weaken near-term structure and turn bias into negative mode, risking further weakness and possible retest of correction low at 1.2154, posted on 01 Mar.

On the other side, hopes for fresh attempts higher would remain in play while cloud top contains dips, however, close above cracked 30SMA (1.2348) is seen as minimum requirement to signal further recovery and expose next target at 1.2400 (Fibo 61.8% of 1.2555/1.2154 bear-leg).

Initial outcome from highly anticipated Italian election show no major blocs winning an outright majority, but negative signal came from stronger than expected showing from euro-skeptic bloc, which could undermine the single currency.

Final results are expected later today and should be generally in line with expectations, with markets turning focus on coalitions that will be formed after the election as none of parties and blocs won an absolute majority.

Initial worries on the outcome of Italian election was partially offset by vote of German SPD party to back another coalition with Chancellor Angela Merkel's conservative, which would provide Merkel another term as German chancellor.

Series of Services PMI data from Eurozone countries are in focus today, with forecasts showing no changes from the previous release.

EU retail sales are expected to rise in Jan according to forecasts at 0.3% m/m vs -1.1% in Dec and 2.1% y/y in Jan vs 1.9% in Dec, which could inflate the Euro on stronger upside surprise.

Res: 1.2335, 1.2364, 1.2400, 1.2435
Sup: 1.2287, 1.2264, 1.2251, 1.2205

Italy Services PMI down to 55.0, vs exp 57.3, from prior 57.7.

Key findings:

• Slower growth compared to January recorded
• Activity and new business nonetheless still increase at marked rates
• Further jobs added as workloads continue to
  increase

Paul Smith, Director at IHS Markit which compiles the Italy Services PMI survey, said:

"Following a stellar start to the year, the Italian service sector saw growth weaken in February but sustained at a decent clip. Midway through the first quarter of 2018 the economy is firmly on course to deliver a similar sized level of quarterly GDP growth to those seen over the past year or so.

"Demand conditions remain favourable, and rising workloads mean that companies continue to take on additional workers, albeit in a relatively careful and considered manner.

"Recruitment is also being supported by positive expectations for growth, with service providers retaining an optimistic outlook and indicating plans to raise investment levels over the coming 12 months."

Full release.

Italy will remain under the control of the present caretaker government and Paolo Gentiloni, the current Prime Minister, will continue his job. The Italian election results have produced a very predictable outcome- no party has a clear majority. In other words, we have a hung parliament and in Italy, there is no pressure or time limit to form a government. So, basically we have a prolong period of political uncertainty which would weigh on country's economic condition.

We do know that the negotiations process to form a government would take several rounds of talk and months in terms of time period. However, if the discussions turns really sour and situation starts to look like out of control, there are strong chances that Italians may have to go back to the polling stations to vote again

Nonetheless, for now, the reaction from the markets is more subtle. Initially, the Euro popped to the upside as investors celebrated that the worst outcome didn't become a reality- the Five Star movement party, coming into the power. But, it is not all glory for the Euro, because in Germany, the leadership of German Chancellor, Angela Merkel, has weakened and she has a lot to deal with. The combination of hung parliament, Angela Merkel losing some control over in Germany and fears of trade war are going to weigh on the euro.

Moving away from this, the trade war is the major focal point for investors. We do see a full scale trade war coming as other countries would not stay reticent and watch the show. The full blown trade war would hurt the global economy and the risk sentiment would only spur further.

Global equities are likely to slide on Monday as concerns about a global trade war continue to weigh on investor sentiment. The E.U. was fast to respond to Donald Trump’s threatening tariff talk by calling a meeting this week to discuss protective measures, in case the U.S. proceeds with imposing tariffs on steel and aluminium. European Commission President, Jean-Claude Juncker, is expected to hit back by proposing countermeasures against the U.S. and similarly, Canada and China are wowing to retaliate.

I expect that this trade fight will be messy and cause more volatility in equities, fixed income and currency markets in the short run. However, I believe this may end up with the E.U. and China taking a less protectionist stance, rather than the U.S. taking a stronger one. After all, there is no winner from a trade war in the long term, and policymakers know that very well. Until this scenario fully plays out, I expect to see a further selloff in equities and even fixed income markets, with the primary beneficiaries being the Japanese Yen and gold.

The Euro found no support after Germany’s Social Democratic party voted for a coalition deal with Angela Merkel’s CDU party. The muted Euro reaction is mainly due to worries that the Italian elections delivered a hung parliament. The European Union would have a new headache to deal with if Italy formed a Eurosceptic coalition which would undoubtedly challenge E.U. budget rules. Expect to see a sharp fall in Italian equities today.

On the data front, eurozone services PMIs are likely to show a little bit of a slowdown later today, similar to what we saw in the manufacturing sector last week, but the figures are unlikely to have a significant impact on the Euro.

Investors have lot of news to digest this week.

Monetary policy meetings

The European Central Bank meeting on Wednesday is not expected to result in any change to the asset purchase program or interest rates. Traders will be focusing mainly on the language of the statement, particularly on any changes in the forward guidance. Given the strong performance in the Eurozone’s economic recovery, many investors are waiting for signals for when the ECB will quit buying bonds. At this stage I think no clear signal will be given. However, the potential of upscaling of QE is likely to be removed from the statement. Thus, the meeting is likely to be slightly positive for the EUR.

Bank of Canada and Reserve Bank of Australia are also meeting this week. Given the slight slowdown in recent economic data, I expect both central banks to keep policy unchanged and the meetings are likely to be a non-event for currency traders.

U.S. Jobs Report

Traders will closely watch the U.S. non-farm payrolls reports. Although hiring is expected to have picked up slightly in February and employment to remain at 4.1%, both these figures will be ignored. Investors are mainly concerned about the average hourly earnings figure. After increasing at the fastest pace in almost a decade, wage growth is expected to fall 0.4% YoY. If this materializes, then previous inflation fears which caused the steep drop in equities beginning of February, will likely ease.

German Retail Sales (YoY) (Jan) was released coming in at 2.3% v an expected 3.3%, from -1.9% previously, which was revised to -0.2%. Retail Sales (MoM) (Jan) was -0.7% v an expected 0.8%, from -1.9% previously, which was revised to -1.1%. This data is usually volatile but on this occasion, it has surprised to the downside marginally. EURUSD moved lower to eventually test 1.22512.

UK PM May gave a prepared speech on Friday on Brexit progress and ongoing negotiations with the EU. Of particular interest was her policy on trade regulations and the Northern Irish border. In that regard, one of the takeaways from her statements was that there is an option for a customs partnership between the EU and the UK. She said that to avoid a hard border, an agreement on customs was needed. The best option involved a highly streamlined customs arrangement with simple requirements for the movement of goods. She promised that the UK would maintain the high standards of the EU including maintaining environmental standards to a level at least as high but also wanted flexibility on this and the fisheries policy. In her speech, she made it clear that the level and type of market access of some services will not be the same as pre-Brexit. Her key tests for Brexit success were:

1. Implementing the decision of the British people
2. Reaching an enduring solution
3. Protecting security and prosperity
4. Delivering an outcome consistent with the kind of country we want to be
5. Strengthening the Union

'I want to be straight with people – we all need to face up to some hard facts' – ‘in certain ways our access to markets will be less than it is now' – we can't have all the benefits without all the obligations'.

Market reaction to her speech was indecisive with GBPUSD moving higher to 1.38017, then selling to 1.37604, before recovering to starting levels around1.37880. EURGBP moved lower to 0.89155 but then rallied to 0.89488. FTSE traded around 7088.00.

UK Construction PMI (Feb) was released and came in at 51.4 v an expected 50.5, with a prior number of 50.2. This data is based on a survey of purchasing managers, with a reading above 50 indicating expansion and below 50 indicating contraction. This number has been trending down since a high of 64.7 in February 2014. GBPUSD moved lower from 1.37876 to 1.37606 upon this data breaking. It can see a seasonal pick up around this time, heading into summer and due to increased construction activity but like-wise, any failure for this to take place could indicate a downturn in the sector.

Eurozone Producer Price Index (YoY) (Feb) was 1.5% v an expected 1.6%, from 2.2% previously. This data represents the change in the price of finished goods and services sold by producers. A number lower than the consensus shows that the value of goods has decreased but represents a saving for consumers. EURUSD moved higher after this release from 1.22741 to 1.22979.

Canadian Gross Domestic Product (MoM) (Dec) was as expected at 0.1% from a prior reading of 0.4%. The range of this data point since 2010 has been between +0.6% and -0.6% and a reading outside of this range would result in a larger market reaction. Gross Domestic Product Annualized (QoQ) (Q4) was 1.7% v an expected 2.1%, with a prior reading of 1.7%, which was revised down to 1.5%. USDCAD initially moved up to 1.23180 but then sold off to 1.22937 after this data was released, as the headline number was in-line with expectations.

Baker Hughes US Rig Count numbers were released, with the headline number coming in at 800. The prior number last Friday showed that there were 799 Oil rigs in operation. WTI Oil traders pay close attention to this number as they look to the week ahead, with an increase from the prior week showing an expansion and indicating an increase in the volume of crude oil drilled. In the context of supply and demand, this would mean an increase in supply. The Number of operational rigs has not been at the 800 level since 2015.

EURUSD is down -0.20% overnight, trading around 1.22917.

USDJPY is down -0.16% in early session trading at around 105.543.

GBPUSD is down -0.13% this morning, trading around 1.37816.

Gold is up 0.24% in early morning trading at around $1,325.50.

WTI is up 0.16% this morning, trading around $61.28.

Major data releases for today:

PMI – Purchasing Managers Index Data will be released for various economies around the world today. The Index is used to gauge the level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories, by compiling surveyed data from purchasing managers. A reading below 50 indicates contraction in the industry while above 50 indicates growth. This data is important due to the link with interest rates. In the current stage of the economic cycle, it can be a warning for inflation increasing, which has caused selling in risk assets recently.

At 08:15 GMT, Spanish Markit Services PMI (Feb) is expected to be 56.5, from a previous reading of 56.9.

At 08:55 GMT, German Markit Services PMI (Feb) is expected to be unchanged at 55.3. Markit PMI Composite (Feb) is expected unchanged at 57.4. EUR crosses could be affected by this data.

At 09:00 GMT, Eurozone Markit Services PMI (Feb) is expected to be unchanged at 56.7. Markit PMI Composite (Feb) is expected to be unchanged at 57.5. EUR crosses could be moved by this data.

At 14:45 GMT, US Markit Services PMI (Feb) is expected to be unchanged at 55.9. Markit PMI Composite (Feb) is also expected to be unchanged at 55.9. USD crosses could be moved by this data.

At 15:00 GMT, US ISM Non-Manufacturing PMI (Feb) will be out with a consensus of 58.9 expected, against a prior reading of 59.9.

Major data releases for the week ahead:

On Tuesday at 03:30 GMT, the RBA will release Australian Rate Statement and Interest Rate Decision.

On Wednesday at 10:00 GMT, Eurozone GDP data will be released.

Later at 15:00 GMT, the BOC will release the Canadian Rate Statement and Interest Rate Decision.

On Thursday at 12:45 GMT, the ECB will release the Eurozone Interest Rate Decision and Deposit Rate Decision with a press conference and the Monetary Policy Statement at 13:30 GMT.

On Friday at 04:00 GMT, the BOJ will release the Japanese Interest Rate Decision and Monetary Policy Statement. They will also hold a press conference.

At 13:30 GMT, US Jobs data will be released for February.

RBA will announce rate decision tomorrow.

Exerpts from the Westpac report:

• The Reserve Bank Board meets next week on March 6. Of course we expect there will be no change in the overnight cash rate.
• We also do not expect to see any significant change in the Governor's rhetoric from last month.
• Overall, we are expecting a cumulative fall (in USD's) in Australia's Commodity Price Index of around 25% between June 2018 and December 2019.
• Readers will be aware that Westpac expects a considerable widening in the negative Australia/US interest rate differential as the FEDERAL RESERVE continues to raise rates and the RBA remains on hold.
• Readers should be aware that Westpac has reviewed its currency forecasts and, while continuing to see an AUD low of USD 0.70 in 2019, has pushed out the timing to September 2019 from March.

Details in Australia & New Zealand Weekly: RBA on Hold, AUD to Weaken through 2018 and 2019

Markets

Core bonds declined marginally on Friday even as uncertainty on global trade persisted after US president Trump indicated he intends to impose import tariffs on steel and aluminum. The rise in US yields was supported by a late session equity rebound. The German 10-yr yield failed to break below 0.62% support, indicating that global sentiment on core bond remains fragile. Today, the eco calendar contains the final EMU services/composite PMI’s. The US non-manufacturing ISM is expected to ease slightly to 59.0, which still points to healthy growth. There will be plenty of headlines on the political stalemate in Italy and on a potential trade war after recent comments on import tariffs from US president Trump. A risk-off context might be a temporary positive for core bonds, but we don’t expect a big leap higher. The US deficit story and rising inflation expectations remain longer term negatives for (core) bonds. The Bund might temporary outperform but the price action end of last week indicated that 0.62% remains a tough support for German 10-y yields. Italian bonds might show some modest underperformance.

President Trump announcing import tariffs abruptly aborted a tentative USD rebound last week. The USD decline slowed on Friday, but the dollar remained in the defensive as Trump indicated that he wouldn’t backtrack on its intentions. EUR/USD jumped back above 1.23. USD/JPY extended its downtrend. This morning, the euro gained temporary as the German SPD approved the new German government coalition. However, the political stalemate after the Italian election soon removed the shine off the euro. EUR/USD is again trading in the 1.23 area. Global uncertain on a potential trade war weighs on the trade-weighted dollar and on USD/JPY. There might be temporary euro caution due to political uncertainty in Italy. However, the global trade frictions (or the easing of this threat) will probably remain the main driver from USD trading in the short-to-medium term. We start the week with a neutral bias on EUR/USD. The EUR/USD 1.2155 area looks not easy to break a long as trade frictions dominate the headlines. USD/JPY remains most vulnerable.

On Friday, UK PM May advocated some kind of tailor-made trade deal between the UK and the EU after Brexit. In this context, she also admitted that neither of both parties can exactly have was they want. There were some cautiously positive reactions from the EU to the speech, but the hard work on the specifics of the deal have still to be done. The sterling decline gradually slowed. EUR/GBP closed the session at 0.8927. Today, the UK services PMI is expected to rise marginally from 53.0 to 53.3. The EUR/GBP 0.8930 intermediate resistance was extensively tested last week, but no sustained break occurred. This suggests that further GBP losses are maybe not that evident as long as the EU and UK are on speaking terms.

News Headlines

Italy faces a prolonged period of political instability after voters delivered a hung parliament in Sunday's election. Initial results indicated that euro-sceptic Five Star Movement and the anti-migrant League were among the election’s winners. With no one group reaching a majority, weeks of horse-trading will be needed before a new government can be appointed.

China still aims to expand its economy by around 6.5 percent this year, the same as in 2017. However, the economy exceeded the government target printing at 6.9% in 2017. At the same time, China is stepping up its efforts to contain financial risk and secure stability. In this respect it lowered the budget deficit target to 2.6% from 3.0% in the past the years.

Germany's SPD approved another coalition with Chancellor Angela Merkel's conservatives, clearing the way for a new government. Two thirds of the membership voted "yes" to the deal, a wider margin than expected. Angela Merkel could be sworn in for a fourth term as early as the middle of the month

XAUUSD (1326.22): Gold prices posted gains on Friday reversing the Powell testimony led declines. With the risk off sentiment prevailing, we expect to see gold prices supported in the near term. However, price action is likely to be capped near the current resistance level of 1327 - 1325. Unless we see a strong breakout above this level, the bias remains to the downside. Gold prices are expected to fall back to the 1303 level of support to establish a firm retest of this level. However, the risk increases if gold prices post declines below this level. In this case, we could expect the declines to test the lower support at 1282 - 1274 region.

GBPUSD (1.3790): The British pound managed to post some modest gains on Friday following the reversal on Thursday. However, the downside breakout from the triangle pattern on the 4-hour chart indicates that the bias is to the downside. The currency consolidation in price suggests a bearish flag pattern that is emerging. This could indicate GBPUSD targeting the support level near 1.3611 - 1.3589 in the near term if the bearish flag pattern can be validated.