European and Asian shares rise along with a jump in S&P futures which are pointing to a solidly green open on US payrolls day. The dollar, trading somewhat weaker against the euro was stronger against the yen, and was on track for its firth week of gains, while the rout in global Treasuries continued following a Mario Draghi conference that was interpreted as more hawkish than expected.

Today's key event is the February nonfarm payrolls, where consensus expects a solid gain of 190,000 jobs after Wednesday's blockbuster ADP report, and with whisper expectations around 220,000, the number can at most disappoint as previewed earlier, especially in the closely followed average hourly earning dataset which will provide details about the pace of future Fed rate hikes. A tighter labor market, stock market boom and rising inflation amid a strengthening global economy have left some economists expecting that the Fed, whose March rate is seen by the market as a 100% probability event, could increase interest rates much faster than is currently anticipated by financial markets.

Consensus calls for an increase of 193K jobs in February, with the unemployment rate falling to 4.7% from 4.8%. Much of the focus could be on average hourly earnings for signs of inflationary pressure. Last month, average hourly earnings disappointed with Y/Y wage growth slowing to 2.5% from 2.9%. This month, average hourly earnings are expected to pick up to 2.7% Y/Y with monthly growth of 0.3%.

"Global and local inflationary pressures could soon make markets reprice Fed rate hike expectations going into 2018 and beyond, which we think would be bullish for the USD," said Morgan Stanley forex strategists in a note to clients.

While the dollar index was little changed, the euro extended its overnight gains on read throughs into the ECB's Thursday announcement which is being interpreted as more hawkish than expected. The euro, and the regional banking index, enjoyed a lift after European Central Bank head Mario Draghi's suggestion on Thursday it was less necessary to prop up the market through ultra-loose monetary policy.Indeed, optimism about an economic recovery in Europe gaining traction helped the European equity indexes claw back much of their weekly losses. The Stoxx 500 index rose 0.4 percent helped by financials and energy shares. Shares of European banks rose nearly two percent to their highest in more than a year while BT Group jumped more than 4 percent after the telecoms giant after ending a two-year row with the UK regulator.

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In commodity markets, crude prices inched up after dropping to their lowest in more than three months in the previous session on worries about a global supply glut. U.S. West Texas Intermediate crude was up 0.5 percent while Brent crude rose 0.4 percent. Gold fell below the key level of $1,200 an ounce on Friday and was on track for its worst week in four months, pressured by a stronger dollar.

In the all important rates market, the yield on the 10Y Treasury continued to rise and were at the post-election high of 2.61%. That is the first time that Treasuries have closed above 2.600% since September 2014 although on an intraday basis yields did hit 2.639% back in December last year.As a reminder, Bill Gross has predicted that a yield of 2.60% will start a bear market, should it hold on a weekly basis. The selloff in US paper is approaching historic proportions, with the losing streak in US Treasuries now the longest in 43 years. As discussed yesterday, following yesterday's close, Treasury yields had risen for 9 straight days, the longest streak of losses since April 1974. A red close today would extend the losing streak to 10 days.

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The yield on the 10-year German bund jumped six basis points to 0.421 percent, while the German long-end has seen the 30Y rise to the highest since January 2016, leading to substantial absolute value losses for those who bought duration last summer, with P&L losses approaching 20%. 10y Bund yields ended Thursday 5.6bps higher at 0.421% and so putting them to within just 6bps of the 2017 high. Similar maturity yields in France (+5.8bps), Netherlands (+4.3bps), Italy (+5.7bps), Spain (+2.8bps) and Portugal (+3.7bps) were up a similar amount.

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Bulletin Headline Summary from RanSquawk

• European equites trade higher with financial names supported in the wake of yesterday's ECB announcement
• The bullish USD tone is hard to ignore, however focus lies ahead for the US jobs data
• Highlights include US nonfarm payrolls and Canadian employment change

Market Snapshot

• S&P 500 futures up 0.3% to 2,374.00
• STOXX Europe 600 up 0.5% to 374.56
• MXAP up 0.5% to 144.10
• MXAPJ up 0.3% to 462.77
• Nikkei up 1.5% to 19,604.61
• Topix up 1.2% to 1,574.01
• Hang Seng Index up 0.3% to 23,568.67
• Shanghai Composite down 0.1% to 3,212.76
• Sensex up 0.04% to 28,939.97
• Australia S&P/ASX 200 up 0.6% to 5,775.62
• Kospi up 0.3% to 2,097.35
• Brent Futures up 0.6% to $52.49/bbl
• German 10Y yield rose 1.5 bps to 0.441%
• Euro up 0.4% to 1.0617 per US$
• Brent Futures up 0.6% to $52.49/bbl
• Italian 10Y yield rose 5.8 bps to 2.312%
• Spanish 10Y yield rose 0.6 bps to 1.845%
• Gold spot down 0.3% to $1,197.32
• U.S. Dollar Index down 0.08% to 101.77

Top Overnight News

• Alere’s Arriva Loses Bid to Restore Medicare Billing Rights
• A U.S.-Mexico Trade Dispute Wouldn’t Derail Ingredion, CEO Says
• Acorda Wins Rulings That Uphold Four Patents for Ampyra Drug
• Iron Ore Rally Starts to Crack as Capital Economics Sees $45
• CIT Reaches Pact to Sell 30% Stake in TC-CIT Aviation JV
• Boeing Paid Air India $328 Million on Dreamliner Delivery Delays
• Citigroup Names Biller Head of Asean Corporate, Investment Bank
• Legg Mason to Set Up Dublin Operation in Response to Brexit
• MGM Said in Talks to Pay Over $1 Billion for Cable Channel Epix

Asia closed largely in the green, following the lacklustre gains on Wall Street where strength in healthcare and financials kept indices afloat. ASX 200 (+0.6%) was led higher by similar outperformance seen in the aforementioned sectors, considering financials account for almost 50% weighting in the index, while Nikkei 225 (+1.5%) was underpinned by a broadly weaker JPY. Elsewhere, Shanghai Comp. (-0.1%) and Hang Seng (+0.3%) were choppy amid a lack of conviction following mixed lending data and after the PBoC refrained from liquidity operations for a 2nd day, while KOSPI was supported after President Park's impeachment was upheld as expected which was viewed as the more politically-stable outcome. 10yr JGBs shrugged off the selling in its global counterparts and positive risk appetite in Japan, to trade with mild gains amid the BoJ in the market for a total of JPY 1tIn in government debt. PBoC Governor Zhou stated that monetary policy is currently neutral and prudent, while he added the PBoC has plenty of tools. Governor Zhou also stated that chaos is seen in China's asset management sector and talked about raising financial sector regulation.

Top Asian News

• PBOC’s Zhou Sees Relatively Stable Yuan Even as Fed Hikes Loom
• China’s ‘Stable, Solid’ Yuan Faces Five Key Threats in 2017
• India Feb. Passenger Vehicle Sales Rise 9% Y/y to 255,359 Units
• Singapore Eases Property Curbs After Housing Prices Decline
• CSRC Fines, Confiscates 1.2b Yuan in Two Stock Connect Cases
• China-Korea Tensions Spread to Air Travel as Some Flights Halted
• Deadly Dispute at Auto Giant Highlights India’s Jobs Malaise
• Musk Bets He Can Fix Aussie Power Woes in 100 Days or It’s Free
• Hitachi Plans to Bid for U.S. Streetcar, Light-Rail Projects

European bourses are also trading higher driven by European bank stocks on optimism the ECB's hawkish turn will boost local bank NIMs even as newsflow remains particularly light. European financial names are performing well after yesterday's ECB meeting, Commerzbank are trading higher by 2.9%. In stock specific news, BT (BT/A LN) are performing well after Ofcom reached an agreement with the Co. to separate its Openreach brand away from the main company. Energy companies are also outperforming this morning after softness earlier in the week, however with the energy complex itself remaining under pressure and failing to retake the USD 50/bbl level to the upside. Elsewhere, fixed income markets are trading lower alongside the upside in European equities with peripheral paper tighter to that of the German benchmark in the wake of yesterday's ECB meeting, although attention for the periphery will also be on the Spanish supply announcement later today.

Top European News

• U.K. Loses Momentum as Factories, Builders Reduce Output
• Aberdeen CEO Says He’ll Focus on External Affairs After Merger
• William Hill’s Bowcock Beats Off Competition to Land CEO Job
• Repsol Shares Jump After Making Giant Oil Discovery in Alaska
• UBS Reduces Bonus Pool, Ermotti Pay in ‘Challenging Year’
• M&G Said to Auction $862 Million of European ABS in Unwind
• PPG’s Biggest Deal Proves Hardest as New Offer for Akzo Seen
• Saab Targets Submarine Sales Jump as Russia Tensions Lift Demand

In currencies, the dollar was little changed as measured by the Bloomberg dollar index, holding in the middle of a narrow daily range as momentum stalled after the greenback breached a key technical resistance level at the 55-day moving average. The euro rose 0.4 percent to $1.0583, paring a gain that took it above $1.06. The yen slipped to 114.943 per dollar. South Korea’s won paced losses in emerging-market currencies. The bullish USD tone is hard to ignore, but we also point to some resistance in 10yr Treasury yields, which have stalled ahead of the Dec 2016 highs. USD/JPY has hit a wall at 115.50, but this will not stop the intra day market for pushing on higher levels given the prospect of a non farm payrolls beat in the wake of the stronger private jobs reported by ADP midweek. Average earnings is the major risk for USD bulls however. There seems to be little joy in expressing this view against the EUR however, with the ECB having relaxed some of their accommodative stance — even if in rhetoric only. UK data this morning has given little cause for a fresh push on the Pound, with manufacturing production lower than expected, but tempered by the view that higher input prices pointed to this dynamic. Trade figures were modestly better than expected, but given the EUR/GBP push higher early on, traders are taking their lead from the current trend here which is dampening Cable trade ahead of 1.2200.

In commodities, WTI crude dropped 2 percent to settle at $49.28 per barrel, the lowest close since Nov. 29. Concerns mounted that OPEC’s output cuts are failing to restrain record U.S. stockpiles, with the post-agreement oil rally evaporating. All London Metal Exchange metals declined as the dollar strengthened ahead of U.S. non-farm payrolls data Friday. Further losses in Gold and Silver as the USD prospects are highlighted today by the US non farm payrolls release. The yellow metal is now through USD1200, but with Treasuries (10y) topping out, support levels are starting to kick in — but tentatively as yet. Silver has taken out USD17.00, but has stabilised since. WTI remains below the USD50.00 level for now, and given the breakout of the range seen over the year so far, specs will be looking for better levels to sell. Fundamentally, supply remains at the core of price determinant with recent comments out of CERA on future production agreements weighing along with recent inventory data. In base metals, Copper is struggling to reclaim USD2.60, with larger gains on the day seen in Zinc and Aluminium. Nickel is underperforming.

Looking at the day ahead, all eyes turn to the February employment report, while the monthly budget statement for February will be released later in the afternoon. Away from the data EU leaders continue their two-day meeting in Brussels this morning.

US Event calendar

• 8:30am: Change in Nonfarm Payrolls, est. 200,000, prior 227,000; Unemployment Rate, est. 4.7%, prior 4.8%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.1%; Average Hourly Earnings YoY, est. 2.75%, prior 2.5%; Average Weekly Hours All Employees, est. 34.4, prior 34.4
  • Labor Force Participation Rate, prior 62.9%;Underemployment Rate, prior 9.4%
• Monthly Budget Statement, est. $190.0b deficit, prior $51.3b

DB's Jim Reid concludes the overnight wrap

Watching a block of ice slowly melt was probably slightly more interesting than watching the ECB press conference yesterday and such a statement is a reflection of the relative calm at the central bank at the moment. The best way of me describing where I think the ECB are after yesterday's meeting is that they are in the 'sweet spot' or perhaps in a Goldilocks environment or if you wanted to be more cautious they're in the calm before the storm. The reason for saying this is that Draghi was able to paint a picture of an encouraging economic rebound without needing at the moment to signal that monetary policy isin imminent danger of tightening. More challenging communications could come in the second half if growth momentum continues but for now there was an air of calm and indeed according to our colleagues an element of 'selfcongratulation' in detailing the successes of monetary policy! With the ECB seeing little signs of core inflation being a worry at the moment the conclusion was that a "very substantial degree of monetary accommodation" was still needed. Our economist's baseline expectation has not changed. They think tapering is announced in September and implemented from January. The risks are skewed towards a June announcement, but this can only happen if no political risks materialize, the surveys are right about the pace of GDP growth (that is, the real data convergences up to the level implies by surveys) and core inflation surprises to the upside in the next few months.

Although we thought the meeting was fairly dull it did seem to further pressurise global bond yields yesterday. 10y Bund yields ended 5.6bps higher at 0.421% and so putting them to within just 6bps of the 2017 high. Similar maturity yields in France (+5.8bps), Netherlands (+4.3bps), Italy (+5.7bps), Spain (+2.8bps) and Portugal (+3.7bps) were up a similar amount with those moves then also extending across the pond with 10y Treasuries finishing 4.6bps higher at 2.605%. That is the first time that Treasuries have closed above 2.600% since September 2014 although on an intraday basis yields did hit 2.639% back in December last year. Yesterday’s selloff also means that 10y Treasuries have weakened for 9 consecutive sessions which is the joint longest run since March 2012. Amazingly the last time Treasuries sold-off for longer was all the way back in April 1974. It’s worth highlighting that the selloff in bonds was largely concentrated at the mid to long end of the curve. In fact 2y Bund yields actually ended the day down 1.2bps at -0.882% reflecting perhaps the fact that the ECB stopped short of voicing any concerns about scarcity issues. Meanwhile in FX the Euro firmed up +0.34% but it was another rough day for EM currencies and particularly commodity-sensitive ones. The Russian Ruble (-1.87%), South African Rand (-1.49%) and Brazilian Real (-0.68%) were amongst those to weaken as WTI Oil at one stage plunged below $49/bbl. It did recover slightly but still finished down -1.99% at $49.28/bbl for the lowest close since November 29th which was also the day prior to OPEC approving supply cuts. There wasn’t actually any new news yesterday and instead it appeared to just be a reflection of the continuing fallout from that US supply data on Wednesday which is reigniting concerns about global supply and demand rebalancing again.

It wasn’t just Oil that fell in the commodity complex though with Gold (-0.59%) at one stage also tumbling below $1200 for the first time since the start of February. Copper (-1.31%) also fell for the sixth day in a row. All that said, equities again proved to be relatively resilient. In Europe the Stoxx 600 recovered from early losses to close up +0.08% despite the energy and materials sectors doing their best to drag the index lower. Instead it was the post-ECB rally for European Banks (+1.11%) which led gains. The S&P 500 (+0.08%) closed up with an identical gain following a late bounce into the close after being down as much as -0.60% from the early highs following some suggestions that President Trump supported the restoration of Glass-Steagall. US credit did however weaken reflecting perhaps the bigger energy exposure. CDX IG ended 0.5bps wider. It’s worth highlighting that in cash terms US HY energy spreads were 12bps wider yesterday and so making them 35bps wider this week. You have to go back to the first week of November to find the last time spreads moved this much in one week (37bps that week).

Before we look at what markets are doing this morning, it’s taken us a while to get there but the main event today is almost certainly likely to be the February employment report in the US this afternoon. Both our economists and the market are expecting a 200k print. Given the bumper 298k ADP print on Wednesday though we’d imagine that the whisper number is on balance higher than the consensus. Our US economists made an interesting point also in that the initially-reported headline February payroll gain has exceeded the consensus forecast by an average of 47k in recent years. As always keep an eye on the other employment components including the unemployment rate (consensus is for a one-tenth improvement to 4.7%), average hourly earnings (+0.3% mom expected) and participation rate.

To Asia now where markets are ending the week on a fairly mixed note. While the Nikkei (+1.33%), ASX (+0.60%) and Kospi (+0.21%) are up, the Hang Seng (-0.21%) is lower while bourses in China are little changed. WTI Oil (+0.57%) has recovered a bit but still remains below $50/bbl, while bond yields in Asia are generally higher. There has been a bit of newsflow this morning. In South Korea Park Geun-hye has been stripped of his presidency following a corruption scandal. The Korea Won hasn’t really reacted to the news however. Meanwhile in China the PBOC’s Zhou said to the National People’s Congress that he expects the Yuan to be relatively stable this year in spite of his expectation of wider FX vol in the face of rising rates.

Back to Europe yesterday DB published a comprehensive multi-asset analysis of the French elections. Six separate reports cover (i) economics and politics, (ii) currencies, (iii) government bonds, (iv) French banks, (v) European equities and (vi) equity derivatives. These documents have been summarised in a single report “French elections: An investor guide”. Please use links in the overview document to access the in-depth publications.

The note(s) discuss how Europe is going through its worst existential crisis in sixty years. Opinion polls suggest that France though is more likely to elect a Europefriendly candidate rather than National Front leader Marine Le Pen. If polls turn out to be right German government yields would likely increase and France’s and Italy’s spreads narrow. European banks could outperform materially led by the French banks. Electing Le Pen would deepen the existential crisis for the euro area even before knowing whether the new president would (a) manage to hold a referendum on Europe and (b) win it. The macro and multi-asset outlook would depend on the interaction between the Presidential and legislative elections. A President Le Pen would still face material institutional and constitutional hurdles. With Le Pen as a president we see a one-in-three chance of a euro referendum. If a euro referendum is called, capital flight, contagion to peripherals and market stress are likely to ensue. Government spreads in France would widen above – and in Italy in line with – the respective levels seen during the euro-area sovereign crisis. In this case, we expect the ECB to play a constructive role in avoiding a disintegration of the common currency area in the short run.

Wrapping up now what was a pretty quiet day for data yesterday. In the US initial jobless claims printed at 243k which is up 20k from that 44-year low print the week prior. The four-week average is now at 237k. Meanwhile the import price index printed at a slightly higher than expected +0.2% mom in February (vs. +0.1% expected). In Europe and away from the ECB the only data came from France where the Bank of France business sentiment reading was revealed as rising 2pts last month to 104 (vs. 102 expected).

Looking at the day ahead, this morning in Europe the early data comes from Germany where the January trade data and Q4 labour costs data is released. French industrial production follows before we thenget the UK industrial production data and the January trade numbers. This afternoon in the US all eyes turn to the aforementioned February employment report, while the monthly budget statement for February will be released later in the afternoon. Away from the data EU leaders continue their two-day meeting in Brussels this morning.